2004 Chicago CFO of the Year Award Best Practices

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2004 Chicago CFO of the Year Award Best Practices We would like to extend our thanks to those who participated in the Third Annual Chicago CFO of the Year Award, a joint program sponsored by the

1 2004 Chicago CFO of the Year Award Best Practices We would like to extend our thanks to those who participated in the Third Annual Chicago CFO of the Year Award, a joint program sponsored by the Chicago Chapter of the National Investor Relations Institute (NIRI-Chicago) and the Kellogg School of Management, Northwestern University. We congratulate John M. Duffey, CFO of Dade Behring Inc., for winning this year s award. The caliber of nominations was once again outstanding, and it was a privilege to read them all as a member of the judges panel. It was inspirational to learn the best practices that CFOs have established at their respective companies. Regardless of industry or market cap size, each is a standout leader in their own right. We thought it would be beneficial to communicate some of those insights and practices that the nominators illustrated through their essays. To do so, we have selected five representational essays to share with you this year. We anticipate that this will be an honored annual award in the Chicago business community for years to come, and encourage your participation in the future. Judges Panel: Christine Hanneman, Pactiv Corporation Cindy Klimstra, CDW Corporation Robert McDonald, Kellogg School of Management, Northwestern University Larry Peepo, Abbott Laboratories Jennifer Rice, Hewitt Associates NIRI-Chicago & Kellogg 2004 Chicago CFO of the Year Award: Best Practices Page 1

2 CFO Transforms Culture to Public Company Mindset and Articulates Complex Business Model The CFO has multiple audiences institutional shareholders, a significant number of inside shareholders, media and employees. XYZ s business is relatively complex due to the multiple external drivers that impact business and its products. For new and existing institutional investors, the CFO has been effective in describing the nuances of XYZ. This is a unique challenge, as XYZ is the first public company in its sector in the United States. When we began the dialogue with investors, there was no other company that could be used as a comparable. There was no simple industry P/E multiple to apply to XYZ to determine an appropriate valuation. The CFO s approach was very straightforward: to simplify the business and explain XYZ s growth strategy. This included discussion of not only the financial picture, but also, the drivers of future growth. Over a relatively short time the CFO had established rapport and trust with the sell-side and buy-side. With XYZ s inside shareholders, the CFO s approach is the same: how can we deliver results and what will drive future performance? In our annual shareholder meeting forum, or through individual discussions, the CFO works to ensure that inside shareholders understand XYZ s vision of the future. The result? There have been several opportunities for these individuals to potentially sell their XYZ shares, but they have sold fewer shares than the market expected. That was a bullish signal to outside investors. They have trust in the leadership of the organization to fuel further growth. The CFO is the key recipient of calls from the media about financial related questions. During 2003 the positive press coverage of XYZ increased substantially due to strong performance and its public company status, while similar organizations struggled from a PR perspective. Lastly, employee communication is very important especially when a company is transformed to a cash flow-driven public company. The CFO led an effort to set up several well-attended internal classes and workshops about the IPO and a class on the specific steps employees can take to generate free cash flow. Most recently, in January 2004, XYZ developed an internal training program for employees that involves the participation of internal experts providing monthly seminars to a large number of employees. The CFO, along with a member of the IR team, presented an investor relations overview during the first event. The response was extremely positive, with the feedback metrics well above historical norms for other internal presentations. NIRI-Chicago & Kellogg 2004 Chicago CFO of the Year Award: Best Practices Page 2

3 CFO Reintroduces Company to the Financial Community Through Proactive IR The CFO was instrumental in XYZ s financial restructuring. Prior to its completion, the company had very little proactive contact with the financial community. Its investor relations efforts were compliant at best. Following its successful restructuring, the CFO and the management team realized that it had a good story to tell one that would be of interest to its current and prospective investors. Spearheading the company s reintroduction to the financial community through initiating a pro-active investor relations program, the CFO became one of the company s key spokespersons and the face of the company as it met with investors. The goal was to raise its visibility and increase interest in XYZ as an investment opportunity. The CFO was instrumental in making this happen. The CFO embarked upon a busy meeting schedule, which included becoming reacquainted with shareholders for whom XYZ had become just a stock; and meeting new investors who would be interested to hear how the company was now a strong, well-managed organization. To effectively conduct these meetings and make sure they were as productive as possible, the CFO was well armed with an in-depth, yet concise, presentation. The CFO focused on areas of particular interest to investors such as the company s strong balance sheet, its solid, recurring revenue base and its tight management of costs and expenses. Understanding the necessity of continued communications, accessibility to investors and reliable, rapid response time to questions, the CFO implemented additional facets of a good investor relations program. The CFO conducted countless one-on-one meetings with investors and analysts, attended several analyst conferences a year, and ensured a process was in place to respond to inquiries timely and completely by himself or his staff. In all of these communications, the CFO made sure that the company was extremely straightforward and presented the story clearly. The CFO used the opportunities to speak to investors to communicate XYZ s vision and be frank about its outlook. When confronted with difficult questions, the CFO answered them pointedly and gave realistic scenarios. Investors have come to expect the CFO to be open about the company s position and give them a good idea of what to expect moving forward. The CFO also excelled in internal communications. The CFO was a key supplier of information to the Board of Directors. The Board relied on the information provided by the CFO to make effective and informed decisions regarding XYZ. For employee communications, the CFO was able to lay out the financial position of the company, set strategies and motivate the organization behind him and the XYZ management team. All of the CFO s efforts have paid off. Since the IR program began, XYZ s market valuation has increased 200% and the number of analysts writing research reports on the company have increased from one to seven. The employees are focused and secure with the position and status of the company. NIRI-Chicago & Kellogg 2004 Chicago CFO of the Year Award: Best Practices Page 3

4 CFO s Financial Projections and Messaging Strategy Position Acquisition for Investor Acceptance The CFO is highly respected internally by both subordinates and senior management. The CFO s insight and broad knowledge of the industry - impacts and variables - causes many to seek out the CFO s advice and opinions on all manners of business. The CFO has interaction with literally every facet of XYZ s business operations. In any M&A situation, the CFO is a crucial team leader in every financial aspect of the transaction, but the CFO was also a leader in developing the key strategic messages and projections that would be communicated to analysts and investors at the time of the announcement, during the due diligence process and the integration process. Not only was the CFO an integral part in securing the financing of the acquisition, but the CEO relied upon the CFO s abilities to help justify the acquisition to the investment community and help manage the business to meet stated projections. At the time of the acquisition, XYZ was criticized for overpaying for ABC, a lofty 12.4 times trailing EBITDA, but the CFO s forecast of substantial EBITDA growth in 2003 has come to fruition fueled by increased revenue, seamless integration and significant cost controls administered by the CFO. This success has led to increased credibility and support from the investment community. In a recent report, a senior analyst with DEF analyzed the ABC acquisition in retrospect. The analyst came to the conclusion that the acquisition was actually made at a slight discount to the industry group s EPS multiple and points to several strategic initiatives that are being implemented to help both ABC and XYZ as catalysts for growth. The acquisition was deemed a success thus far, and management is now continually praised for their ability to execute. On the financial front, the CFO negotiated $290 million of senior notes for the acquisition of ABC. The CFO negotiated with the lender throughout the entire financing process. Also, the CFO has managed cash flow to put XYZ in a position to pay down debt by $50 million in 2Q04, and should be substantially ahead of schedule by 3Q04. This example shows how the CFO played duel roles in financing the ABC acquisition, making specific projections to help justify the acquisition price and communicating management s plan to the investment community. NIRI-Chicago & Kellogg 2004 Chicago CFO of the Year Award: Best Practices Page 4

5 CFO Places Equal Emphasis on Communication with Multiple Audiences One might think that investor relations would be deemphasized at a company that is majority owned by another corporate entity. Under the CFO s leadership, however, this is far from true. The CFO s investor relations philosophy places strong emphasis on both openness and access. As such, the CFO and other members of the investor relations team will never decline the opportunity to meet with minority shareholders or bondholders. As a multinational company, this means that the CFO will frequently meet with investors outside the U.S. in person, whenever possible, or by video conference. Also, the CFO is asked frequently to participate in investor relations conferences. The CFO takes advantage of every opportunity to get XYZ in front of investors and analysts to recount the company s improving financial profile and vision for the future. With XYZ s growing presence in the bond market, the CFO has also proved adept at integrating bondholder communications into XYZ s overall investor relations program. Viewing the information and communications needs of bondholders as equal to those of equity holders, the CFO emphasizes the importance of consistent messaging and message delivery to both audiences. The CFO s active participation with XYZ s board of directors has enabled the CFO to infuse the highest levels of management with perspectives that balance the needs and concerns of the majority shareholder with those with much smaller stakes in the company. Having the support and confidence of the board also enabled the CFO to successfully oversee the implementation of programs to ensure full compliance with new rules governing compliance, disclosure and the integrity of XYZ s financial statements. The CFO zealously implemented the requirements of Sarbanes-Oxley, even exceeding the requirements for foreign-registered companies. The CFO has also taken a rigorous stance with regard to Regulation G, making absolutely sure that all management accounting figures used in external reporting are fully explained and clearly calculated. NIRI-Chicago & Kellogg 2004 Chicago CFO of the Year Award: Best Practices Page 5

6 Proactive Communication Improves Stakeholder Understanding of Restructured Company The CFO, along with other senior management, understood that a critical success factor of XYZ s reorganization was transparency and open communications. In a typical corporate restructuring process, many companies start to retrench and decrease communications. The CFO did just the opposite and proactively communicated the company s ongoing financial situation with creditors, customers, suppliers, employees and other stakeholders. Under the CFO s leadership, finance became integral to the business, directly influencing decisions related to generating revenues and managing expenses with protocols and processes to ensure the organization delivered on its commitments and generated solid results. Within the global finance organization, the CFO implemented a two-way communication process to effectively and efficiently obtain information and deliver ongoing updates. The CFO conducted monthly conference calls, regular site visits and bi-weekly senior finance management meetings. Given the importance of strict financial controls and to re-establish the company s credibility, the CFO, in partnership with corporate communications, engaged all employees to understand the financial aspects of the company s turnaround and its role in the future success of the company. Ongoing updates on the company s strategic imperatives and performance were delivered internally and externally through quarterly earnings calls, internal publications and employee face-to-face forums. For external constituents, one of XYZ s biggest challenges was that few had heard of the company and most had limited knowledge of its industry as a whole. The CFO and other management participated in over 200 one-on-one meetings and several investor conferences to obtain interest from investors and sell-side analysts. As the largest company in the world solely focused on its industry sector, XYZ seized the opportunity to market the industry story and shape investors and analysts perceptions of how to view the $23 billion industry. XYZ, with its razor-razor blade revenue model, could demonstrate steady growth with a recurring long-term revenue stream. In February 2003, we had approximately 500 shareholders and one sell-side analyst covering the company. By the end of 2003, the company had approximately 8,000 shareholders and eight analysts covering the company. NIRI-Chicago & Kellogg 2004 Chicago CFO of the Year Award: Best Practices Page 6

INVESTOR RELATIONS - A COMMUNICATIONS CLEARINGHOUSE A TALK WITH FORMER NATIONAL INVESTOR RELATIONS INSTITUTE CHAIR, VALERIE HAERTEL

1 INVESTOR RELATIONS - A COMMUNICATIONS CLEARINGHOUSE A TALK WITH FORMER NATIONAL INVESTOR RELATIONS INSTITUTE CHAIR, VALERIE HAERTEL BY JOHN C. WILCOX, CHAIRMAN, MORROW SODALI INTRODUCTION Companies in