From the December-January 2008 issue of Treasury & Risk magazine

This CFO Never Sleeps

Gary Crittenden knew it would be a challenge when he moved in March 2007 to become the Citigroup Inc. CFO after serving seven years in that job at American Express Co. Despite the girth of American Express, it pales beside a behemoth like Citi, with revenues and income five times those of Amex and a complex global network of facilities, employees and clients. But even Crittenden will admit that whatever he reckoned then about the trials he would face were, to say the least, an understatement of what the job has turned out to be. Nine months after Crittenden arrived at Citi's 399 Park Avenue headquarters, his new employer has become enmeshed in the meltdown of the subprime debt market. Citi's third-quarter results were not only markedly lower than they had been in prior quarters, they could be followed, Citi suggested, by even further reductions in the fourth quarter--a disappointment that contributed to the resignation of its CEO and chairman.

Left to face the hounds of Wall Street were the new chairman and former Secretary of Treasury Robert Rubin--and Crittenden, who early on gained a reputation for his candor. "The first thing I learned is to be as transparent as you possibly can about what the exposures are so that people can make their own judgments about how those exposures will move in different environments," Crittenden explains. "What we can't judge is how the environment will change, [but] what we can do is talk about the magnitude of the exposures in various business lines."

But his openness was not only to quell concerns of investors. "There are in fact 370,000 people in Citigroup and only a small fraction of them are involved in the uncertainty right now," he told Treasury & Risk in an interview in early December. "The rest are out there doing business every day with our clients and our customers. We need to ensure that they have the same sense of confidence and make sure they understand exactly what's happening in the company as the company sees it, so they don't have to go to the media to get their information. Employees need to know that we have a real sense of what the key levers are driving the business and are focused on them."

Crittenden is a steady hand in a time of crisis, but what may distinguish the 53-year-old financial executive more is his ability to move forward beyond the turmoil, to rise above the noise and get to the business at hand: running the largest financial institution in the U.S. "Most of the work of the last few years and the work of the next few years will be to take a company that was built basically as a roll-up and turn it into a company that has an ability to generate consistent organic growth," he asserts. "Citi has an international franchise that is truly unparalleled in the world and, frankly, one that should allow us to grow revenues more rapidly than anyone we compete against."

He clearly sees the company as a very big work in progress. To get to the next level, Crittenden favors choices that may involve shedding some of the company's assets in its global empire, particularly those that are not strategic priorities or are underperforming--a strategy that Citi was already implementing prior to his arrival. "There is a substantial opportunity for us to improve the asset productivity of the company," says Crittenden, who emphasizes the need to invest more resources in enterprises that are already profitable and leading their markets in share.

At the heart of what will become the new Citi is a Crittenden-led reengineering program that is re-mapping whole processes at the business unit level, where often "the geography of where the money is being spent is not properly aligned today." The plan is to drive efficiency in back- and middle-office operations and allocate those savings toward new sales forces, new products and new technologies--all things that will help build top-line growth for years to come.

But you can't reallocate what you can't see, and one of Crittenden's current initiatives is a sweeping centralization of the company's sprawling treasury operations across all businesses. In September, he appointed strategy and mergers and acquisitions head Zion Shohet as treasurer and head of corporate finance to spearhead the centralization process, which is expected to result in lower costs, better control over capital, better timings for funding and more efficient use of deposits across the entire company.

"What we're really trying to do is focus behind those businesses, particularly those businesses internationally, that have leading market share positions, and the only way to do that is to take capital that is generated elsewhere and put it in places where we have the best returns and the best opportunities to grow," says Crittenden. "And that requires more than just an invisible hand, it requires conscious steering of that capital." Other CFOs will face similar challenges, Crittenden predicts, as global markets test their prowess in liquidity management.

To Crittenden, a CFO's ability to represent "true, underlying, inherent value" versus short-term market valuations will become critical as new accounting rules and skittish markets introduce heightened volatility into corporate financials. One area that could require new strategies and more attention from the CFO: how companies handle financial risk management in general and more specifically foreign exchange hedging. "If 70% of my revenues are coming from outside the U.S., do I still hedge back into dollars?" Crittenden asks. "Or, do I take a view that might benefit dollar earnings?"

Although Crittenden is very bullish about the long-term potential of Citi, he is a self-described pessimist when it comes to the more immediate outlook for the credit markets. The rise of structured finance during the last several years will give way to a different environment, according to Crittenden, where banking relationships become more central. "From a bank's point of view, this is a time to solidify and strengthen relationships you have with your key customers, and if you are a customer, this is a time when you'll want to make sure you've got good banking relationships going the other way."

The Business CFO

When newly minted CEO Frank Blake of Home Depot Inc. handed his veteran CFO Carol Tom?(C) the job of selling the company's wholesale supply division earlier this year, it turned out he wasn't doing her any favors. Selling HD Supply was a move aimed at narrowing the company's focus on
retail stores--a strategy Tom?(C) helped coin. But as the equities market started taking a turn for the worst, the process became unexpectedly bumpy with the division's buyers--a consortium of private equity investors, including Clayton Dubilier & Rice, the Carlyle Group and Bain Capital--seeking a price cut. Not in an enviable position, Tom?(C) worked out a compromise that allowed Home Depot to keep a chunk, but settle for $1.8 billion less--and most importantly, kept the deal from collapsing. Given what has happened to home sales and the stock market since, however, there's no one who wouldn't put the sale of assets in the win column for the company and its CFO.

Such agile footwork in the face of crisis may help explain why Tom?(C), with more than a dozen years with the world's largest home improvement retailer, has been one of the few top executives to survive the recent management turmoil resulting in former CEO Robert Nardelli's ouster. As CFO for more than six of those years, Tom?(C), 50, has helped steer the $91 billion Atlanta-based company through a series of dramatic changes, and in January she was awarded the additional responsibility of executive vice president of corporate services, heading strategic business development and growth initiatives. "She's not just somebody who generates financial data and lets someone else make the decisions," says Charles Eldridge, senior client partner and co-managing director of Korn/Ferry International in Atlanta. "She definitely has a seat at the table. When I first met her about four years ago, she was giving a presentation to a large group of CFOs. If you didn't know who she was, you'd have assumed she was a CEO, based on the depth of her talk."

Tom?(C) will need all the experience and savvy she possesses to help the company through its currents woes. For the third quarter of 2007, net income fell 27% and sales at stores open at least a year dropped 6.2%--the sixth straight quarterly decline. Industry analysts predict that a worsening housing market could hurt revenue and profit growth well into 2008. David Schick, an analyst with Stifel, Nicolaus, predicts earnings per share for 2008 at $2.22, down from the $2.57 he predicted a few months ago.

At the same time, after years of centralizing functions and giving short shrift to customer service, the company is now facing steeper competition from rivals with more shopper-friendly environments--particularly Mooresville, N.C.-based Lowe's. It needs to appeal to new categories of shoppers, especially women and consumers looking for more handholding than the traditional do-it-yourselfers, previously the mainstay of the company. "They let a lot of the basics get away from them," says Schick.
In her new job as EVP of corporate services, Tom?(C) is responsible for a wide array of areas, including real estate, store construction and growth initiatives. As a result, she is at the forefront of creating and implementing a new strategy aimed at transforming the customer experience, reinvigorating store sales staff, sprucing up stores and increasing product availability. It's an ambitious--and costly--plan: Not long after Tom?(C) assumed the position, the company announced plans to pour $2.2 billion into revving up the retail business. Says Tom?(C): "The best CFOs are businesspeople first and finance people second."

The multi-pronged effort started with extensive customer research, conducted by Tom?(C) and a team of 13 direct reports. Those findings revealed that 5% of customers--professional contractors, homeowners with big renovation projects and small business owners--made up 40% of sales. They also helped her pinpoint five key areas of focus: employee engagement, improving the shopping environment, product innovation, improving product availability and revving up business from professional contractors. To develop specific plans for targeting those categories, she formed five teams, each dedicated to one area. The team gives monthly progress reports to Tom?(C), CEO Blake and other top leaders.

Already, Tom?(C) has overseen a substantial number of improvements. For example, the company spent $360 million to reinvigorate customer service through such incentives as performance-based restricted stock grants for assistant store managers and an enhanced incentive program for hourly store employees, using individual store results. Turnover already is down 24% from the year before. Tom?(C) approved a plan to spend 2.5 times the 2005 maintenance budget to fix up stores.

At the same time, Tom?(C) has also had to make cuts. "You have to be very careful when sales are soft in how you invest," she says. "Cost is something we work on every day." By looking out across the organization for instances where work is being duplicated or where work could be done more cheaply, she has decided to move much of their transaction processing to India, which cut costs 30%, and has closed three call centers.

Thanks to her high profile, Tom?(C), who started a women's group at the company called the Velvet Hammers, also sees herself as chief morale booster. "If I have a frown on my face people wonder if something's wrong," she says. "If I walk into the cafeteria smiling, they get the feeling things are okay."

Tom?(C) didn't start out at the company--in 1995 as vice president and treasurer--as such a visible player, of course. With no retail background, Tom?(C) played catch-up. "I put on an apron and started working," she says. Six years later, as the company was embarking on a stepped-up growth strategy, she was made CFO. She created a back-office infrastructure able to support the operations of a much larger organization, and with new systems in place, she cut the number of people in finance by half.
Tom?(C) also envisioned a broader role for finance. To that end, she assigned a finance person to every functional team. She also introduced a leadership development program for finance, with a two-year rotation, after which participants could choose to stay or work for another part of the business.

Her next challenge: keeping up with the fast pace of changing conditions in the market. She plans to move to two six-month plans from the more traditional annual plan. "Every day the economy seems to change," she says. "The process needs to be very dynamic. Strategically, I think we're doing all the right things. But we've got to execute it correctly and get a return on our investment."

Passing the Torch At Intel

For 18 months before he was named Intel Corp.'s CFO in September, Stacy J. Smith was quietly working side-by-side with the company's then long-standing CFO, Andy Bryant, as assistant CFO. Although Smith essentially ran all aspects of Intel's finance operations during that time, he also had another mission that may have an even greater impact on the $35 billion company's future: leading a finance-driven, company-wide restructuring plan aimed at returning more competitive vigor to the maturing semiconductor leader. Smith, who has worked at Intel for 19 years, refers to the ongoing, multi-year restructuring as "one of the hardest things we've gone through as a company," involving a reduction of more than 15% of the company's workforce in a sweeping downsizing effort. But he also sees the effort as fundamental to refocusing the company for the competitive challenges ahead, making it more nimble when entering new markets the company couldn't consider just a few years ago. "We will still have the best-performing products at the high end of the market, but one of the new competitive muscles we have to develop is this idea of being very cost efficient and maximizing our margins as we go into some of these new growth areas," says Smith. "That's a real change for us."

By most measures, Intel has an enviable financial profile, with a strong balance sheet, little debt and robust cash-flow generation ($4 billion in the first six months of 2007), as fits a company with such a strong position in its market. It also has a reputation as a financial innovator, shown by the company's numerous Alexander Hamilton Awards for best practice finance. But pricing pressures have started to eat at profit margins, both in terms of gross profit and EBITDA, and the company's share price has been a sluggish, inconsistent performer that has yet to recover fully from the dot-com collapse of 2000. Now, new markets have sprung up all around the PC-semiconductor manufacturer, including mobile, Internet-capable consumer electronics (think iPhone) and lower-cost notebook computers, and much of Smith's effort involves shoring up Intel's financial flexibility so it can respond more quickly to trends. "We looked out over a four to five year horizon and saw pretty interesting areas that we really didn't play in in a big way," say Smith.

One of the key elements to the restructuring has been to improve the company's cost structure and increase shareholder returns by growing operating profits faster than revenues, and starting next year Intel intends to bring new products to market at much lower cost than in the past. "That is a fundamental change in our methodology," says Smith.
Many of the biggest changes underway for finance involve long-held processes and systems. "The finance organization at Intel is among the best in the world, both on the service side but also in terms of the charter we have in trying to be deeply involved with the big business decisions of the company," says Smith.

Intel was an early adopter of several cutting-edge treasury and finance methodologies--including shared service centers, in-house banking and automated cash management systems--but over the last decade some have been eclipsed by more efficient refinements that Smith and his team are putting in place. Such changes involve replacing scattered, country-based shared service finance functions with more regionally based centers. A similar effort is underway to centralize and improve the company's ERP system, which has suffered from many "customizations" through the years that have been surpassed by more powerful and efficient modern systems that have become the new standards. Along the way, finance has been benchmarking its progress with third party consultants, making sure that its new processes and technology are world class.

Forty-four year old Smith's steady rise at Intel followed a typical track for a company that likes to take in new employees at a young age and groom them with multifaceted assignments. He joined Intel as a product division revenue analyst in 1988, fresh from the MBA program at the University of Texas, and quickly took to its culture of rotational assignments, involving 18- to 24-month stints in finance, operations and marketing around the company's units globally. "Early in his career in finance, Stacy was one of our most effective business leaders, helping the company make better business decisions," says former CFO Andy Bryant. In quick succession, his postings took Smith from being a financial manager at an Arizona-based fabrication plant to site controller for the company's Puerto Rican operations and then to Malaysia as controller of the assembly and test manufacturing group. Eventually, he ran sales and marketing for Intel's Europe, Middle East and Africa operations and then, in order to give him a good grounding in the technological aspects of the company, chief information officer.

When Smith was approached about becoming assistant CFO to Bryant, it was with the understanding that he would also take control of the restructuring effort. "CFOs today have to have the highest integrity, they are the moral compass of the company, and also understand governance and regulation," says Bryant. "They also need strategic insight into how business is done internationally and in the U.S. and beyond that they have to play a leadership role. Stacy has all of that." Working side-by-side with Bryant, who in September became EVP and chief administrative officer, gave Smith a chance to see their similarities--such as a view that finance should be a key strategic partner within the enterprise, with a close working relationship with business units--as well as some areas where they differ. "It's more subtle shifts, finance being more engaged in driving a cost or an efficiency agenda than we historically might have done," says Smith.

Building on the unity between finance and business strategy in creating new growth opportunities for Intel may be Smith's biggest mark at the company in the years to come. For now it remains a work in progress that will no doubt have its challenges in the face of the many possibilities. "As we get more cost effective and efficient, I think it is more likely we can build some profitable businesses outside the core PC space," says Smith. "I'm pushing the [finance] organization a little bit into some places where they're uncomfortable, helping to craft those growth agendas, making sure that we get the right business plans in place and hold general managers accountable."


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