Being a CFO and other topics

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Being a CFO. Some of my thoughts and observations after years of being a CFO

Strategy, Cadence, and Winning — Lessons for CFOs from Miyamoto Musashi

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On January 19, 2026

In CFO, Finance, Leadership

The word “strategy” did not originally come from business. Its roots are military. In fact, the widespread use of “strategy” in a business context only seems to have emerged in the 1960s. Before that, it referred almost exclusively to warfare. The Greek root of the word relates to generalship and battlefield leadership.

Wikipedia offers a good summary of strategic thinking, drawing on military theorists like Carl von Clausewitz and B.H. Liddell Hart. Stripped down, the idea is simple: strategy is the use of all available and appropriate resources to achieve political—or, in our case, organizational—objectives.

Sun Tzu famously said in The Art of War:
“If you know yourself and you know your enemy, you will not lose one fight in a hundred.”

I personally find Miyamoto Musashi’s Book of Five Rings even more instructive, particularly for business. In the Earth Scroll, Musashi discusses strategy at length, including its application to commerce—remarkably, in the 16th century.

“In the way of business, there are cadences for making a fortune and cadences for losing it. In each way, there exist different cadences. You must discern well the cadences in conformity with which things prosper and those in conformity with which things decline.”

This idea of cadence is critical. The CFO sits at the center of the organization as cash is converted into reporting and analysis. That position gives you a foundation for understanding the rhythm of the business. But numbers lag reality. Recognizing patterns early usually requires looking outward—to Sales, Purchasing, Operations, and the market itself. Being strategic is not about owning multiple functions; it is about understanding the rhythm of the business and knowing when to act.

Musashi outlines nine principles for practicing strategy:

  1. Think of that which is not evil.
  2. Train in the way.
  3. Take an interest in all the arts.
  4. Know the way of all professions.
  5. Understand advantages and disadvantages.
  6. Learn to judge quality.
  7. Perceive what is not visible on the surface.
  8. Be attentive to even small things.
  9. Do not perform useless acts.

Much of this applies directly to leadership. Do not cross legal or moral lines—doing so can derail an entire organization and your own career. Avoid useless busywork. Focus on actions that actually create value. Learn broadly, not just within your own discipline.

Musashi also emphasizes people and leadership at scale:

“In grand strategy, you must be victorious through the quality of the people you employ, through how you utilize them, through ruling correctly, and through applying the law of the world in the best way.”

Individual skill matters, but victory at scale requires leveraging others. This applies directly to the CFO role. Your job is not to win every fight yourself, but to enable the organization to win.

He reinforces this idea repeatedly:

“It is necessary to know ten thousand things by knowing one well.”

And:

“You should not have a predilection for certain weapons.”

In business terms, this means not relying on a single tool or framework. CFOs often try to win purely with numbers. Sometimes that works. Sometimes it doesn’t. Even if you dislike leverage, borrowing may be the right decision. Strategy requires adaptability, not ideology.

Musashi is also very clear about the ultimate purpose of strategy: to win.

“The true Way of strategy is to fight and win.”

In business, winning does not always mean aggressive expansion. Sometimes winning is surviving a down cycle. Sometimes it means conserving resources until the cadence shifts. But consistently winning requires deliberate strategy and execution. Not losing is not the same as winning.

If you want to be a strategic CFO, you must help your company win. There are no shortcuts. Finance tools alone are rarely sufficient. A strategic CFO understands how to marshal internal capabilities and leverage external resources when it matters most.

As for how to become that kind of CFO, I’ll admit I don’t have a perfect formula. I’ve been fortunate to work at companies that grew and succeeded, but I still see myself as being on the path rather than having arrived.

Musashi’s advice resonates here:

“Temper yourself with one thousand days of practice, and refine yourself with ten thousand days of training.”

When you are not executing, you should be practicing—developing skills, developing people, debating scenarios, and rehearsing decisions. When the moment comes, you will act faster and with more confidence if you have already thought through the possibilities.

This post is only a broad overview of strategy and how it applies to the CFO role. In future posts, I plan to go deeper into specific actions and real-world examples from my career. I’ll also return to Musashi from time to time—both as a strategist and, for those interested, as a sword fighter.

Strategy, at its core, is about winning. A strategic CFO understands the cadence of the business, knows when and how to act, and helps the organization use all of its available tools to prevail.

That, in my view, is what the title should actually mean.

The Five Rings: Miyamoto Musashi’s Art of Strategy

Above is an Amazon link to a translation of The Book of Five Rings.

CFO looking thoughtful gazing out a window

Being a Strategic CFO (and Why the Term Is So Often Misused)

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On January 15, 2026

In CFO, Finance, Leadership

I think the term I hear most often when a recruiter calls me about a CFO opportunity is that their client is looking for a “strategic CFO.” I also see no shortage of articles in the finance trade press on the importance of being strategic, or on how the modern CFO must go beyond the traditional role.

I’ll start by saying that many of these articles rely on a very narrow—and frankly inaccurate—definition of what a “traditional CFO” is. In many cases, what they describe sounds more like a Controller or Head of Accounting than an actual CFO. I can forgive this to some extent; claiming to offer a bold new insight makes for a more clickable article. Still, many of these pieces feel shallow and suggest a limited understanding of what CFOs have always done.

One of the most common claims is that a strategic CFO must be “forward looking.” This one puzzles me the most. Even basic accounting is inherently forward looking. The going-concern assumption alone requires analysis of the future. Budgeting, forecasting, cash flow modeling—these are core finance skills, not optional add-ons. Some finance leaders are better than others at building relationships outside the department and therefore get better insight, but that too is a foundational finance skill. Finance typically sits at the center of the company’s information flow, particularly because it monitors cash. That position actually makes relationship-building easier, not harder. Being forward looking, by itself, does not make a CFO strategic.

Other articles encourage CFOs to “go beyond finance” and take on broader operational roles. That advice is also somewhat puzzling. A CFO is already part of the senior leadership team and is often one of the primary internal and external faces of management. Most CFOs have worked across multiple functions earlier in their careers, and some of us even came to finance from other disciplines.

That experience is valuable—but trying to run other functions can be disruptive. Everyone already has one clear boss: the CEO. They do not need a second one. A good CFO keeps the organization accountable to its goals, especially financial ones, while enabling success rather than trying to personally run everything. The CFO is often the bearer of bad news by default, acting as the reality check when plans miss their targets. That role already requires enough political and interpersonal skill without creating unnecessary confusion about authority.

This advice also varies by company size and stage. In smaller or earlier-stage companies, the CFO (if that is even the title) often has all administrative functions reporting to them. IT reporting to the CFO is not uncommon. As companies mature, however, functional leadership becomes more defined. At the same time, the CFO role becomes more complex—venture funding, capital markets, investor relations, treasury, and fundraising all consume significant time and energy. There is limited usefulness in trying to run every function once the organization reaches that level of complexity.

That does not mean the CFO should stay locked inside the finance department.

A CFO can help Sales close deals by structuring contracts properly, reducing currency risk through hedging, and ensuring revenue is recognized correctly from day one. That only happens with strong working relationships. CFOs can help Purchasing negotiate better supplier contracts, often playing an effective “bad cop” role, and sometimes bringing financing relationships to the table to ease pressure on terms. Legal and IT are often natural allies. COOs usually appreciate help driving down costs or evaluating locations for new facilities. CFOs are also frequently asked to lead large, cross-functional initiatives.

All of this makes you a better CFO. You make better decisions. Your team does too. Communication improves. You build credibility, which makes difficult conversations easier. When you later complete a major M&A transaction, integration and synergy realization are far more achievable because you already understand how the business actually works.

But none of this, by itself, necessarily makes you the “strategic CFO” that your CEO or board says they want.

At this point, you may be a very good CFO—just without the label.

To understand what “strategic” really means, I think we need to go back to the root of the word itself. I will explore that in my next post.

Myrdin3D store logo. Name with 3D blocks.

Learning by Doing

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On January 13, 2026

In 3D Printing, CFO, Leadership, RPG

When I joined my most recent company as CFO, I realized fairly quickly that there was one area where my direct experience was thinner than I would have liked: online and retail sales. I understood the numbers well enough—margins, contribution, customer acquisition cost, lifetime value—but understanding something conceptually is not the same as having lived it.

I’ve always believed that the fastest way to truly understand something is to do it yourself. Reading, asking questions, and reviewing reports are all useful, but there is a different kind of learning that only comes from personal accountability. When it’s your time, your money, and your decisions, the lessons tend to stick.

So instead of just studying e-commerce from the sidelines, I opened a small Etsy shop: myrdin3d.etsy.com.

The intent was never to build a meaningful business or side income (although it did and continues to do fairly well). The goal was learning. I wanted to experience firsthand what it actually takes to market and sell products online, from the ground up, without a team or infrastructure to hide behind.

I leaned into one of my hobbies and selected products that I believed would do well based on personal experience and observation. That alone was an education. It forced me to think like a customer instead of an operator: what problem does this solve, why would someone buy it, and what alternatives already exist?

From there, the real learning began.

I had to write advertising copy. Not board-level messaging or investor narratives, but short, direct descriptions that had to earn attention in a crowded marketplace. Writing copy that converts is a very different discipline than writing a memo or a strategy deck. You learn quickly what is clear, what is confusing, and what simply doesn’t matter to the buyer.

I had to take product photos. That sounds trivial until you try to do it well. Lighting, angles, backgrounds, consistency—it all affects perception and conversion. Seeing how dramatically presentation influences demand was a useful reminder that value is not just created; it is communicated.

Pricing was another area where theory met reality. I set prices with explicit margin targets in mind, but I also had to respond to market expectations, competition, and perceived value. It’s one thing to talk about gross margin in the abstract. It’s another to watch a product sit unsold because you missed the price by a few dollars—or to realize you left money on the table because you underpriced it.

I also learned more than I expected about intellectual property and commercial rights. Selling physical products forces you to think carefully about what you can legally sell, what designs are protected, what licenses are required, and where the boundaries actually are. This is the kind of knowledge that is easy to gloss over until you are personally exposed to the risk.

Perhaps most importantly, the experience gave me a better appreciation for the operational friction that exists in online sales. Order flow, customer questions, fulfillment issues, returns—all small individually, but very real when you are responsible for every step. It reinforced how easy it is, from a leadership position, to underestimate the cumulative load placed on teams closer to the customer.

None of this turned me into a world-class e-commerce expert or even close to in skills to the experts we had that did it every day. That was never the goal. What it did was give me a much more grounded perspective. When discussions come up about pricing strategy, marketing spend, product positioning, or margin pressure, I’m no longer relying solely on secondhand knowledge. I have context. I’ve felt the tradeoffs.

This experience also reinforced something I believe strongly about leadership: intellectual curiosity matters, but it has to be paired with action. Curiosity alone is passive. Doing something—even something small—forces discipline, humility, and learning in a way that observation never will.

As CFOs, we don’t need to be experts in every function. But we do need to understand the cadence of the business and the realities our teams face. Sometimes the best way to do that is to step outside your role and try something uncomfortable, imperfect, and very real.

For me, that meant opening a small Etsy shop and learning by doing.

20 Years as a Public Company CFO

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On August 4, 2024

In CFO, Finance

It is funny that even to establish the right date with something that has an SEC filing and a press release can be a little difficult, but when the action happened in Asia, it could happen on one date and be recorded in the SEC system on another.

So there is an SEC filing on August 4th, 2004 that has a press release dated August 5th announcing that the merger between STATS and ChipPAC had been completed. That press release has a quote from Michael G. Potter, Chief Financial Officer.

That is the date that I became the CFO of a public company for the first time. So 20 years ago today or tomorrow using the time where I was when it happened.

Interesting for me as well is that about 8 years of that has been for foreign private issuers. One a Singapore company (STATS ChipPAC) that was also listed on the Singapore Exchange. The other for a Canadian company (Canadian Solar) who had an admin HQ in China so I worked in Suzhou and lived in Shanghai.

I had been the acting CFO of ChipPAC before the merger and before I joined ChipPAC as their Controller I had been acting CFO of a $1B revenue SBU of AlliedSignal/Honeywell. But acting is not being the CFO. And an SBU is not the top job for the company.

During my time as CFO, I have done quite a few acquisitions and some divestitures. I have done a large variety of quite large equity and debt transactions (IPO, secondaries, converts, high yield debt, CLO for M&A, bank loans (Term A and B) and all sorts of equipment leasing and project financing. Even tax equity financing.

I have done banking and investor relations across North America, Europe and Asia. In the USA, I was CFO in the Silicon Valley area and Portland, Oregon. Had good years and not so good. 

I also have been a fractional or temporary CFO and that was fun and rewarding as well.

When I get asked what does it take to be a successful CFO, I can give an answer around being strategic and taking your area of expertise to the executive team and help lead the company. That is a true answer and what CFOs do. But not what sustains you over time.

What I really remember is the hours and hours working with my staff(s) all over the world. I have had 6 different people that were part of my staff make it to be CFO of public companies, so somewhere is all that work and selection of hires and promoting I must have been doing something right, but most of it is setting a North Star for the team and letting the natural effort and skill of people in your team shine through. I always look forward to going into work and seeing my team and that is as true as ever with my current team.

I managed to make it to CFO at a somewhat young age so I hope to have more than just a 20 year post to make, and I have served on one public company board and several others over the year (and am on a large renewable energy developer’s board now). I imagine that I will start doing more of that soon enough.

If you are interested in some of my observations of being a CFO during the years, I do have a blog at mgpotter.com where I posted a series of articles. I hope to make video content for those articles as that seems to be the leading way to communicate today and I have great gear that my current company makes. As always, I will teach myself to do that just like I have been experimenting with AI to keep current (ollama) and I have been running a small online business to try and learn the skills needed there.

Presenting Well From Home

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On April 2, 2020

In CFO, Investor Relations, Leadership

I have not written a blog entry in a while, but I decided that I had a few things to share since many of us are working from home and are spending a lot of time on video conferences.

Here are the three most important areas to focus on to make you look better when you are on a video conference using a webcam.

First, get the webcam to the correct position. You want it eye-level or slightly higher and looking down. If the webcam is embedded into your laptop, elevate the laptop until it is at a better angle. it is much more flattering to have the image being recorded looking straight ahead or slightly down that it is to be recording in an upward angle. When talking to people, look into the camera lens as that is makes it appear that you are looking at the person you are speaking to.

If you can, try and get your camera control software to zoom in and adjust where you appear on the screen. Many good webcams cameras are fairly wide angle, and that makes you look smaller and picks up more of the background.

Should Look Like This (video is not mirrored but appears correctly to viewer)

Try to wear a plain shirt and shirts with lines or a plaid pattern can “swim” when being recorded on a webcam.

The second important area to focus on is lighting. You want to be lit the most from in front and slightly above is better than straight on as looking directly into a bright light can make you squint and cause eye strain. Some side lighting helps, especially if it is diffuse and a specific back light can also help to separate you from the background. Most people look better with side lighting just from one side to provide a little bit of shadowing as it adds definition to your face.

I use an elgato keylight as my main lighting source. It is behind my camera and elevated. I like the clamping mounting system as it takes up very little desk space. If you think you will move where you do the video conferencing pretty often, the key light air might be a better choice.

If you do research on lighting for video shooting, you will see the above advice echoed. Most professionals use three point lighting. The closer you can emulate that, the better you will look.

The last area to focus on to look as good as possible is the background. Where possible, try and have as plain a background as you can. I use an elgato green screen as it sets up quickly and it easy to store when not in use.

Plain Background

If you can’t be close to a plain background, or create one via a green screen, you end up with something that looks more like this, which is not as good looking on video:

Busier background.

We all don’t have complete control over what is in the background, that is why a pop-up green screen helps. Note how distracting the window in the background is. Try and avoid that as much as possible, especially if you do not have a good light in front as it will back light you and make you look dark with your face hidden in shadows.

With a green screen, the virtual background feature of zoom is much better. If you are not using zoom with its built in virtual background, you can use a program such as XSplit Vcam that will take your webcam feed and insert green screen/virtual background functionality into pretty much any video conferencing software.

As a more advanced topic, if you want an even better video feed than a standard webcam, elgato makes a device called a camlink, which is a USB interface between a DSLR camera with clean HDMI and your computer that allows you to use the superior lenses and sensors in the DLSR camera as a web cam. You probably want to pick up a magic mount by elgato as well.

As it is a little more advanced, here are 2 videos on camlink and using a DSLR camera. They are from the point of view of streaming, but the advice applies to video conferences.

I also provided link to the various product pages below.

https://www.elgato.com/en/gaming/key-light

https://www.elgato.com/en/gaming/green-screen

https://www.elgato.com/en/gaming/stream-deck

https://www.elgato.com/en/gaming/cam-link-4k

https://www.elgato.com/en/gaming/multi-mount

If you want to sound better, the microphone that comes with this headset is quite good.

https://www.corsair.com/us/en/Categories/Products/Gaming-Headsets/Wireless-Headsets/VIRTUOSO-RGB-WIRELESS-High-Fidelity-Gaming-Headset/p/CA-9011180-NA

Evaluating Opportunities

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On February 12, 2018

In CFO, Investing

When I first moved to Silicon Valley in 1999, I routinely received phone calls from DotCom start-ups looking for a CFO. I was a Controller of a division (close to $1B in revenue) of a big company, but I had just been promoted to that level for the first time and had near zero experience in what I thought was needed to be a CFO (the general advice these days seems to be to pretend you can do it and just take the job). I used to have a list of the companies that called me, and none of them made it. At the time, they told me I was an idiot for not leaping at my chance. Cryptocurrencies remind me of that.

Now, before I continue, I must admit that one of the companies that contacted me was Amazon.com. This was after they had gone public and their stock was quite high. They were looking for employees with inventory and supply chain experience, the title and pay was far below what I was making and I would have had to move to Seattle. The stock suffered in the DotCom bust, so it seemed that my decision to not change jobs was smart, but if I were really the genius that many bitcoin experts claim to be today, I would have invested then. I would have been quite wealthy now if I had.

I can only console myself in that I was also offered a job a few years later for a lower title and pay at a major networking company. When I declined, the recruiter scolded me for being turned off by their attitude and then not long thereafter, they took the largest inventory write-off that I am aware of and the stock really has neve recovered its high-flying ways since then. Finally, and more directly related to cryptocurrencies, I was a long time participant in distributed computing projects like SETI at Home and such and the early appearance of bitcoins and the first miners came from people like me that were using idle cycles of our CPUs to do something else. However, I never installed the bitcoin mining software. In theory, I could have been mining bitcoins when it was possible to solve for them using a regular PC and do it as an individual. If I had done so and kept the bitcoins I made, at today’s prices I would be far wealthier than my reasonably successful career has taken me to.

I added those three examples because I want to make it clear that I have no magical ability to know the future and perfectly guess every opportunity. This is compounded by the fact that you need to choose now and will not know until later, and often much later, if you made the right choice. Using bitcoins as an example, there is not guarantee that I would not have sold the coins at $100. Considering that I have played Magic the Gathering (a card game) off and on for quite a while, it is likely that I would have placed coins in MtGOX and lost everything I put in there. When you back solve what could have happened, most people solve to the best possibility, not the likely one even if you made one arbitrary correct decision that you did not in the past.

I have seen quite a few posts on bitcoin value cross my feed on Linkedin in the past few weeks, much more than when it was going up and all from people that claim some expertise or professional skill for bitcoin and all suggesting that now is the time to buy the dip.

Blockchain is real technology that is finding new applications. All the cryptocurrencies are experiments and they are valuable for the same reason why anything is valuable – people are willing to spend money on them. There certainly is a good argument that a currency linked to a blockchain has merit and can quite valuable for online transactions. There is no doubt at all that blockchain as a technology will see many applications, like perhaps tracking materials in the pharmaceutical production chains.

There also is no doubt that there will be lasting wealth that comes from the innovation, but I don’t think that trading advice (buy or sell) is the right thing to promote on Linkedin or on a Facebook feed. That type of decision needs to be an informed one from individuals, and older advisers may be trapped in past expectations, but they have also seen a few bubbles pop as well.

Even the arguments around cryptocurrencies and why they have value and are a currency themselves or are more valuable than other traditional currencies are suspect. For those of you that don’t know the standard argument, the normal value drivers mentions are i) production cost, ii) scarcity and iii) utility. The basic argument is that the cost to produce a bitcoin is high, they are scarce by design with only 21 million that can be produced and the blockchain technology makes them useful.

However, the production cost is based on current brute force problem solving and scarcity is all about bitcoin itself, not cryptocurrencies in general. There are near infinite algorithms that can be designed to generate a cryptocurrency and there are plenty of new industries where the first mover did not ultimately dominate (Netscape is a good example as is Visicalc and many other similar examples). The utility is even questioned because the transaction time and process to verify a transaction is thought to be too long and many merchants that had been accepting the currency have abandoned it as the transaction time exposed them to too much valuation variance. Even the early criminal use of bitcoins (the initial foundation in its value came from criminals using it to transfer money for drug deals and to do money laundering) has suffered as authorities have proven to be much better at tracking and shutting down bitcoin fueled deals than was originally assumed.

Even the crypto part of the equation may ultimately prove to be flawed as there still is the real possibility that the assumptions behind the math that powers it may ultimately prove to be false. Eventually there may be no more “greater fools” and there is a risk when you buy that you will end up being the last and most foolish.

I’ll try and parse through my thinking on these types of opportunities to show the how I think through I as an example of what I have done in the past as a CFO and what I do today when asked for advice as a consultant.

First, the normal reaction is to shut down and say “no” to new opportunities because these always represent additional effort needed and additional risk. In the case of bitcoin, the easy responses are “tulip mania”, “artificial bubble” and “ponzi scheme”. I am not saying that those responses are correct, but the longer I have been at it, the easier I find my mind comes to a way to say no. Saying no is easier, and, since the consequences of saying yes or no are rarely immediate, you can insulate yourself from the lost opportunity or loss easily. The problem is, saying “no” is easier, but it also closes down growth and opportunity and isolates you from changes in the market. When I detect that instinctive “no”, I push it down and listen and ask one or two simple questions. This is not free, that costs time and mental effort and causes some distraction, but I think that cost is worth the possible upside, so I pay it more often than not.

The questions I normally ask are: 1) Is this a decision I can or should make, 2) Can I or we afford the expense (or not afford to spend it), 3) How long do I have to consider it, and 4) Can I understand pretty quickly what the idea is all about and how it would be profitable?

The first question is an interesting one. As a Finance professional, and especially as you move up the management ranks, you will get both increasing power over spending and increasingly be lobbied for many different ideas outside of the traditional Finance responsibilities. However, you also need to know your limitations. One advantage of being part of a team is access to opinions and expertise of your team members, and using that will probably result in more informed decisions. You also need to consider that the latest encryption standard may seem cool to you, but the head of IT may not want you to install the ransomware you were just pitched in email.

The second question really is about practicality. I would love to have several different phones and VR headsets and whatever else comes out to see which one is good, but I only really need one phone at a time and I barely have time to use the VR headset I already have, so even more does not help. In the case of bitcoins, like most people, I have a wide variety of investment options in front of me, and bitcoins are just one of them.

Coupled with the cost and time commitment is the need to understand if you should be doing without it. I could just use pen and paper and brain power to calculate my taxes, but Turbotax does a much better job and does it much faster. The danger with budget or time pressures are that you may ignore something important. I have used the time when I was flying to read up on new technologies and I have always carved out some time to look at what has changed in the market compared to what has been happening. This is important for personal portfolios and reserving even a small amount of your investment capital (5%) to invest in new technologies or trends can help here.

It has been my experience that the shorter time you have to make a decision, the less something makes sense. There always is lots of marketing and media hype to buy or sell now, but rarely do you need to make an instant decision. If a technology is good, or a trend really has changed, you can enjoy the benefit well enough if you spend a little more time to make sure you understand what you are considering. Most importantly, the risks it brings. In the case of cryptocurrencies, there are a lot of self-proclaimed experts, but most a simply hyping without any depth or new information. I also have seen a disturbing pattern emerge of people with fairly questionable backgrounds suddenly getting involved. It sure is easy to promote this new idea that replaces traditional investment products when you lost your broker license because you were convicted of defrauding your clients.

Counter to the previous concept of making sure you have enough time to consider the new opportunity, it also must be something that you can grasp with a reasonable amount of time and effort. There are always slight edges that someone with a decade of experience and education can exploit, but it might not be the right thing for you to try and figure out. Quite often new technology products work well for people with the specific skillset to use them but are not worth the cost f you cannot program or change all the base setting on your computer to get the additional 5% performance boost. Learn to recognize when something is more complex than you have the training and time to understand quickly and deeply enough and reach out for help. Do not be afraid to say you do not know or do not understand.

I have always been an intuitive problem solver but working in my chosen field which is seeped in process and logical progression, I have to take what I feel is right based on my internal process and break it down in a way that I can repeat and explain it to the people waiting for my decision.

In the case of bitcoins, and other cryptocurrencies, I have seen little reason other than pure speculation, to try them out in any real way. I can understand that the base technology is something to follow closely, but I do not think that it is something that needs urgent action and there are real risks of fraud and theft and regulatory curtailment. I also am concerned about the poor quality of the advisers that have attached themselves to it. As I cautioned up front in this blog, I could have made quite a bit of money just by embracing bitcoins earlier in my life and I was a natural fit for the early adapters there. Unlike the self-called experts I see in the media these days, I know that I don’t know a lot of the details and I think it is not worth my time and money to learn more, but it is complicated and I could be missing something. I have a real edge in other investment and finance areas and I am choosing to spend my time there.

CFO Pay

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On August 9, 2016

In CFO, Leadership

One question I get pretty often from people starting in Finance as a career is how much does a CFO get paid, and how do you make sure you are getting enough.  In many ways, that is a very puzzling question to me.  In a US-listed public company (not a foreign private issuer), executive pay is public and normally can be found in the proxy statement that is filed annually.  So it is no secret what CFOs get paid, everything is laid out in their contract (material contract and a copy is filed with the SEC) plus broken down in some detail in the proxy statement.

These are my general rules on pay and they really apply to every position, not just CFO, but I will use CFO as my example.

No one will take care of your pay except for you and you will only get what you negotiate for.  Hoping that you’re doing a good job and that the pay will just be adjusted accordingly is a false hope.  You need to be your own advocate here.  Maybe your boss needs to carry it to the compensation committee.  Maybe the head of HR needs to go argue on your behalf with your boss.  Whatever the case, if you are not making sure that more pay is needed, chances are good that nothing special will happen.

The best and only clear time to negotiate is before you accept the job during the hiring process.  Once you are on board, it will become much harder.  You need to know what a fair price for the position is.  You need to know what you would accept to take the job.  You need to negotiate for that up front.  Some negotiation is not only expected, if you do not, it may hurt their perception of you as a good Finance leader as they may wonder what you will do as CFO.

Most companies are not interested in hiring a leader that is too mercenary and you run a risk of being too demanding and setting yourself up to fail from the very beginning.  This needs to balance with the point above about the best time to negotiate is when you are being hired.  It is my view that there is more to life than being paid cash and the opportunity to learn and to work with a good team is important.  I also do not get paid as much as some of my peers and their setting a higher bar up front never seemed to hurt them, so I might be wrong there.

There are a few immediate sources of what pay you should be expecting.  The first is the proxy statements of the hiring company and its peers.  Look at what the CFO you are replacing received.  Look at what peers or companies of similar size and complexity are getting paid.  That will set a baseline.  The second source is the recruiter that approached you (assuming that is how you heard of the opportunity).  You need to keep in mind that their client is the hiring company, but they also play a role in setting the right expectations with the company.  Don’t be afraid to be upfront with what you are making now, they deal with attracting talent as a living, they are used to that type of discussion.  If what you want is too much, they will tell you.  If you are asking for too little, then you did not do your homework and maybe lack some confidence.

Once you are set on the base salary, you need to make sure the bonus is appropriate.  The same two sources you used for salary are good for this as well.  You should not only focus on the base bonus, you need to understand when it will be paid and in what circumstances it will be larger than base.  My normal expectation is that by working hard, 80% of base bonus should be very achievable.  As I have worked in several turnarounds, there have been years when no bonus was paid.  Again, it might be somewhat of a failing in my views as I have always accepted the same targets as the other team members when I have started.  Quite often the company is having a bad year and that is why they are changing CFOs and that approach means zero bonus for me as that is what the existing team is getting.  It is not uncommon to negotiate for a set bonus for the first year.  In many cases you would earn a good one if you stayed where you are and part of recruitment is overcoming such obstacles, so the hiring company often will make you whole.

The final “pay” part is the equity you will receive.  This is a question of how much the initial amount is, what can you expect on an annual basis and will you receive stock options or restricted share units.  You certainly should try to be made whole for whatever you would give up to join the new company.  You probably cannot replace the vesting, but the value should be on the table for negotiation.  Annual grants are important.  Over time, your base pay and your bonus will help to let you pay your mortgage, pay for your kids to go to school and save for retirement, but it is unlikely to change your life.  Stock compensation can change your life.

The normal choice between RSU and Options is certainty versus upside.  You really cannot control the overall stock market and there always is a risk that you do well but the stock cannot perform well because of general market conditions.  In that case, RSU are much better as payment, even if smaller, is at least going to happen.  Sometimes you are not doing all that well but the market takes off and your stock moves with it.  In that case, Options end up much better.

In the long run, as a responsible CFO you should tend to prefer RSU as dilution is smaller and expenses are more certain and predictable.  For pay, if the company is stable and growing then RSU will give you certain return.  If you are doing a turnaround and you want the biggest pay you can get, then Options have the most possibility.

One smaller item to consider is retirement savings.  I am sure that you will save the most you can into the 401(k), so any matching is a plus.  You also need to understand if the plan is top heavy and what happens if executives cannot save via the plan.

The pay factors to consider do not end with salary, bonus and equity.  Pay attention to the complete package and the contract they are offering you.  Vacation time is important.  You do not want to have a seniority-based system where you start with one or two weeks like any other new employee and only increase the longer you are there.  Clauses like this tend to be boilerplate and the same for all new hires and you need to pay attention to it.

You also need to pay attention to the severance clauses.  In the USA, at will contracts are typical.  So you need some protection if you are let go without cause.  It takes a while to find a senior management job and you should negotiate a buffer.  Look at what the comparable are as in all other pay items, but 6 months is about as little as I would accept and one year is not unusual.  Change of control clauses are usually somewhat linked to severance clauses.  Make sure you understand what the standard equity programs give all participants if there is a change of control.  If your equity does not vest on change of control, then try to at least have it vest if you are let go as a result of a change of control.  If your company is being bought they probably do not need another CFO and you are likely to be let go.  So make sure you are protected here.

Make sure there is a clear “Good Reason” clause in your contract that would be triggered and your severance pay become due for several usual circumstances.  For example, a forced move over 50 miles because your place of employment is changing, a drop it title or responsibility or a drop in pay, all of these are typical “good reason” clauses and you should make sure that you are protected.

Your contract will probably contain many clauses restricting your ability to compete if you leave, stopping you from hiring co-workers, making anything invented while you are there company property and defining what is considered to be confidential information.  Many of these are boilerplate and in most employment contracts for the new employees of the company.  Make sure that the requests are reasonable.

Finally, look at miscellaneous items like travel policies, restrictions on you being a Board member at another company and other anti- “moonlighting” clauses.

You would be well served to have a lawyer, especially a lawyer experienced working with employment law and employment contracts review your contract before you sign.  Make sure you understand what you are being asked to sign and that it is worded properly so that you are protected.

That really is all the top level advice I have on CFO pay.  Knowing what the market price and standard terms and conditions are is the most important.  The rest will come down to your ability and just how attractive you really are to the company trying to hire you.

My Technology Life – An Update

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On August 2, 2016

In 3D Printing, CFO, Computer hardware, General, Hobbies, Leadership

I recently built myself a new computer after using the last one for almost 5 years.  My old computer was able to run all the programs I had without any real issues, but it was slowly getting more unstable over time, and the update to Windows 10 had been rough.

The Computer

This time I wanted to build a computer that could run the latest virtual reality headsets and I wanted to have something that again would last me quite a while.  I typically buy the second fastest consumer CPU that is available as the fastest is normally at a high premium in cost but with little extra speed, but the Intel 6700K had finally come down to suggested retail price.  I wanted the modern chipset that went with it so something on the Z170 chipset was what I looked for in a motherboard.  My timing was not that great for a video card in that both NVIDIA and AMD were about to release their latest generation, so I actually waited over a month after buying the rest of my components before fully setting the computer up.  The motherboard did have built in graphics and the CPU did as well, so I was able to test everything except for the new card.

I will make two observations.  The first is that I have always felt it important to be agnostic about brands when making choices on most of the components.  Years ago there was a great deal of variety in motherboards and how features were implemented on them.  Today, the two main CPU makers (Intel and AMD) release a new chipset with each new CPU generation and that chipset is very full featured.  I have almost always used Intel CPUs because for many years, they have been the best performing.  AMD often wins on the cost to performance basis, but it has been quite a while since they have had a chip that can compete for pure performance.  I did build an AMD-based computer a few computers ago because that generation they did have the best CPU.

CPUs are fairly quiet, but there often are techie “holy wars’ over video cards.  I admit to have fought a little in them back when 3DFX and their voodoo chips revolutionized 3D, but I got over it.  Now I just buy the card that I think does the best for me.  The two main graphics processor unit (GPU) providers are NVIDIA and AMD (they bought ATI years ago).  My last generation computer has an AMD video card (a 370) and that was based on AMD having better multi-monitor technology at the time as I like running 3 monitors.  There are edge cases where AMD has had better chips, but for the most part, NVIDIA has had the highest performing chips for a while.

Unlike CPUs, the price jump to the most powerful GPU to the second best is still enormous and unless you really are a power gamer or power user, there is little need to get the best GPU.  For the computer I just built, I ended up with an NVIDIA 1070 based video card (the board maker was MSI).  I had considered the AMD RX 480 as it was a lot less expensive, but the demand was so high that cards were hard to find and the custom cards had not come out yet.  So I went with the 1070.

I could write pages and pages on the latest and greatest differences between the board makers and the different CPU and GPU you could choose, but this blog entry will exist for a long time and tech sites are always much more current (I go to anandtech.com but ownership changes have made it less useful in the last year).  So I will give some more general observations.

The premium priced components in the consumer space are all aimed at gamers.  This tends to result in multi-color LED lights and a black (and usually red highlights) color scheme.  There actually is very little value add from what I can tell from my research for the extra price you pay.  There certainly is much less bang for the buck.  The video card I bought is branded as an MSI “gaming” card and it looks nice but does not really offer any performance improvements over non-gaming cards.

Motherboards are similar.  The Z170 chipset has plenty of solid boards that cost around $150 (can be found for less during sales).  You can spend $250 to $300 and just get a few extra bells and whistles that you may never use.

One final comment, if you build the computer yourself, be prepared to troubleshoot yourself and to have to refresh your knowledge.  I had a faulty power supply and it took me quite a while to track the problem down.  Google and technology forums are your friends here.

This is the system I ended up putting together:

Intel Skylake Core i7-6700K
– the fastest CPU currently available. Depending on luck, can be overclocked a fair amount
Cooler Master Hyper 212 EVO – CPU Cooler with 120 mm PWM Fan
– One of the bestselling coolers. Quite tall, was interesting to install
ASUS Z710 – AR
– all of the modern features of the chipset and none of the “gamer” bells and whistles that jack up the price. PCI-e sharing (which is common for the chipset) so might be a concern for dual GPU use but I plan on only using one GPU.
GPU – MSI Gamer NVIDIA GTX 1070.  As I mentioned, both the main GPU companies just released new cards and it is hard to find cards priced at regular retail prices.

G.SKILL TridentZ Series 16GB (2 x 8GB) 288-Pin DDR4 SDRAM DDR4 3733 (PC4 29800)
– this is actually somewhat of a waste. Super-fast RAM that I probably would not need and I could of gone down a few notches in speed and double the amount for the same price as I will not heavily overclock
CM Storm Scout 2 Advanced – Gaming Mid Tower Computer Case with Carrying Handle and Windowed Side Panel – Black
– This is an updated version of the case I have been using the past 5 years. Roomy and has a handle on top which comes in handy more often than not. Plenty of room for fans, and a good front panel for USB
Antec 750 Gamer power supply.  I originally had a corsair power supply but it was faulty.
– Should be way more power than I need, especially if I do not have 2 x GPU
SAMSUNG 950 PRO M.2 256GB PCI-Express 3.0 x4 NVMe Internal Solid State Drive (SSD)
– Very fast SSD (motherboard supported) that will be my boot drive and will have some applications on it
Mushkin Enhanced Reactor 2.5″ 256GB SATA III MLC Internal Solid State Drive (SSD)
– Secondary SSD for often accessed files and other applications
Seagate 3TB Desktop HDD SATA 6Gb/s 64MB Cache 3.5-Inch Internal Bare Drive
– Should be plenty of room, especially since I have a 16TB NAS
LG Black 16X BD-R 2X BD-RE 16X DVD+R 5X DVD-RAM 12X BD-ROM 4MB Cache SATA Blu-ray Burner
– I debated if I really needed an optical drive and finally decided to get one as I can see myself watching movies on the computer and I have a lot of Blueray disks (PS4 is my main player)
Razer BlackWidow Ultimate Stealth 2016 – Backlit Quiet Mechanical Gaming Keyboard with 10 Key Rollover
– Decided to try a mechanical keyboard. These have Razer designed mechanisms, not sure if as good as Cherry-MX switches. Quieter version.
Logitech G600MMO Gaming Mouse – Black
– Will move over from my existing computer. I do not use all the buttons and may look at another mouse

VR Headset

The latest technology that is just starting to go mainstream is Virtual Reality.  There are two main contenders for the headset market right now – the Oculus Rift (which is backed by Facebook) and the HTC Vive which has teamed up with Steam (owned by a company called Valve and the main marketplace to buy PC games online).

If I had to sum up the main differences between the two headsets, I would say that the HTC Vive comes with two controllers and can be used standing and moving (called room-scale) and sitting down while the Oculus Rift is mainly meant to be used sitting down and does not as of now come with VR controllers.  The Vive has a lot more content available for it now, but many programs are made for both headsets and there are not many non-game programs available.

I got to try out the Vive at uploadvr.com ‘ s offices in San Francisco when I was there for a meeting with a McGill University representative who wanted me to help in their entrepreneur program.  I had read that the room-scale made a big difference and when I tried it out I agreed.

The experience in both headsets is pretty good and you do really get a sense of immersion far beyond what looking at a screen will give you.  The Oculus Rift is about $600 and the HTC Vive is about $800, but the Vive comes with two controllers and two sensor boxes that enable the room scale VR.

I picked the HTC Vive as it has more software available today and because the built in ability to move around instead of just sitting down sold me on the system.  The actual graphics capability is about the same between the two controllers and both are just emerging, so the “best” choice may change rapidly.

I have only used the headset for a few days., so I will hold off on a detailed review, but I can tell you that the base experience lives up to the hype.

I am waiting to see what non-game uses there are for the headsets.  There is a fair bit of work being done to develop approaches and applications for the virtual world the headsets put you into that make it useful for non-games, but there are not that many real life examples yet.  I will be attending a meeting on that topic in a few weeks and will update and right a new blog after I have more information.

Getting the headset to work was somewhat of a struggle and the programs are all new and very much “early access”, so I hesitate to recommend it for everyone, but it has been quite fun so far.  One of my friends brought his young son over (son is around 10 years old) and the son was fascinated with the headset and wore it for hours.

3D Printing

As I mentioned in an earlier blog, 3D Printers are technology that is still not quite ready for mainstream use.  They still take a lot of fiddling with to get to work well and consistently and you need to be comfortable with at least some light mechanical work.  I recently bought another 3D printer, the Wanhao Duplicator 6.  It is over twice the price of the Wanhao Duplicator i3 I started with (and that is an excellent starter machine), but it is much more capable as well.  I will do an update just on the new printer and what I have learned since I bought my first one.  This update will include using a raspberry pi mini-computer to remotely control and monitor the printer.

The raspberry pi mini-computer part of my coming update will be extensive as well.  Quite remarkable what you get for around $50.

Why Bother?

This is a blog on being a CFO and I usually have Tuesdays are purer “CFO” topics and Thursdays are where my occasional other blogs show up.  So you may be wondering why I am writing on building a PC or VR headsets or 3D printers.

My reasons are quite simple – career growth and personal growth.  I live in the Silicon Valley area and there is a lot of interest in the technology around computers, VR and 3D Printers.  More and more, companies are looking for CFOs that are more than just the accounting and numbers person.  IF I don’t expand my mind and learn by doing in areas like this, then how can I be credible when I claim to be a good fit for a technology company CFO role?

I get personal satisfaction on learning new things, but with the competition out there today, I really think that you need to keep actively learning.  If you stop and rest on your laurels, you will be passed by.  I often have had staff ask me how I got to know our company’s products, and it is the same drive that makes me want to understand VR Headsets that made me dig into how electricity comes from a solar panel.

So try not to dismiss other people trying to learn and very importantly, encourage your staff to do so.

 

 

Basic Information Security

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On July 26, 2016

In CFO

If you are a CFO, you will be carrying a lot of confidential information with you, you will have a lot in your office, and your email and messaging system will be full of material, non-public information. If you want to save yourself from embarrassing leaks, at least practice some very basic security measures.

The very first step you need to do is become aware of the fact that risk exists. You’re reading this blog entry, so you must care enough. I cannot cover every single possible example in a simple blog entry, but I will try and do at least a grand overview of the biggest holes and issues you may face. I will be broader than just IT, but almost everything we do today comes from some digital source.

Before I go into my review, it is impossible to fully secure a typical commercial establishment against very sophisticated resources. If you have drawn the attention of national spy agencies or very skilled criminal groups, then you will be under even greater threat. Encryption is not even the most reliable option as there is reasonable evidence that the algorithms at the heart of most publicly available encryption were designed and seeded in such a way that agencies like the NSA could break it. Just because you cannot reasonably expect to always be able to stop such threats does not mean you should not make it harder for the average threat to get through.

Physical security

Even if you are very modern and rely heavily on computers, you will generate a fair amount of paper. I personally also carry around a moleskin notebook (the small size) which I use to quickly jot down notes in meetings. All of this paper is a potential leak.

Close to earnings reports, you will almost for sure have financial statement drafts and drafts of your press release printed out. Not just you, your Controller and your consolidation staff, your Investor Relations staff and your auditors and lawyers probably have advance copies. You need to try and not make it trivial to get access to the information. This starts with controlling access to the paper.

Before you start feeling smug about the receptionist and the locks on your office doors, think a little more broadly. It is an almost certainty that cleaning staff and security staff have master keys to enter any office. Many of these are even outside contractors. You also are probably having meetings in your “secure” office during the day, sometimes with outside vendors. If you leave sensitive copies on your desk or just casually toss drafts into your regular garbage, you are exposing yourself to more risk than you should be.

The measures to take are simple. Unless you are working on the pages, at least keep them turned over. If you are throwing out a draft, shred it or put into into a controlled container that will be shredded. Lock papers away in your desk out of sight when you leave for the day. If you are traveling with a paper draft, then be very sure and paranoid about their location and do not leave them easily accessible in your hotel room.

One final area of physical security you should worry about is either reading them on a screen (or paper form) in public places. In particular, in an enclosed space such as an airport, on an airplane or a train station or on a train. Most of my travel is business travel and I tend to have lounge access and if I am not sitting in business class, then I am up front in the more comfortable coach seats. All around me are other businessmen and I can tell you from personal experience that it is very easy to read other people’s screens without even meaning to or making an effort to. The same goes to overhearing phone conversations, so many people talking on their phone use headsets and really have no idea just how loud their voice is (and my natural speaking voice is pretty loud). There are privacy films that can be used on laptop screens that greatly reduce the viewing angle and you can be cautious about how you tilt or otherwise position your screen (likely to be a tablet or phone as well these days). Keep your phone face down to turn off the message preview. Use code words for transactions.

Social engineering

The second big danger that your company will face from a determined attacker is what is called social engineering. Social engineering is an attack that focuses on what. Is often the weakest part of a company’s security – the employees. It is remarkable what someone who is confident and expresses themselves well can convince employees to do. A call into your admin from some one claiming to be from IT that needs access to your account to do testing or upgrades can result in your password being given out. In one of my recent jobs, I received several emails a month that claimed to be from my boss requesting that a wire transfer be sent. You would think that such an attempt would never work, but actually fraud of this nature is already costing companies billions of dollars.

I want you to think about that. A simple spoofed email is allowing criminals to steal billions of dollars from companies. This is not a sophisticated and highly technical virus or exploit, this is a simple plain test email requesting that money get sent. The same type of scam is done on a smaller scale targeting elders via a phone call claiming that a family member is in trouble and needs an urgent wire transfer, but a phone call is not even needed in some cases.

The only defense to this is training and awareness that it will be attempted. No one will fall for such a scam if they know it could happen and have their defenses engaged at all, so make sure your staff is aware. I would alert my Treasury team occasionally about the emails I was receiving and warn my boss as well. Our IT team tried to modify our spam filter to catch more of those emails, but they are not the easiest to screen out without catching too many other emails.

Remember that criminals know that a few people have access to earnings releases and other highly sensitive documents and that you are one of those people. Plan accordingly and keep your guard up. Do not give out your password. Don’t open attachments in email from people you do not know and make sure that even people you do know are not sending you executable files. All the hard work your IT team does in securing your system can be undone in an instant if employees open up attachments without thinking. In general, opening up emails on your phone or tablet instead of your laptop is a little safer, but smart phones can be compromised and it is not a sure thing. Even the iPhone with a curated App Store had malicious code inserted on a mass scale from programmers in China using unauthorized tools they were able to download faster than the official tools.

Passwords

Don’t use simple and easy to guess passwords and don’t write your passwords down where they are accessible. Make sure that your browser does not remember and autofill crucial passwords like those you use for banking.

In general, a phrase consisting of two words, at least one character in CAPS and a number and a special character makes your password much stronger and harder to break. It also makes it easier to memorize if you use a phrase. Try and change your passwords occasionally and don’t use facts like your birthday or family member names that can be easily researched online, especially in today’s open, social media filled world.

Let me say this again, don’t write your password down. If IT has a system of generating impossible to remember passwords under the mistaken assumption that nonsense characters are best, push back on that. All it leads to is post-it notes with the password written down and that allows the cleaning lady full access when no one else is in the building.

WIFI networks

When you travel, it is quite common to connect to hotel and other shared networks, like in airports. Everything you transmit is open and public. Most websites and email systems do encrypt passwords and other sensitive information, but many do not and not everything will be protected. Use a VPN (virtual private network) where you can. Otherwise, assume that what you share over the Internet can be read by any determined person on the network. Not that they need to as you are typing in plain sight and talking loudly on your cell phone.

Home router and home network

Have you ever updated the firmware on your home router? How about setting the default user ID and password to something else? The security cameras in your house, you realize that they often have mini-web servers embedded into them and they all have default user ID and passwords as well?

Maybe you’re just the CFO of a small company and it really does not matter, but maybe you’re not and it does matter. It usually is pretty trivial to find out where people live. Wifi does not stop at your house walls (or apartment walls) and if they can get onto your network you might as well be on a public network.

Same for the Network Attached Storage I suggested you buy in an earlier blog. They are all Linux based and quite a few have had massive security flaws. So all the documents you store there can be vulnerable, especially if you open it up so you can use it from outside your home.

Anti-virus software

I think that a good firewall (usually the router is the best line of defense for that) is important and not opening strange attachments is second on the list, but make sure that you have some defenses against virus attacks on your computer. Remember that you probably have kids and they may not understand the risks, especially when they are younger. So they can get their PC infected and since they are on your home network, you are at risk as well.

IT Policy and Awareness

As much as you might think that your IT team is on top of typical threats, it really depends. The more central control your IT department asserts, the less likely you are vulnerable to non-standard equipment but the more vulnerable you are to specific exploits that no one will have defenses against. As super restrictive policy will almost always result in individual employees rebelling and then your security becomes a factor of your least prepared employee.

IT is also especially vulnerable to social engineering and they control and know the master passwords and access onto your networks. If you are not running IT (as many CFO’s do), then make sure that security is discussed somewhat often at the leadership level.

Where to read more detailed information?

Budget an hour. Go here: https://www.us-cert.gov/ncas/tips and read the topics that interest you.

Oops, there was a leak

Consult your lawyers.  If material, non-public information was leaked, you probably have to do a press release under Reg FD.  If private employee of customer information was stolen, you probably have other serious disclosure obligations.

Mergers and Acquisitions – Part 3 – Afterwards

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On July 19, 2016

In CFO, Mergers and Acquisitions

Part 1 explained the reasons why to do an M&A transaction (https://mgpotter.com/mergers-and-acquisitions-part-1-why/). Part 2 was on how to do it (https://mgpotter.com/mergers-and-acquisitions-part-2-how/). This blog will discuss what to do after the deal has closed. Each step of the process has the potential to result in a bad M&A, but what you do afterwards can turn a good idea into a mediocre one.

The two most important goals post transaction are integration and synergy recognition. There are post deal closing details that also need some attention, but those are mainly just after effects of the deal and PSA and financing process. Poorly integrated acquisitions can drag results down for years and cause internal divisions and fights. Poor integration also can spill over to recognition of the synergies that were expected. It is hard to recover from a deal that should not have been done (failure in the Why? stage) or a deal where you paid too much for it or were saddled with a bad Purchase/Sales Agreement (failure in the How? Process), but you can make a bad situation worse by not executing well after the transaction closes.

After the deal closes, there is a whole flurry of mainly admin items that need to get completed and, in many deals, the deal team vanishes or disbands and the regular staff and processes need to take over. This can expose a flaw in the previous steps – if you do not coordinate with the mainstream business people, then they will get a transaction dumped on their laps without the right background and details and they will get it wrong. The deal team needs to have a clear responsibility to cleanly hand over the deal to the the business as part of their deliverables.

Once you own what was bought, you need to account for it in your books. GAAP gives you up to a year to correct the accounting based on better information, but it is expected you get it right the first time, or at least very close. You also need to tie the accounting process into any post closing adjustments based on the target balance sheet and the actual closing balance sheet. In doing the accounting, your reporting team will be reviewing the accounts that are coming over and their basis under GAAP. This should have been a due diligence topic up front, but a properly written PSA will help if you find errors after the deal closes.

If you ran a financing process to pay for the M&A transaction, there might be post closing deliverables and covenants that need to be reported on and met. This is common, and the deal and financing team needs to make sure there is a clean hand-off and that the expectations are well known and planned for.

Integration

You not only have to do the initial accounting for the acquisition, you will need to account for the new business on an on-going basis. If you are a public company, you can get up to one year before the new business you bought needs to be Sarbanes-Oxley compliant, but if the target was not already a public company and subject the the auditing and reporting requirements that come along with this, then you will need to make sure that the existing staff is large enough and technically proficient enough. Accounting and reporting is normally one of the leading functions in an integration process because of the immediate reporting needs, but if this is the only integration you have planned, you will have a failed transaction.
Integration

I joined a company earlier in my career that was the product of many acquisitions, and the sub-companies were also the products of previous acquisition strategies. While working in the audit group, it was easy to see failed integration all across the company. You could instantly tell which previous company the business unit belonged to because the chart of accounts retained the same numbering scheme and the same account names. Job titles varied based on what company the business used to belong to and the different brand and company names were still used and not in a coordinated way. Our pretty new CEO (who was excellent) received even greater accolades for cleaning that problem up and saved a lot of money and finally achieved synergies that had been expected for decades in some cases. Don’t let that happen to you as a result of your M&A process.

The two most obvious places to start integration is the senior management and the company name. If you do not touch either of them, you not only are sending a message that they are not part of you, you will also bear additional expenses for the infrastructure both represent. Most business acquisitions should be done with the plane of you placing one or more senior mangement staff into the newly acquired business to run it. The three key positions to consider for this are the CEO role, the CFO role and HR. Without one or more of these positions being rapidly replaced by staff of your company, you risk ending up with a separate culture and you increase the risk of an “us vs. them” split developing.

I generally suggest changing the company name as well. It is a very public and visible sign that things have changed and you do not risk confusion in the market place about what is happening with the company after the transaction. There may be product brand names that have value, especially if the transaction is moving you into a business or country/region that you have not been in before, but that is not a typical occurrence. This does not always have to be a one-way change, maybe your own company name needs refreshing and a major M&A transaction will provide an opportunity for a rebranding event, but having many names in the market can be confusing. Even if you keep a brand name active, the actual company name can be changed.

You need to normalize the position naming conventions and the bonus and other pay conventions as well. If you buy a smaller company, many of the employees that come over from the transaction will have very inflated titles compared to the reality in the new company. Incentives usually drive behavior and you need to make sure that the targets align with what the new, combined company should be working on. Obviously, changing titles and pay can be very emotional to the people effected, but emotions will be high anyways because of the acquisition.

Reducing staff will be a key synergy item and you should do it as quickly as possible after the transaction closes. The longer you wait the harder it is to do. If done at or just after the close of the transaction, you reduce the personal nature of the cuts and you get them behind you as soon as possible.

The integration should be planned in advance and there should be a team set up with people from your company and the acquired company. I have done this process with and without an outside consultant. In my experience, an outside consultant helps here as in can reduce some of the emotional focus away from the acquiring company cutting to it just being a process where both sides are listened to. In reality, the consultant works for who is paying for them, but a good one will add balance and experience from prior transactions that you may simply not have.

You need to drive the integration all the way through the systems and vendors used by both companies. It is inefficient to use two different ERP vendors for too long. You should look carefully at both ERP systems and pick the best one, not just default to the acquiring company’s system, but you need to make the decision quickly and get a plan moving and then execute. You need to consolidate insurance coverage, typical hotel and airline partners, auditors and tax advisors, all the standard spending. Their may be very big savings from raw material suppliers and this needs to be integrated ASAP. You start a race against a short clock in this process because you have a lot of momentum when a transaction closes and you risk normal business distractions if you wait too long.

Synergies

Synergies are expected cost reductions and additional revenue opportunities that come with the transaction. Turning these plans into reality can make the difference between a failed or lackluster transaction and a successful one. Like integration, speed matters and it should be planned in advance. I recommend that the person running the deal team not be the one to run the synergies planning as you need to execute quickly and getting the deal closed is typically too intense at the end and you could lose valuable weeks.

As I discussed in the integration section above, synergies mean reductions in staff and you should do that as quickly as possible. A well executed plan will have some happening when the transaction closes and the rest very quickly afterwards. You need to come in and let the people go in an efficient and respectful manner. Imagine that you were in the same position as they were. No one appreciates being kept in limbo and no one wants to be given false hope and then let go anyways once some task is done. It has been my experience that people are very accepting of an M&A transaction triggering a layoff as it is not personal. They also are accepting of short term assignments as part of the integration with separation at the end of the assignment.

You need to be very thorough and remove all the duplications you can as soon as possible. If you bought another public company, you need to streamline the extra admin cost that comes with being a public company. You also need to quickly review the management teams and staffing and reduce everything to one CxO for each function. Review everything and have clear goals for the savings you expect from operations efficiencies, including supply chain rationalization and economies of scale. If there are redundant factories, arrange the closing and consolidation to happen ASAP. Speed is important to capture the momentum that comes from closing the deal and there already should have been at least a preliminary plan before the deal closed.

There probably are a lot of synergies in the sales and marketing area. The trickiest one is any increased revenue you expect from the deal. If you expected to sell their products through your channels (or vice versa or even both ways), make sure this starts happening as soon as the deal closes. Marketing materials should be planned in advance and maybe even prepared in advance. The close of the M&A will create news in the marketplace and you need to take advantage of it right away. There usually is a fair amount of redundancy in the sales forces as well and this needs to be rationalized right away. If a customer will be transitioned from one sales person to another, it should happen quickly as to avoid confusion. Make sure the process does not automatically select the staff from your company. Ensure that the best sales person is kept.

IT systems are hard to switch over right when the transaction closes, but you should try and standardize quickly and have a process working to move to the new standard across all the company. I have been involved in several transactions where the systems in the acquisition were better than the ones in the acquiring company and the switch went that way. This is an area where an outside consultant doing an objective review can really help.

Part of capturing synergies is making sure the negatives of the merger that were identified in the valuation process do not happen. If there were risks identified, have people making sure that the risks do not turn into reality. Consolidate the new business into your risk management process. Review insurance needs and make sure that it is both adequate after the M&A transaction and that you do not duplicate insurance coverage.

You’ll need a lot of help from your HR function as eliminating duplication and realigning reporting is a core part of their function. They will have to do a lot of work in pay and benefits as well and there probably will be some recruiting that will be needed as unexpected resignations occur.

There is enough additional work in capturing synergies and integrating the new business that I usually suggest that you hire an outside consultant to help. The typical company does not have sufficient experience in this process and it is a short term (3-6 months) assignment. You need to make sure that you find a qualified consultant, and your accountants or lawyers might know of ones they have worked with in the past. You also gain some impartiality in the process which can help employees accept that the chance is logical versus being imposed by the acquiring company without fully considering the merits of what was acquired. Even help in keeping an aggressive schedule would be a big benefit if the outside consultant can deliver it.

At the end of this process, make sure you measure the results compared to your expectations and some synergies and integration will stretch over 2-3 years and you do need a process to follow there.

Here a few books that I have read that helped me in the past.

M&A Integration: How to Do it

Mergers and Acquisitions Integration Handbook

 

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