The Frustrated CFO

Follow-up to Perversity of Super-Rich: Walmart

Since Walmart and their subsidiaries (including Sam's Club) are public companies, the Waltons (Jim, Alice and S. Robson) are on the Forbes' billionaires list - numbers 20, 21, and 22 at $21 billion each.  That's their holdings in Walmart stock.  Well, let's say there is a few more billions in their private holdings.  Does not matter.  When it comes to bargaining for the Walmart's interests they come as one, so to evaluate their real power we should combine their wealth.  That puts them into competition for the first place on the world-wide list - definitely above Bill Gates and Warren Buffet.  No question - a very power family.

Many people have problems with Walmart for many reasons - they destroy local business, they discriminate, particularly against women (Funny how that class action suit was dismissed by the Supreme Court on account of women being too different to represent a class.  Well, they all have vaginas, don't they?) But you cannot deny the fact that they are the country's largest employer with a steady growth.  Remember my previous New-York-Magazine-Intelligencer-prompted post The New Economic Reality of Unemployment?  2.1 million people - where would they go, if it was not for Walmart?  Of course, most of them make very little money, but it's still more than the government's help.  

Anyway, it's a free country and I love capitalism (not the bastardy, distorted, perverted paper version we have now, but the real demand & supply model).  Then again, if they push out of business your local bakery, there is no way you will ever be able to get the same quality bread in Walmart.  So,  that's kind of sad.  But as long as they compete fairly... 

Well, that's a bit of a problem.  Look, now they are planning on coming to the place that cultivated boutique retailing for decades now, my hometown - New York City.  And there is nothing fair about the way they try to get in.  As a matter of fact, they do it in  the most perverse way  - by buying their way through resistance with charity donations.  According to Eric Benson's Intelligencer report from the last New York Magazine shown here (you can also read it here Big-Box Rolling), since they started campaigning for the location in Brooklyn, they have spent $13 million on charitable giving in New York.  Which small farm-to-table store can compete with that?

And I am sure there are plenty of people who think it's a good thing - "they are helping..."  They are helping themselves to increase those $260 billion of annual revenues - that's what they are doing.  They did not give a penny to those charities before and, I am sure, if someone told  them "No" today, the donations would stop immediately.  How sick is that?  You cannot openly bribe the officials, so you do this?  That's not charity, that perverse marketing, and they shouldn't be allowed to use it as a deduction on their tax return.

Well, what can we do?  They are super-rich.  As I said in my last post, they can do WHATEVER THEY WANT.   

Quote of the Day

"I don't make jokes, I just watch the government and report the facts."

                                                        Will Rogers

The Inhuman Perversity of Super-Rich

People are always interested in celebrities, especially the ones that have anything to do with entertainment.  Thanks to the score of tabloids, paparazzi, TMZ and Perez Hilton, anyone can have an access to tidbits of information about their favorite idols - what they like, what they don't like, how they act in public, what bags they buy, how they treat their help and friends.  And even though a lot of it is just a front and we know that all of them, just like the rest of us, are miserable and horrible humans, you can still tell who is more of a bitch and who is a real dick.  And, of course, the dazzling riches!

It's funny, really, because they may look good in their make-up and shit, but the dazzle is not there - these people are rich, but they are not SUPER-RICH.  Yet, nobody seems to be interested in personalities of those people who really can afford to do whatever the hell they want.  And I mean it - WHATEVER THEY WANT.  Aren't people at least a little bit curious about what it does to a human being to have truly unlimited resources?  Why the damned paparazzi don't follow them everywhere? 

Look, Forbes lists over 1040 billionaires (The World's Billionaires - Forbes) and the list is far from complete.  Forbes calculates wealth based on individuals' public holdings.  They don't have access to private information, hence none of the private equity magnates are here.  Patriarch Partners' CEO, Lynn Tilton, openly calls herself a billionaire, but she is not on the list, because that billion is composed of her holdings in private companies, which Forbes cannot value.  By the way, if Ms. Tilton did not hire a strong PR representation, we wouldn't know anything about her either.

But it does not matter.  Let's look at the ones on the list.  How many of the names are recognizable to you on a first glance?  Well, Warren Buffet, of course, Bill Gates, Michael Bloomberg, Mark Zuckerberg, Steve Jobs; maybe Jeff Bezos (Amazon), Larry Page and Sergey Brin (Google), George Soros...  How about Phil Knight (Nike) - the person who discovered China (no, not Marco Polo)  for outsourcing and began the exportation of jobs out of the US?  Do you know anything about him?  The rest of them are simply indistinguishable. 

Most of the super-rich keep low profile and are virtually unknown outside of their neo-aristocratic and philanthropic circles.  Yet, they are the ones with real power.  So, why we are not interested in what kind of people they are, especially considering that most of them are self-made?  At some point these formerly average-means people came to realization that there is virtually nothing they cannot do.  That must do a number on an individual's psyche, don't you think? 

Those people who meet them frequently through their work, fundraising efforts, etc. have the first-hand knowledge of how perversely inhuman super-rich people are:  They cannot help it - they are crazed by the rift in their perception of themselves.  They think they are normal people, but the lives they lead proves them otherwise.  The humanity in general has been running low on morality, but these people are drunk on their own power and that's scary.  Who knows what schemes they concoct that may render other people completely irrelevant?              

The Weakest Link in a Corporate Finance and Accounting System

Let’s say, as a CFO or Controller you have all policies outlined and procedures carefully designed.  Everything is properly documented and bound into books and manuals, which are readily available for orientation, training, and daily reference.  Through intensive internal audit program all components have been examined; everything have been tested in practice.  Whatever did not work well has been tweaked; cumbersome procedures were replaced with more straightforward ones; the inferior ones have been improved.

Finally it has been determined that the internal control system is both effective and efficient in accomplishing the company’s goals and the executive management’s objectives.  Is it reasonable at this point to expect that everything should be working like that expensive watch I keep mentioning as a model of a perfect mechanism?  Unfortunately, not. 

We don’t exist in the virtual world of The Matrix trilogy, where everyone is manipulated by the digital code.  In real life it is the other way around: our well designed systems and structures depend on being properly handled by people.  Their proficiency and diligence determine how well the policies and procedures are being performed.  The truth is that every task performed by an employee is vulnerable to occasional unintentional errors, consistent sloppiness, and even deliberate mishandling.

Any designer of functional systems, with frameworks that include people as key elements, knows that humans are the weakest links in the chain of actions.  Long time ago, when computers were so huge that a single unit occupied a hall the size of the New York Public Library’s Reading Room, all programs and data were coded on punch cards.  A punched out spot was read by the computer’s card reader as a character or a digit.  These cards were manually created by operators trained to use a keypunch machine.  Guess what?  Two separate people produced every card in duplicate.  No exceptions. If the cards did not match, they have to be re-punched.  Thus, the risk of human error was managed.

Such duplication of staff is unthinkable now.  Today, we rely on computer systems to reduce at least the most common of the risks.  The rest of flaws must be caught through vigorous and persistent scrutiny of performance quality.  Monitoring is the cornerstone of internal control and one of the most important responsibilities of a supervisor.  It brings the entire system together and assures that policies, procedures and people concur.  A series of timely and thoughtful tests should become a part of your, or your internal auditors’, routine.

Remember:   If not corrected, every mistake your employee makes will end up in financial data, documents and reports, for which you are ultimately responsible.  One erroneous entry may affect your bank’s collateral statement or a presentation to the board of directors.  Omissions will impair strategic decisions.  Communication mishaps can impact commercial relationships.  These flaws will most definitely be a poor reflection on your reputation as a financial leader.  You have to create filters that will catch the debris before they pollute the results of your hard work.

You can read about various practical techniques of reducing accounting and finance systems' vulnerability to human factor in my upcoming book "CFO Techniques" (Apress, 12/02/2011), now available for pre-order at Amazon and Barnes & Noble.    

My Book Is Now Available for Pre-Order

My book "CFO Techniques: A Hands-on Guide to Keeping Your Business Solvent and Successful" (Apress, December 2,2011) is now available for pre order at Amazon and Barnes & Noble:

• ISBN-10: 1430237562
• ISBN-13: 978-1430237563

Quote of the Day

"It is better to have a permanent income than to be fascinating."

                                        Oscar Wilde

The Frustrated CFO's comment:

Oh boy, we, the conformists of the financial profession, live our entire lives like that.  Is it really better?  I don't know.  I think the great man wrote it in Paris, abandoned by everyone and destitute, but would he swap his life with someone rich and dull?  There is a Russian saying that it's better to be healthy and rich than sick and poor.  I think that's a closer reflection of our inner desires: have a steady income (and I don't necessarily mean being super-rich) and be fascinating at the same time.

CFO Folklore: The Home Front

I touch on the gender inequality among financial execs once in a while - an obligatory topic for a female CFO/author/blogger.  I mean, everyone writes about it.  Entire institutions and organizations compile sociological studies dealing with these issues.  None of it seems to be creating any changing momentum, but hey, at least someone is willing to pay the researchers their salaries. 

The interesting thing, though, that most of the time these topics (including my earlier posts) deal with the social, rather than practical, aspects of the phenomenon.  People talk about advancement rates, compensation levels, female-to-male executives proportions, etc.  In a very scientific way, we say: all things being equal (education, achievements, intelligence, etc.), women still don't get a fair shake.   And nobody talks about the fact that, on a practical level, things are never equal between men and women, who strive for, or already achieved, top job positions.

First of all, women by nature are more conscientious and responsible than men.  That is why we have higher percentage of female straight "A" students both in high schools and colleges (yet, there are more male valedictorians!).  Secondly, women know only too well that they are at disadvantage due to the simple fact that they are not men.  That makes them work ten times harder than any man in their position would.  So, in truth they get rewarded at lower rates not for the equally good work, but for the job done much better.

But the biggest practical inequality occurs on the executive's home front.  I remember having a friendly airplane conversation with my CEO, on our way to a meeting in Germany.  At one point he said that I was the hardest working person he knew besides him - he honestly believed that he worked as hard as I did.  Of course, he was talking about the job itself.  Well, I thought that even at that I worked much harder (I did not take Friday's off during summers), but I chose to turn to more obvious facts of life.

I asked, " Who prepares your suit, shirt and tie for tomorrow every evening?"  "My wife," he said.  "We frequently work until 9 or 10 pm, is the dinner ready, when you come home?" "Yes."  "Who writes checks?  Who deals with repairmen?  Who talks to teachers?  Who buys groceries? Who takes kids to the doctors'?"  "The wife" was the answer to all the questions.  "Now, who do you think does all that in my home?"  

He knew the answer, of course.  So, every day I was working my executive job, let's say, just as hard as he did, plus his wife's job.  And that's true for most of female CFOs, whether married or single, with or without children. 

Look, how many unmarried male CFOs or Controllers you know?  I don't know any.  Even if their wives leave them, they get remarried very quickly - someone needs to take care of the home front.

On the other hand, a woman expected either to give up her personal life for the career, or hide it away, as if she does not have any.  It is especially true for those female executives who work in small and midsize companies - the salaries are not large enough to afford a Mr. Mom of a husband.  So, we are talking inequality cubed: the majority of women work harder, plus cover the home front (or give up life outside of the job), and still get paid and promoted on a much smaller scale. 

Here is the funny part.  At the end my boss asked, "How come you still read more than I do and go to the theater all the time?"  "Because I don't sleep," I answered.

Quote of the Day

"Honest criticism is hard to take, particularly from a relative, a friend, an acquaintance, or a stranger."

                                                    Franklin P. Jones

The Frustrated CFO Plays the Identity Game

Well, not exactly - rather we shall play a slightly modified version.  Instead of matching different profiles to people, I will provide just one set of characteristics and a multiple choice to pick a correct answer at the end.  Ookey-dookey, here we go!

This financial being...

1. Never produces/makes enough to support himself/itself  and his/its dependents.
2.  Yet, it habitually spends more than he/she/it can afford.
3. To sustain his/its spending habit it constantly takes money from others - people and institutions.
4. When the time comes to fulfill payment promises he/it gets money from another place and pays the old outstanding amounts, thus replacing the old obligation with the new ones.
5. To keep appearances and convince everyone that  everything is fine, he/it acts very confident, as if he/it is on the top of the world and his/its own dealings are in perfect state.
6. In the process of such activities, he/it pulls into this bullshit game everyone who depends on him/it, exposing them to the future financial problems.
   
7. Eventually he/it runs out of places and people to take money from - some or all obligations remain unfulfilled.
8. As a result, the entity looses his/its official and unofficial creditability and has to suffer punishment and/or public humiliation.
9. When that happens, the entity acts as if it does not understand why it happened and claims it to be a misunderstanding on the part of those responsible for punishment.
10. Of course, those related to the entity, whether formally or informally, closely or remotely, directly or indirectly, all get hurt.
    
11. Under the new conditions, it is even more difficult for the entity to survive; the game of obligations replacement becomes more and more expensive, further deteriorating the financial situation.
12. Yet, he/it tries to put on a smiling face, hiding from the rest of the world that the worst is yet to come and that a complete bankruptcy and collapse are just around the corner.

Who or what is this financial being?  Please select the correct answer:

A.  A credit card junkie

B.  A Ponzi-schemer, such as Bernie Madoff

C.  US Treasury

D.  All of the above. 

 

Everyone Loves Lucy

Last week Lucille Ball would have turned 100 years old.  Not every celebrity achieves the level of popularity that justifies posthumous birthday announcements, and I am glad that it applies to this great comedienne, who entertained people for so many years.   (As a side note, I must mention that it is a testimony to our electronic dependency that Google doodles have become integral parts of establishing people's immortality - I love them too, by the way.)

And I love Lucy, who also undeniably belongs in this blog as a brilliant businesswoman - one of the most powerful Hollywood women of all times. 

The business success started with Desi's shrewd decision of setting up a television company Desilu (with Lucy's effigy right there in the logo), equally owned by the spouses and responsible for production of not just I Love Lucy, but also Star Trek, The Andy Griffith Show, Mission:Impossible, The Lucy Show, Our Miss Brooks, The Jack Benny Program, and many others.  Only three years into its existence, the company was considered such a powerful television presence that it became a natural choice of  many consumer product conglomerates, including Phillip Morris, for production of high quality TV advertisement.

Desilu was one of the first entertainment companies to recognize a power of merchandising - an entire line of I Love Lucy products, from pajamas and dolls to furniture sets, was a tremendous success.  In 1954 alone they brought a net profits of $500,000 (over $4 million in today's money).  After purchasing RKO's facilities, Desilu Productions has become the largest studio in Hollywood, running 33 sound stages (more than either MGM or Twentieth Century Fox).  When Lucy bought Desi out in 1962, she became the first female head of a major studio.

I've seen different numbers estimating Lucy's worth at the time of her death in 1989, wildly ranging between $25 million and $65 billion.  It does not really matter.  One thing we can say for sure - she did well for herself. 

Many biographers, TV historians, and ardent fans, have been arguing for decades, about whose contribution was most important in Lucille Ball and Desi Arnaz's financial success.  While Desi did present the company as a President, we may never know whose idea it was was to do this or that deal.  Without a doubt, Lucy was always a bankable asset.  Moreover, it is a known fact that the artistic merits and public appeal of such long-lived franchises as Star Trek and Mission: Impossible, that still continue spawning new feature movies, were evaluated and approved by her personally.  

But the most remarkable lesson in Lucille Ball's shrewdness as a business woman comes from a very personal matter.  Many enterprises fall apart on account of minor tiffs between unrelated partners.  Lucy and Desi Arnaz stuck together through marital problems for a long time and got a divorce only after the final episode of Lucy-Desi Comedy Hour was filmed.  Moreover, they managed their business separation in the most civilized and mutually-beneficial manner, remaining friends for the rest of their lives.