Letters to the Editor

A ''finance expert'' may still be baffled by industry-specific arcana, writes a reader. More letters to the editor: an integrated process delivers M&A success; the value of working-capital management; leaders vs. leadership; and more.


CFO welcomes your letters. Send them to: The Editor, CFO, 253 Summer St., Boston, MA 02210

E-mail us at JuliaHomer@cfo.com. You can also contact a specific author by clicking on his or her byline at the beginning of any article.

Please include your full name, title, company name, address, and telephone number. Letters are subject to editing for clarity and length.

In "Can You Spot the Finance Expert?" (September) Alix Nyberg Stuart does an excellent job reviewing issues companies must consider when designating a member of the audit committee as a financial expert.

Although the required industry knowledge was watered down in the Securities and Exchange Commission's final version of the rules, such knowledge can still be crucial. In highly regulated industries such as insurance or banking, someone with experience as the CEO or CFO of a manufacturing company may meet the SEC's definition of a financial expert, but be baffled by industry-specific arcana. Similarly, someone with domestic experience could be bewildered on the audit committee of a company engaged in currency hedging. These companies may provide specialized training to the members of the audit committee and can select audit-committee members whose experiences are complementary.

With respect to whether designation as a financial expert places a bull's-eye on that person, the courts will give deference to the SEC's expertise and its inclusion of a safe harbor under the rules. The financial expert will have no greater degree of responsibility than other members of the audit committee or board.

Allison D. Garrett

Associate Professor of Law

Faulkner University

Thomas Goode Jones School of Law

Montgomery, Alabama

"Can You Spot the Finance Expert?" contained inaccurate and misleading information about Procter & Gamble's audit-committee chair, Mr. John Smith.

Mr. Smith is more than qualified to serve in this capacity. He meets SEC and P&G guidelines, having served as assistant treasurer and comptroller of General Motors Corp. Beyond these roles, Mr. Smith served in supervisory capacities of others in senior financial roles, including GM's CFO, while serving as the company's CEO and president.

Mr. Smith is both independent and an audit-committee financial expert as that term is defined in SEC guidelines. He has not merely relied on his prior financial experience to fulfill his obligation as audit-committee chair and financial expert, but has been a driving force behind providing financial training to all audit-committee members. Further, Mr. Smith has spent time in one of our major Accounting Service Center facilities in Costa Rica to observe our accounting systems and controls on the ground.

Clayton C. Daley Jr.

Chief Financial Officer

The Procter & Gamble Co.


Can — Or Should?

I enjoyed "Secrets of the M&A Masters" (September), and agreed with many of the article's observations. However, I think you missed a subtle but important characteristic of the masters' approach to mergers and acquisitions: they view M&A as an integrated process, from deal identification and evaluation to due diligence to negotiation of the definitive agreement and on through postclosing integration.

While each of the "secrets" is practiced by these masters, and likely should be emulated by those organizations striving to improve their own M&A processes, it is the integrated process that consistently delivers above-average success. For example, without frequent communication between the organization's business units, corporate strategy group, and M&A group, it is next to impossible for an organization to "never stop shopping," because it will only identify opportunistic deals that fall in its lap or deals brought to it by an investment banker.

In addition, while the application of hurdle rates is important, consistent application of the same hurdle rates across all potential deals is the only way to truly allocate resources, including capital and management and deal-team time. There will always be transactions that fail the hurdle rates and still should be pursued, but if all deals are evaluated against a single yardstick, the justifications for pursuing those exceptions will be more thoughtful and robust.

The masters also approach due diligence as much more than the simple confirmation of financial data. The due-diligence and deal teams constantly look for deal stoppers and deal shapers, as well as issues that will have an impact on the postclosing integration process.

Finally, the success of each deal must be evaluated by applying the hurdle rates and other "success" metrics agreed upon during the deal process in accordance with the agreed-upon timetable. Without proper accountability, "bad" deals will be pursued in the future and underperforming businesses will be "held" in the organization's portfolio longer than is justified. An integrated approach to M&A ensures that each step of the deal receives appropriate attention, that process-improvement theory can be applied to the M&A process, and that running the newly acquired business is in the forefront of the organization's collective mind, rather than an afterthought upon closing the deal.

In addition, the performance of the deal teams and integration teams can be evaluated and improved through the use of after-action reviews. These sessions focus on what worked, what didn't, and whether the determining factors were deal specific or not. The results improve the M&A process by identifying what is repeatable and what is avoidable in future deals. Perhaps the most important lesson of a disciplined process approach is that the appropriate question to ask isn't can we do the deal, but should we?

David Wheeler

Attorney Squire

Sanders & Dempsey


The Value of Working Cap Management

Your article on working capital management ("Capital Ideas," September) provides important insights into how companies are becoming more sophisticated in their approach to working capital.

While the trend is still for companies to "squeeze" working capital, an increasing number of organizations are recognizing the value that proper working capital management can add to a business. They are beginning to understand that working capital does not always equate with cash — that it often must be viewed as a key element in a cash-generation program.

In the best-case scenarios, companies are adopting an approach that combines working capital, cash-flow forecasting, and effective treasury management. This ensures that working capital reductions are turned into real cash that can be transferred and applied to areas of the business that have the greatest need. By taking such an approach, they are able to put in place a program that significantly reduces financial risk and releases an untapped reserve of capital that provides protection and flexibility, and can lead to stronger overall performance.

Andrew Harris

Senior Director

Alvarez & Marsal

Via E-mail

The following letters are responses to articles that appeared in the Fall issue of CFO IT.

Leaders Versus Leadership

I just finished reading and distributing your editorial ("Power2: The People") about the value of human-capital management. I couldn't agree more. I have been involved with several network marketing companies not because I necessarily believe in the products and services they promote, but because they believe that the people [they employ] must feel significant in order to be successful. Involving the workforce in intentional and strategic leadership development is critical to a company's success. Most companies I have interacted with are very slow in recognizing that leadership development is the path to a more successful business and to retaining more-satisfied employees.

I work for a small midwestern manufacturer that is fighting for survival. In the last few years, we have survived the near-death experiences of a devastating recall, a not-so-friendly merger, and other issues. Obviously morale is at an all-time low. The only way that we can break the chain of our misfortune is, first, by hiring and motivating a growth-oriented staff and encouraging them to make decisions and to take action. The second step is to restructure the company, allowing those who make the effort to grow into positions where they can face new challenges and diversity, and reward them accordingly. The last step is to make them understand that they are responsible for recruiting and developing future leaders within the company. Unfortunately, executives who are used to operating in the Old Economy universe are slow to recognize this dynamic.

Michael Doerfler

Via E-mail

Your editor's note was right on the money! I am a small-business owner (bottled water) in Miami. It is getting tougher to compete against the large corporate monsters and wholesale clubs. The key to profitability is good employees. I recently changed my outlook on hiring new delivery drivers. In the past I would try to find the best driver (preferably with industry experience) from an ad I placed in a local newspaper. Now I hire the best person I find from networking among friends, local workforce groups, church, and so on, and I train them to be good drivers. The formula has worked out so far. I actually receive calls from customers praising the "service with a smile" attitude of these new drivers.

Larry Barditch

Palm Water Co.


More Thoughts on Optimizing Performance

I enjoyed "Building a Better Workforce" because you clearly identified a lot of the challenges that organizations face in seeking to optimize the capabilities of their workforce. However, you missed a critical element in the workforce-optimization process — appreciating the thinking and problem-solving styles of each individual, and how this natural cognitive diversity can either help or hinder the organization if not managed correctly.

Most organizations know how to recruit people with the right skills and aptitude, and provide training to improve on those capabilities. However, most fail to — or, more accurately, don't know how to — address and cultivate the "discretionary energy" that David Ulrich identified in your article.

In order to optimize their performance, individual team members must develop a through understanding of their "preferred style" for assimilating and organizing information, and how they prefer to interact when problem-solving; understand other team members' preferences in this regard and what they need in order to perform well; and learn how to leverage these different styles to maximize the team's performance.

These softer issues are the ones most often overlooked, but they are the most important element of the workforce-optimization process.

Glen Fayolle

Vertex Innovation

Via E-mail

I enjoyed your article on "Building a Better Workforce," and absolutely agree with the importance of quarterly performance discussions. However, you failed to mention the most important part — setting expectations.

Without clear expectations, how can you effectively rate performance? Your readers may want to explore a Gallup Organization study, "The Four Disciplines of Sustainable Growth," for more insight on this issue.

Scott Franklin

Vice President

Life Cycle Engineering Inc.

Charleston, South Carolina


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