Accounting/Financial ReportingTreasury ManagementCareers
Three CFOs from some of the largest and most high profile companies around—Citigroup, Home Depot and Intel—share their thoughts on how finance can help steer a company’s strategy through rough economic waters
By Pat Wechsler, John Labate, Anne R. Field
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.”