Most CFOs say they like dealing with a single financial institution's Web site. Plus, using B2C and B2B marketplaces for competitive intelligence; how last year's top 10 stock performers survived the market swoon; CFO's Global Confidence Survey; and more.


Never have so many used the Internet to conduct business with so few. According to a new survey by the Association for Financial Professionals (AFP), in Bethesda, Md., more CFOs and treasurers (63 percent) are using the Internet to transact business than ever before, but most say they like dealing with a single financial institution's Web site, rather than consortium sites or online exchanges. The poll also reveals a 47 percent jump in Internet use by corporate finance pros since the previous survey, which was published in March 2000, with most practitioners logging on to conduct cash management (59 percent), investment (40 percent), and credit (29 percent) transactions, says Arlene Chapman, an AFP vice president.

Mark Thompson, CFO of MarketTools Inc., an application service provider in Mill Valley, Calif., says he uses the Internet as a communications tool for investor relations and outbound wire transfers. He notes that MarketTools uses single-institution sites because the company is small and doesn't require many banking services. As far as larger corporations are concerned, Thompson believes they are testing the online waters with single institutions they know and trust. -- Marie Leone


Forecasting the Flow

King Arthur could call on Merlin to forecast Camelot's cash-flow problems. But absent a reliable soothsayer, corporate treasurers will have to rely on cash-flow models to predict the future of corporate capital.

One option is the Cash Flow at Risk (C-far) volatility model, developed by New York­based National Economic Research Associates (NERA). De-signed to help companies determine the probability of severe shocks to cash flow and to ascertain capital adequacy, the model creates a universe of corporate risk derived from market capitalization, earnings to assets, industry risk, and stock price volatility. Since NERA launched C-far six months ago, there has been "substantial interest" from several Fortune 500 CFOs, notes Louis Guth, NERA's senior vice president.

"The development of the C-far product fills a gaping hole in the quantification of risks, because it moves beyond the financial and commodity risks that can be modeled with existing VaR [Value at Risk] technology," says Art Roos, vice president and treasurer of Niagara Mohawk Holdings Inc., a Syracuse, N.Y., energy company that is currently evaluating C-far.

Ethan Berman, CEO of RiskMetrics, another provider of risk- measurement tools, says that the cash-flow-at-risk concept is almost a decade old, noting that the company's one-time parent, J.P. Morgan, pioneered the commercial use of VaR models in the early 1990s. According to Berman, more than 50 corporations currently use RiskMetrics's quantitative tool.

"We've used RiskMetrics for four or five years, so it is relatively new for us, but then it's relatively new for most companies," explains a treasury representative for consumer-products giant Procter & Gamble Co. who declined to be identified. He notes that although the company is "pleased with the tools we use today, P&G executives continue to support the evaluation of new approaches to assess risk."

But just how big is the corporate appetite for newer models? "There is a misunderstanding among CFOs that additional risk measurements will drive away existing shareholders and encourage people to sell, when this is not the case," says Guth. Companies with volatile results are penalized in the marketplace by stock- and bondholders, contends Berman. "But the more transparency a company can provide, the higher the company will be valued by all constituencies." -- Jake Wengroff


Sixty-five percent of CFOs believe that tax issues are important to strategic planning, according to an Ernst & Young poll. But only 36% of the CFOs surveyed say their tax department chiefs are involved in corporate strategy meetings.

HINTS OF STABILITY: In 2000, the number of sales-tax rate changes across the U.S. hit a 10-year low of 530, reports Vertex.



Just how much is that widget worth? Why not put it up on Ebay and find out?

A growing number of major corporations are doing just that: using Ebay and various business-to-business online marketplaces as combination sales and intelligence-gathering tools. Sun Microsystems Inc., for example, has been peddling older workstations, servers, software, and other products in marketplaces for the past 18 months, using dynamic pricing. "Five hundred years ago, when people bid for products in an open market, everything was sold via dynamic pricing. Then businesses mostly moved to a fixed-pricing model," says Alex Rublowsky, group manager for Sun's auction program office. "Now, the Internet has arrived to revive dynamic pricing."

Sun is using auctions to determine the worth of products that are too old to be sold at their original prices, but not old enough to be sent to a liquidator. "Once a product goes off the pricing list, how do you know what to sell it for?" asks Rublowsky. "Dynamic pricing gives us the answer." Such companies as IBM Corp., Gateway Inc., and Xerox Corp. have also dabbled in auctions.

Although Rublowsky says he is generally satisfied with the way things have turned out, he does admit that using an auction for price discovery isn't yet an exact science. "The number of items impacts the quality of information you get," he explains. "If you put up 10 systems, the price will be different than if you put up 100."

Skeptics believe that dynamic pricing doesn't have much of a future except with companies trying to unload outdated, used, or distressed inventory. "There are no real marketing tools behind this effort," says Ellen Naylor, a principal at The Business Intelligence Source, a Conifer, Colo.-based company that advises businesses on marketing strategies. "You're simply throwing something up to see what someone else is willing to pay for it."

Tim Powell, managing director of The Knowledge Agency, a New York­ based information and strategy consulting firm, is also dubious. "This is on the fringes of transaction models," he says. "It might be one input to a pricing model, but it's really not a good indicator of revenue." -- John Edwards


Executives don't realize that most computer fraud is committed by employees trying to extract inside information from corporate systems, not by outside hackers, says KPMG International.


Switch in Time

CFO Bryan Carr and his colleagues at Intellon Corp., a semiconductor maker in Ocala, Fla., were anxious to raise capital through an initial public offering in 2001. But as the equity markets soured, so did the company's IPO prospects. By March, Intellon had withdrawn its offering. Nevertheless, the company was still able to tap financial markets in a timely fashion, thanks to Rule 155.

The rule, adopted by the Securities and Exchange Commission in January, reduces the waiting period for companies that want to withdraw an IPO and seek capital from the private markets, or, conversely, decide to ditch a private offering and go public instead. "Without Rule 155, we would have had to wait six months after withdrawing the [IPO] registration before we could engage in a private equity financing," reports Carr, "and that would have made it difficult for us to execute growth plans without running into integration issues." Instead, Intellon began tapping the private markets 30 days after scrapping the IPO.

Rule 155 is a blessing for companies in erratic markets, such as biotechnology. "If you track biotech indexes, you'll see massive volatility on a daily, weekly, and monthly basis," explains Andrew Gengos, CFO of Dynavax Technologies Corp., in Berkeley, Calif. "There's just no way you can predict if the market is going to be there when you launch an IPO."

By removing the time constraints, Rule 155 also reduces some of the risk associated with raising capital in the public markets. "If your company can file for an IPO and wait for the equity market to emerge, what's the downside?" asks Gengos, whose company withdrew an IPO in April. "There is no downside, especially if you can walk away from an IPO that looks shaky, and within a month begin working toward a private placement." -- John P. Mello Jr.


To go private within 30 days of an abandoned IPO, the issuer must:

  1. Not have sold securities in the registered offering.

  2. Withdraw the registration statement.

  3. Provide proper notification to private offerees.

  4. Disclose any postregistration changes.


E-GADS! The General Accounting Office predicts that uncollected sales tax on E-commerce could cost states $12.5 billion in 2003.


What Went Right?

Corporations couldn't stop the price-drop virus that infected Nasdaq over the past year, but a handful of health-care companies managed to inoculate themselves. The quintet, plus three apparel companies, a bakery chain, and an education firm, were the top 10 stock performers in the United States from March 2000 to April 2001, according to New York­based Thomson Financial/First Call.

As the technology sector imploded, sending Nasdaq down 61 percent, dialysis provider Total Renal Care Holdings, of Torrence, Calif., reinvented itself as DaVita Inc. and saw its stock price soar 526 percent. The company stock had been battered by an aggressive acquisition strategy and class-action lawsuits related to billing practices. The cure: DaVita revamped its executive team, restructured debt, focused on cash flow, and sold noncore businesses. "We started with a company that was very sick," says CFO Rich Whitney, who credits the company's 12,000 employees with a sweeping turnaround that sent the stock price from below $3 to more than $16 per share.

Other top-10 companies also reworked business strategies to outperform the pack. Women's clothing retailer Brauns Fashions, of Plymouth, Minn., changed its name to Christopher & Banks Corp. in July 1999 to build a brand and promote a more upscale image, which helped push its stock price from about $7 to $34.50. Likewise, The J. Jill Group, of Canton, Mass., folded its print catalog business to focus on retail and online sales. The market responded by sending its stock up more than 400 percent.

With an eye on expansion, Panera Bread Co., of Richmond Heights, Mo., increased its eponymous bakery-café chain to 262 retail outlets that serve up signature sourdough and other "baked fresh daily" treats in 27 states. With a stock price that has climbed 362 percent in one year, Panera--formerly Au Bon Pain--plans to double its outlet count over the next few years. "We think our cafés and expansion plans hit the market at just the right time," says CFO William Moreton. He also believes that declining real estate and labor costs from a softening economy will fuel expansion plans.

Corinthian Colleges Inc., of Santa Ana, Calif., a growing network of for-profit colleges, has already realized benefits from the softening economy. "Our industry is countercyclical," explains CFO Dennis Beal. "As the economy weakens, more people tend to seek education." Corinthian passed the shareholder test with flying colors: its stock price is up 300 percent over last year.

Investors also sought, and rewarded, companies with strong top-line growth, a fresh business focus, and a stable outlook. Among them was disease-management company American Healthways Inc., of Nashville, which signed contracts with Cigna and Blue Cross last year. CFO Henry Herr says that with American Healthways's stock hovering at $17 per share, the company's next venture will be an Internet-based health- assessment program. So far, no word on whether it can treat the ailing Internet economy. -- Tama Miyake


The Treasury Dept. and blue chips like Merrill Lynch and Kodak are backing a JumpStart Coalition financial literacy program for middle- school kids that includes "Math & Taxes."


Top 10 performing stocks.

RankCompanyPrice 3/00 Price 4/01% Change
2Christopher & Banks6.7234.5413
3The J. Jill Group3.6318.3404
4Panera Bread6.530362
5American Healthways3.8117.02347
Advanced PCS12.5655.36341
7Skechers USA6.0626.4336
8TARO Pharmaceuticals11.5647.45311
9Corinthian Colleges5.3138.08300
10Sterile Recover5.3120.5286


CONVERTIBLE BONDS as a corporate finance vehicle were hot in April. ConvertBond.com reports 11 deals, for a record $5.8 billion.

In Country

Tales of the kidnapping of executives in Colombia and political insurgence in Pakistan make compelling headlines, but how likely are they to affect the bottom line of overseas business ventures?

The question is rhetorical for most companies, because computing the likelihood and severity of soft variables, like bribery or xenophobia, is no easy task. Yet quantifying the risks of doing business in Pakistan instead of Peoria is an increasingly hot topic, asserts Adam Davids, CEO of the New York­based Global Association of Risk Professionals. "It's exploding," he says, noting that several consortia and companies are creating operational risk models.

PricewaterhouseCoopers, for example, recently partnered with Greenwich, Conn., software firm NetRisk Inc. to develop in-house tools for a wider corporate audience. The software analyzes internal loss data from a company and allows relevant external exposure data to be incorporated. Another model, developed by the Economist Intelligence Unit (a sister company of CFO Publishing Corp.), in London, ranks countries on the prevalence of shady business practices and cultural constraints.

Similarly, Merchant International Group (MIG), also based in London, is rolling out a $25,000-plus software suite that incorporates the proprietary Gray Area Dynamics (GAD) index into traditional financial risk measures.

"GAD looks at the perception, as opposed to facts, because facts often have little bearing on actual transactions at a country level," says Trevor Gunn, a deputy director at the Department of Commerce.

Other risk experts debate the value of crunching soft numbers, and note that they should not be used to make final decisions. MIG officials tend to agree. But Paul Brown, MIG's managing director, points out that "once you start quantifying this stuff, you can approach insurance companies to cover it." --Alix Nyberg


High-risk countries, according to the Gray Area Dynamics index.

Country Score (out of 100)


Your Options

Total compensation for CFOs at large companies jumped 17 percent on average, to $2.77 million, with base salary increasing by 9 percent, says New York­based Pearl Meyer & Partners. More telling is the sharp rise in stock option awards for CFOs, which increased in value by 25 percent to an imputed average of $1.41 million. "CFOs at major corporations are being compensated like entrepreneurs," says Steven E. Hall, managing director at Pearl Meyer. "And it's putting more pay at risk because a larger percentage of compensation is tied to stock performance," he adds, noting that in 2000, options grants made up more than 50 percent of total CFO compensation. The quick appreciation of pay packages also means that CFOs have risen to "superstar" status regarding recruitment, says Hall. Start-ups think so, too. "Investors are demanding that a good CFO be hired before they put their money down," says Gary Roberts of search firm Christian & Timbers. "In fact, some companies hire a CFO before the CEO." --Crawford Coates

New and Improved!

Software developers are stepping into the ongoing budget battle between marketing and finance departments with a new budgeting tool. "Today, all of our clients are held accountable for their marketing spend, and they are always focused on ROI," says Jim Graham, co-founder of KickFire Inc., a Saratoga, Calif., provider of Web-based marketing resource management (MRM) software.

KickFire is one of about a dozen companies staking a claim in the new area of MRM, which uses project-
management software designed specifically for marketing campaigns. The hosted software allows all members of a project team--including outside vendors--to hold meetings, track progress, and manage finances online.

"I'm kind of the budgeting poster child for our finance department," says Nancy Treaster, head of global marketing for Witness Systems Inc., a software developer in Roswell, Ga. "At any point in time, I can see where I am in terms of budgeted versus actual spending." Treaster has been using MRM software developed by Indianapolis-based Aprimo Inc. for the past 18 months, and boasts the most up-to-date budget in the company. In addition, she says her accuracy lends credibility to her internal budget negotiations.

KickFire's Graham says that companies should be relatively comfortable with MRM systems, because they borrow elements from more- traditional software, like customer relationship management.

"But finding the right fit has taken some effort," says Jean-Gabriel Henry, an analyst with New York­based Jupiter Media Metrix. Henry says the MRM products are still developing, and "quite honestly, Excel spreadsheets still work." -- T.M.

TESTY: The proposed computer- based, and significantly revised, CPA exam will be available in May 2003, if opposition doesn't stall it.

The Bonus Diet

While some of the American workforce is grappling with the possibility of being laid off, the message to the top echelon, say compensation experts, is a bit different: it's "stay longer and work harder." For senior-level executives, the invitation to stick around is coming in the form of restricted stock options, deferred raises, and even deferred bonuses, say pundits.

"Companies are really trying to strike a balance between motivating top management to create shareholder value and retaining the executives," says Yale Tauber, senior consultant in William M. Mercer's executive compensation consulting practice.

Perhaps the most dramatic example of the bonus diet trend is the double-or-nothing strategy Stuttgart, Germany-based Daimler AG used at its unprofitable Chrysler unit in the United States. Although executives technically earned bonuses, thanks to corporatewide gains in 2000, payment is contingent upon meeting turnaround targets in 2001. If executives hit the bull's-eye, they will receive the doubled 2000 bonuses on top of a 2001 bonus. "By deferring bonuses, the savings become cash for the company, and it's a great incentive for the executives," says spokeswoman Megan Giles.

Other companies have put smaller carrots on shorter sticks to keep executives on board amidst earnings volatility. Executive bonuses at Palo Alto, Calif.-based Hewlett-Packard Co. are now assessed twice, rather than once, a year. For 2000, that meant executives, including CEO Carly Fiorina, received bonuses for the first, but not the second, half of the year, reflecting the company's poor performance in the third and fourth quarters.

Chiquita Brands International Inc., in Cincinnati, which suffered a $94.9 million loss in 2000, says it will give eligible executives part of their 2001 bonuses early--60 percent of the target amount on June 30- -and distribute the balance next February. The banana company also slipped its top brass six-figure bonuses for 2000, after not offering them bonuses in 1999.

More companies are considering spreading out option allocations, says Paula Todd, a research manager at New York consulting firm Towers Perrin. "The more frequently you make grants at different prices, the less likely all options will wind up under water," she notes. In general, though, Todd takes a dim view of frequent bonus reconfiguring. -- A.N.


Tech firms with the highest use of stock options in 1999 experienced a 45% decline in market value during the 12-month period ending January 2001, says Watson Wyatt Worldwide.


No one thought much of "cognitor." The tag was disliked by so many of the members of the American Institute of Certified Public Accountants that it caused people to focus on the name rather than on the credential program, says an AICPA spokesperson. So the organization scrapped the moniker, but not the concept of a new global credential.

Now that the name game is temporarily on hold--the AICPA is using "XYZ credential" for now--the organization must sell the global credential concept to its members. Apparently, XYZ is broader in scope than a CPA or MBA, and certifies that the holder has a working knowledge of everything from accounting to information technology. It "denotes a professional who has moved beyond core accounting competencies," notes Judy Trepeck, chief operating officer of the AICPA's global initiative. In fact, says Trepeck, research indicates that companies are willing to pay higher salaries to people who have the credential.

But state CPA societies are not buying the AICPA's arguments: Organizations in New York, Washington, D.C., and Illinois have firmly rejected the notion of the credential. New York CPAs unanimously voted the idea down, and Marty Rosenberg, chief executive of the Chicago- based Illinois CPA Society, declares that offering a credential to non- CPAs that purports to be better and more valuable than a CPA credential makes little sense. "In fact," he says, "you are positioning the CPA title as less than adequate." -- Steve Bergsman


Key components of the new credential.

Portable Recognized by participating nations.
Multidisciplined Working knowledge of accounting, business law, IT, operations, HR, marketing, and sales.
Ethics standardGoverned by a consistent global code.
Competency-basedContinued learning and periodic assessments.


TRADE-SECRET court case costs average $500,000; patent cases up to $1.5 million, says the American Intellectual Property Law Assn.

Cockeyed Optimists?

Call them contrarian. Now that the high-flying, roller-coaster economy has come to a screeching halt, CFOs, it seems, are a bit more comfortable with domestic and global prospects. In fact, 31 percent of U.S. CFOs feel confident about the global economy over the next year, up from last quarter's lowly 10 percent, according to CFO's quarterly Global Confidence Survey, which polls financial executives in the United States, Europe, and Asia about regional and global economic issues.

Overall, 37 percent of the financial chiefs polled in the three regions reveal that they are either very optimistic or confident about the global economy during the next year. Only 23 percent felt that way last quarter. And while it's true that 38 percent of the U.S. executives remain concerned about the short-term domestic outlook, that's still a significant drop from last quarter's 50 percent.

Still, U.S. CFOs are guarding their enthusiasm about the American economy. Thirty-one percent report being confident, a 2 percentage point increase over last quarter, but another 31 percent claim to be neutral. European CFOs feel better about their corner of the world: 57 percent say they are very optimistic or confident about the regional economy, a slight increase from their 55 percent vote of confidence three months ago.

Asian CFOs are a different story. Seventy-eight percent are either very pessimistic or concerned about the Asian economy over the next year, a 24 percent rise in negativity from last quarter. Meanwhile, 67 percent are concerned about the short-term global economy--up from 60 percent in the last survey.

CFOs in general seem more at ease operating in the present, as all regions show small drops in overall confidence for the long term. For example, in the United States, 62 percent of the finance chiefs express optimism or confidence in the global economy for the next five years, compared with last quarter's 65 percent. Meanwhile, across the pond, 69 percent of the European CFOs see the glass half full, down from 75 percent in March. -- M.L.


Attitudes toward global economy in the short term:
United StatesEuropeAsiaGlobal
Very optimisticn/a14%n/a9%
Very pessimisticn/a3%n/a2%
Attitudes toward own region in the next year:
United StatesEuropeAsiaGlobal
Very optimisticn/a24%n/a16%
Very pessimisticn/a7%11%7%
Attitudes toward global economy in the next five years:
United StatesEuropeAsiaGlobal
Very optimistic23%33%n/a27%
Very pessimisticn/an/an/an/a
Next-quarter profit predictions compared with 2000:
United StatesEuropeAsiaGlobal
Up by 10%27%46%n/a37%
Up by <10% 10%27%44%26%
Down by <10% n/a3%11%3%
Down by 10% +36%7%34%16%
No change27%17%11%18%

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