The Activist CFO—Alignment with Strategy; Not Just With the Business

Eyad RamlawiDubai – May 13, 2012

Agenda

• Business Objectives and Current Status

• CFO Styles and Profiles

• CFO Relation with the BOD and Expectations

• Strategy Alignment & Managing the Process

Performance Objectives

Key Performance Indicators

Metrics & Measures

Capability Business Goals

Objectives in terms of Level of Specificity

Where does Corporate Strategy Occur?

Current Status

Increasing operations capability

Incr

easi

ng s

trat

egic

impa

ct

Stage 1: Fire fighting mood

Stage 2: Adopt best practice

Stage 3: Link strategy and operations

Stage 4: Competitive advantage through operations

Holding the company back

Making the company as good as its competitors

Best in industry with

“Best Practices”

Redefine industry expectations by giving the

company an operations advantage

CFO Styles

NavigatorsHigh Profitability – Internal Focus

• CFOs who work closely with CEOs to map out an aggressive course to profitable growth through acquisition or organic channels.

• Top-line growth, not cost containment, was the primary driver of future performance

Executors High Profitability – External Focus

• CFOs who focus on operational excellence and instill in their companies a value discipline that enables them to do more with less.

• They focus on continued improvement, not dramatic change in the future.

• Board’s satisfaction with company performance.

Turnaround Surgeons Low Profitability – Internal Focus

• CFOs who step in with the goal of restoring ailing companies to financial health.

• Board dissatisfaction, a need to restructure and stabilize the company, high turnover among top management, and an overhaul of the company’s operating model.

Business Transformers Low Profitability – External Focus

• CFOs who identify and take advantage of opportunities for strategic innovation; focusing on their companies’ business models.

• Board expecting change in the long term for an overhaul of the company’s operating model.

New Expectations of the Board

ExpectationsPerformance Measures

Advisor on strategic planning

“&” safe-guardian of

investment decision process

Increase in their value!!!

Relationship with The Board

• The CFO is particularly well placed to provide the Board with

information on the strategic planning, the process by which it was

developed and the process for monitoring progress against the plan.

• In organizations that have no strategic planning process, the CFO

should actively promote the development and implementation of such

a process.

• The CFO contributes to the internal resource analysis by providing

financial information (historical and projected) on the organization’s

capacity to take risks in achieving its strategies

The Board & The CFO

Advisory role of the CFO:Critical Evaluation of Strategic Plan

Actions

Taken

Significant

Risks

Strategies

Alignment

Processes

&

Adequate Resources Financial

Projections Allocation of

Resources

Assumptions

In a Nutshell – Board Expectations

• CFOs contribute important financial information and expertise to the

development of the strategic plan.

• CFOs play a critical role in determining the organization’s financial

capacity to deal with risks related to its strategic objectives.

• CFOs make a major contribution to establishing guidelines and

procedures for strategic planning.

In a Nutshell – Board Expectations

• CFOs contribute to the internal resource analysis by providing financial

and capital market information on the organization’s capacity to take

risks in achieving its strategies.

• CFOs have the ability to translate the words of the strategic plan into

measurable and quantifiable financial projections.

• CFOs should attend Board / Committee Meetings & should be involved

in the preparations and review of their reports and minutes.

When Influencing is not Enough

If for any reason the CFO has a material concern, believes that a material risk has not been given due consideration or that key assumptions are materially misrepresented in the strategic plan, the CFO has an obligation to make those matters known.

Why aren’t CFOs better at using their position to improve the quality of decision making?

Process Owner

Process Owner&

Decision maker

Process matters in decision making because we can’t learn from our mistakes the way we think we can.

CFO is expected to make critical decisions from

Corporate Finance POV

Investment

Financing Dividends

Objective of the firm in undertaking its investment, financing and the payment of

dividends is to maximize the wealth of its shareholders.

Decisions

Decision Maker

CFO Should• Consider their mandate from the board of directors &

carefully consider how to pursue it

• View himself: neither as the impartial, cool- headed adviser of the CEO, nor as the executor of the mechanics of a decision, but primarily as:

The owner of a safe and sound decision-making process—which is a role that no one else plays.

As CFO, your goal is to ensure that the biases of individuals weigh less in the final decision than the things that should weigh more—like facts

Technical Process

CFOs already rely on processes to manage the technical systems

“valuations”; yet, it’s very easy for people to subvert technical systems

to get the answer they want.

If the CFO already own the technical processes, he can build on them to

improve the quality of debate, for instance by adjusting the agenda,

attendees, and protocols of key decision meetings. Did anyone voice a point of view that was contrary to what the CEO wanted to hear?

Did the due-diligence team seek out information that would contradict the investment hypothesis, as opposed to simply building a case for it?

Techniques to Enhance the Decision Making Process

• Field two deal teams, at least at some stage in the process

• One to argue for the deal

• Second to argue against it

• Ask people to project themselves into the future and to assume

that a deal has failed.

• Write a memo explaining why the CEO should not do a deal,

including the things the CEO would need to believe to not do it.

Finally

If you fly an aircraft, you don’t say,

“The weather is really bad and we’re already behind

schedule, so let’s skip the takeoff checklist.”

You say,

“This is a flight like every other one, and we’re going

to use the checklist— that isn’t negotiable.”“It is never too late to become

what you might have been.”