Corporate Performance Management

What CEOs Want from Their CFOs Today

February 6-8, 2005—New York, New York

Conclusions Paper
Corporate Performance Management
What CEOs Want from Their CFOs Today
February 6-8, 2005—New York, New York

Conclusions Paper
 Corporate Performance Management: What CEOs Want from Their CFOs Today 1

CONTENTS

Welcoming Remarks 2
Driving a Value-Driven Culture at EMC 3
Managing for Value at Microsoft 4
Realistic Leadership from Finance 6
Getting Results with Integrated Performance Management 8
How Pitney Bowes Drives Strategic Alignment and a High-Performance Culture 9
Measuring and Managing Shareholder Value 11
From Strategy to Continuous Improvement: A Close Look at Excellence 13
in Performance Management
Rethinking Risk: Improving the Odds of Profitable Growth 15
Developing Finance Leaders to Drive Global Operating Performance 17
What are the Key Deal Drivers for M&A in 2005? What Financial 19
Reporting Challenges Will Companies Face in the Deal Environment?
Sponsor’s Perspective 21

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 Corporate Performance Management: What CEOs Want from Their CFOs Today 2

Welcoming Remarks

Mary Driscoll
President and Editorial Director
CFO Research Services

Mary Driscoll, president and editorial director of CFO Research Services, opened
the conference by observing that the environment CFOs face today is not all that
different from the one that confronted them in the early 1990s, when the phrase
“corporate performance management” first made its appearance.

Financial scandals on Wall Street made headlines then, just as corporate accounting
scandals do now. Media-grabbing prosecutors like Rudy Giuliani were launching
political careers, just as their successors—such as Eliot Spitzer—are today. Off-
balance-sheet partnerships today attract the same disdain that junk bonds once did. The
economic situation isn’t that different, either: China has replaced Japan as the feared
East Asian juggernaut; anxiety about the U.S. budget deficit is with us again; and
activist shareholders are questioning board members’ judgment.

The CFO, once again, is called upon to be the voice of sanity, expected to detect
and report every new threat on short notice. “CFOs need a 360-degree view of the
performance of major acquisitions,” Driscoll noted. They must have financial
analysts embedded in the business units to help business managers determine how
to control costs and reallocate resources. And they are struggling to provide a
management dashboard that allows apples-to-apples comparisons of all of the
company’s business units.

CFOs are seeing good performance management as strategic support for the
company, not just a part of the reporting routine. With the advent of the Sarbanes-
Oxley Act, the definition of performance management is evolving again. A recent
CFO Research Services survey found that 65 percent of large-company CFOs found
that SOX, as well as HIPAA and, for some companies, Basel II, are actually a
catalyst for positive long-term change. Some have discovered problems they never
knew existed, and have become more aware than ever that performance surprises
can be as damaging as financial management control failures.

After more than a decade of increasing focus on corporate performance management,

Driscoll concluded, CFOs are finding that superior performance management is a
program, not a one-off project.

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 Corporate Performance Management: What CEOs Want from Their CFOs Today 3

Driving a Value-Driven Culture at EMC

Bill Teuber
Executive Vice President and CFO
EMC Corporation

EMC’s response to the bursting of the high-tech bubble, and how the company has
learned to build value again in its wake, was the subject of the first presentation of
the conference, by executive vice president and CFO Bill Teuber.

EMC was a small company that grew very rapidly in the late 1990s—at one point
its market capitalization was greater than IBM’s—yet it always focused intensely on
customer service, in part by tying bonuses to how business leaders have improved
the “total customer experience.”

According to Teuber, EMC was convinced early on that the high tech slump was
not temporary but a basic economic shift. “We had to take radical action,” he says,
shifting from a growth culture to a policy of “rightsizing” the company. The
company took one-third out of its workforce, placed an emphasis on employee
communication to bring stability to the population that remained, and revamped its
financials to make them very transparent.

Cost-cutting lowered the company’s quarterly break-even point and reduced capital
expenditure while allowing sustained investment in R&D. Process improvements
helped lower DSO and tighten inventory. Within finance especially, and with the
help of Six Sigma, that meant learning to get processes right the first time and make
them smoothly repeatable. Since Sarbanes-Oxley, compliance has become a center
of attention too, and the board’s audit committee is now meeting several times a
year with finance instead of just once a year.

EMC is also expanding its service and software business beyond its core data-storage
operations. It went on the acquisition trail in 2002, and over the next two years
made a series of deals to buy companies in businesses “adjacent” to storage, which
expanded EMC’s reach in the virtualization of corporate IT infrastructures.

One basic goal for EMC was to return to being a strong cash generator, and so cash
velocity—DSO, plus days sales of inventory, minus accounts payable—has become
a very important metric for the company. Dell, which has a high cash velocity, has
become a model for EMC in this respect. Meanwhile, the company’s growth rate
and gross margins have improved greatly.

Metrics, Teuber says, are as much about creating the right corporate culture as they
are about providing performance indicators. EMC has added what he calls an
“excruciating” level of detail to its financials in the last year, going beyond what’s
actually required by GAAP and the Securities and Exchange Commission. In part,
this makes the company as transparent as possible to investors and Wall Street,
which gives the company “credibility in the marketplace,” but it also impresses
upon EMC’s people that they are succeeding at customer satisfaction.

Speaking of customer satisfaction, Teuber says, “I look at my role as CFO not only
as lead financial person, but also as the person who makes sure that these attributes
carry on in the organization to the next generation. So I’m a bit of a storyteller about
why these things are important.”

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 Corporate Performance Management: What CEOs Want from Their CFOs Today 4

Managing for Value at Microsoft

Scott Di Valerio
Corporate Vice President and Corporate Controller
Microsoft Corporation

Microsoft corporate vice president and corporate controller Scott Di Valerio discussed
how the software giant has transformed its corporate structure and, at the same time,
revamped its financial organization to be a key element as it pursues an ambitious
plan for future growth.

Growth management has been a central challenge for Microsoft Corporation—one

it’s sought to tackle in recent years with a sweeping organizational reconfiguration,
as well as a drive to transform the finance sector. Di Valerio notes that the software
giant has grown from 20,000 people in 1995 to 60,000 today, and from some
$7 billion in assets to about $92 billion. It’s also evolved into a much more complex
mix of businesses.

To make that mix more understandable to analysts and investors, Microsoft reorganized
itself two years ago into seven business segments and two functional areas, each
with its own CFO. Last year it committed to Wall Street to grow revenues faster
than expenses. Its long-term aspirations are to grow over the next four years by a
factor that would equal the size of the current profits of a company like Nokia or
Coca-Cola.

“It’s a monumental task,” says Di Valerio—a task which demands that Microsoft’s
finance team transform itself into a more proactive organization that can make
decisions better and faster and “actually drive a lot of the key metrics that go in,
particularly in the business groups.” The CFOs within each of the business segments
are now helping to drive strategy by developing performance metrics, scorecards
and dashboards for financial performance—thus “earning a seat at the table” as key
players in business strategy development.

Key initiatives for finance—and the company—going forward will include:

• Developing multi-year models for business development, marketing, sales, and

overall performance;

• Setting up compensation schemes that promote a sense of ownership among the

top 600 people at Microsoft by tying bonuses more closely to performance;

• Managing talent so that key people are incentivized to stay longer in their roles.
Within finance, that includes modeling “career ladders” that give incoming
people some guidance as to what competencies and experiences they will need to
gather at each stage of their careers.

People reviews and strategy reviews, performed annually in October, have become
important exercises for Microsoft as well. Each business unit prepares a people
review for corporate management, which identifies their high-potential performers.
That gives management an idea of what its succession plans might be for each position.
After that, finance works closely with the business units to set strategic objectives
and targets for sales, operating profit lines, and investments.

To put all these new practices in place and make them work, Di Valerio says one
of finance’s key roles is “change evangelization”—convincing people throughout the

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 Corporate Performance Management: What CEOs Want from Their CFOs Today 5

company that it’s in their interest to make these changes work. Another is recruiting
and identifying the best and most talented people. This can become a time-consuming
process, but, Di Valerio stressed, it’s vital because “the transformation of finance
is going to be one of the key elements” in Microsoft’s achieving its long-term
growth objectives.

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 Corporate Performance Management: What CEOs Want from Their CFOs Today 6

Realistic Leadership from Finance

David Kelsey
Senior Vice President and CFO
Sealed Air

The third presentation of the day was by David Kelsey, senior vice president and
CFO at Sealed Air, who spoke about how to develop realistic leadership within the
finance function by making finance’s values a conduit for translating the ethical values
of the company into shareholder value.

For the finance organization, realistic leadership is about translating the company’s
values into principles and guidelines for building shareholder value that business-
unit-level managers can follow, said Kelsey. But to succeed, the CFO first has to
nurture certain capabilities in the finance team. “The team has to have the proper
skill set,” he said. “Those are what gets the team a seat at the table out in the business
units. Those seats aren’t made available based on organization charts or job titles.
They’re made available based on the ability to solve problems, to add value, to
communicate.”

Kelsey listed six attributes that define realistic leadership in finance:

Having specific metrics to measure performance. These should be highly visible,

easily measurable, and controllable. “We don’t want a two- or three-page set of
financial results,” Kelsey said. “We want a one-page result that has no more than
15 to 20 items in it.”

Investing wisely in the business. This means being realistic about assumptions for
cash generation, for example, and raising the question, “What happens if we don’t
make those numbers?”

Promoting success on a team basis. One of top management’s goals at Sealed Air
is “to get us all to think like shareholders and to act like shareholders and to be
shareholders,” said Kelsey. So it bases its management incentives on profit-sharing
plans focused on a mix of cash and shares, plus a restricted stock program that is a
big part of compensation for senior management.

Being vigilant in identifying and managing risk. Sometimes this means slowing
down a project to make sure all concerns are met. Sealed Air recently postponed a
program to manage its tax burden in one region for 18 months, Kelsey said, because
it first wanted to implement an information-system upgrade and make sure the
system could support the change.

Taking internal controls in compliance seriously. This is not always an easy sell to
the business units. But Kelsey said finance can achieve buy-in more easily by
arguing that they can use some of the changes finance makes to revisit some of their
own operating procedures, and by pointing out that facing up to Sarbanes-Oxley and
other new regulatory standards will help the company put more consistent policies
in place company-wide.

Never thinking you’re communicating too much. Sealed Air posts its monthly financial
reports and key metrics widely on company bulletin boards, and holds discussions
between its 20 senior managers and between each of these managers and their
respective teams. Sometimes this can expose hard-to-detect problems, such as over-
spending on travel and entertainment and under-spending on R&D in a particular unit.

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 Corporate Performance Management: What CEOs Want from Their CFOs Today 7

Part of the culture of openness and communication that Sealed Air cultivates, Kelsey
said, is regularly evaluating past investments: why they didn’t meet expectations,
why implementation plans weren’t fulfilled, and what surprises might have come
along. That way, he says, good ideas are less likely to be crushed at the local level
before others have a chance to test them. It’s all part of making sure the company
invests wisely and makes the most productive use of its cash.

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 Corporate Performance Management: What CEOs Want from Their CFOs Today 8

Getting Results with Integrated Performance Management

Leslie Culbertson
Corporate Vice President and Director of Corporate Finance
Intel

The fourth presentation of the first day was by Leslie Culbertson, corporate vice
president and director of corporate finance at Intel. She described the process by
which Intel’s integrated performance management system produces the company’s
annual plan, how it structures its compensation plan to build value, and how it drives
cross-group alignments that focus different groups on making key deliverables.

The purpose of an integrated performance measurement system, said Culbertson, is to

give your company the ability “to align your long-range strategies with your business
priorities, then hone those to your operating plan with real deliverables, real
accountability, and improved shareholder value.” Put another way, it’s about turning
your company’s annual plan into reality, with all employees committed to achieving
the plan targets.

Intel’s annual strategic long-range plan (SLRP) exercise begins each year in April,
when CEO Craig Barrett reviews the previous year’s performance by the company’s
top 300 management teams and outlines external factors impacting the business. The
business units then develop their product-line business plans, including product
introduction targets and deadlines for bringing new production facilities on line.

Finance does the P&Ls for each product line, then negotiates with the business units
over funding, sets spending targets, and identifies “hinge factors” that could affect
market growth. Another key metric at Intel is return on invested capital (ROIC),
Culbertson said, because it reflects whether the $48 billion-in-assets company is
utilizing those assets to generate the highest return for shareholders.

In September, Culbertson said she develops a top-down spending plan to the executive
office to be honed further, then brings the finished product back to the business
group general managers who do a “bottom-up response” indicating what they can
and can’t achieve. After they do presentations, finance and the executive office
finalize the new annual plan, including operating budgets and earnings targets for
each business, and release it in early December.

Intel centralizes its support functions, Culbertson explains, so it incentivizes engineering,

manufacturing, the sales team, and other relevant groups to align around the same
performance metric for each product by tying their compensation and bonuses to the
same set of numbers.

“So the average employee understands that they have the ability to influence in a
very big way the earnings per share and their variable pay,” Culbertson said,
“because we’ve made it personal for them. We actually spend a lot of time making
sure all employees at Intel understand what they’re being measured against. It’s
done at every business unit meeting that we have once a quarter.”

The result is to create very clear expectations, delivering real shareholder value by
making everyone accountable. During the plan year, that means finance must be
able to update the business units and functional areas on how they are doing. Intel
recently invested in a new general ledger and integrated planning system that allows
finance to run P&Ls quickly at very low levels so they can keep up-to-date on how
cost of sales and inventory are changing.

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 Corporate Performance Management: What CEOs Want from Their CFOs Today 9

How Pitney Bowes Drives Strategic Alignment and a

High-Performance Culture

Bruce Nolop
Executive Vice President and CFO
Pitney Bowes

Bruce Nolop, executive vice president and CFO of Pitney Bowes, gave a
presentation on how the company is driving a shift into providing software and
services related to E-mail and document management, creating a high performance
culture, and working to achieve a greater degree of strategic alignment throughout
the company.

Pitney Bowes has been on a drive since 2000 to achieve a higher degree of employee
alignment with company-wide objectives, said Nolop. To do so, it established a
consistent framework to talk about what it’s doing, created a vision statement and
operating principles, hired a chief branding officer to align its branding messages,
and created a communications program that includes weekly town hall meetings in
which members of top management answer employees’ questions. It also created a
balanced scorecard establishing objectives in three areas: shareholder value,
customer value, and employee value.

To align every employee from top to bottom with the company’s share-price
objectives, Nolop said Pitney Bowes has tied 100 percent of bonuses for the top 10
people in the company to the company-wide results. That includes people who run
individual business units. The change has helped drive use of shared resources and
cooperation among the units, according to Nolop. For non-bonus-eligible
employees, meanwhile, Pitney Bowes created a “rapid rewards” program in which
an individual can receive a special award of $500 to $5,000 for doing something that
facilitates greater alignment with strategic goals.

This year, penalties are part of the compensation structure for the first time, too.
Management decided that no company executive would receive a bonus if a
material weakness turned up in its Sarbanes-Oxley compliance. The result: “It
worked,” Nolop said. Finally, the company got rid of stock options as a bonus
for all but the top executives, because, Nolop explained, employees don’t
value them sufficiently and don’t feel they have anything to do with stock price
performance.

To improve employee value, Pitney Bowes now conducts employee surveys each
year to determine how engaged they feel in helping meet the company’s goals, and
ties manager compensation to improvements in this area. The company has also
established a goal of having at least two backups for every key position. At the same
time, it is identifying leaders who could potentially become corporate officers and
training a portion of them each year in Six Sigma.

The balanced scorecard alone doesn’t communicate company objectives, however,

and Nolop cautioned that communication is still important—keeping the message as
simple as possible. Each employee’s individual goals should be tied to one or more
of a small group of easily understood, overall company goals.

Finance plays an essential role in the entire process, which Nolop says has “added
enormously to shareholder value.” In particular, since it has a unique window on
the whole company, finance should help set the overall objectives, figure out how

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 Corporate Performance Management: What CEOs Want from Their CFOs Today 10

they apply to each employee, and help form the bonus plan and other levers. To best
pursue these, Nolop enumerates five things that finance must focus on:

• Strategy. Have a seat at the table and help direct it.

• Performance. Help drive earnings, cash flow, and other objectives.

• Communications. Drive communication of objectives throughout the company.

• Documentation and controls. Make sure they are in place.

• Talent. Think about how to advance within the organization.

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 Corporate Performance Management: What CEOs Want from Their CFOs Today 11

Measuring and Managing Shareholder Value

G. Bennett Stewart III

Senior Partner and Co-Founder
Stern Stewart & Co.

G. Bennett Stewart III, senior partner and co-founder of Stern Stewart & Co., spoke
about the benefits of using economic value added (EVA) as the pivotal finance
performance metric, and about how companies can improve their bonus structures.

EVA is derived from subtracting operating expenses from sales to achieve NOPAT
(“No Problem Anytime”) and then further subtracting a “rental charge” for the
company’s debt and equity. Another way to describe it is the dollar spread between return
on capital and cost of capital. The result, says Stewart, is a clear and simple
measure of economic—as opposed to accounting—profit for a company, business unit, or
product line.

EVA is a simpler measure than others commonly used—such as earnings per

share—and a better way for companies to set and communicate goals, allocate
capital, evaluate alternative strategic plans, create performance metrics, and
formulate compensation plans, Stewart said. Thus, it motivates managers and their
companies to maximize dollar spread rather than percentage spread. Companies that
have adopted it include Best Buy, The Williams Company, Harsco, Coca-Cola, and
Whole Foods Market.

The goal of EVA, Stewart said, is not to achieve a certain prescribed level of
performance, but to achieve continuous performance—no matter what level one
started out from. The drive to do so in turn helps create a culture of ownership in
the company that values sharing, teamwork, alignment, and partnership.

There are four ways to achieve better EVA, Stewart said:

• Cut costs.

• Invest more capital and build the business.

• Take capital out of the business.

• Reduce the cost of capital.

The first three imply that even if sales go down, it’s possible for a company to
improve its EVA. In contrast, focusing on EPS encourages the company to invest
in low-returning projects, overpay for acquisitions, over-leverage the business, and
when all else fails, use “over-the-top accounting.” Likewise, using return on
capital as the principal measure of success tends to make high-performing
business segments afraid to spend and grow for fear of lowering their ROC, while
overcapitalizing poor performers in hopes of improving theirs.

EVA can also help companies create simpler bonus structures that reward employees
directly for their contributions to the bottom line, rather than for a complicated mix
of top-line items, Stewart said. He argued that many companies currently add
to complexity and offer their employees perverse incentives by capping the size
of bonuses beyond a certain point, which dampens bonuses’ usefulness as top-
performance motivators.

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 Corporate Performance Management: What CEOs Want from Their CFOs Today 12

He recommended combining a “ceiling-less” bonus structure with a policy of

“banking” a portion of each employee’s bonus over a certain level each year. That
way, the reserve could be paid out during off years—and would encourage business
managers to make longer-term plans for their areas of responsibility.

Finally, Stewart urged companies not to tie bonuses to budgets. Instead, he said,
they should base bonuses on the cumulative change in EVA over time and reward
the best performers with larger budgets. This would afford them the opportunity to
grow EVA further and earn even larger bonuses in the future. “What I propose is
not a bonus plan,” Stewart said. “This is a make-managers-into-owners plan.”

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 Corporate Performance Management: What CEOs Want from Their CFOs Today 13

From Strategy to Continuous Improvement: A Close Look

at Excellence in Performance Management

Robert Paladino
Former Senior Vice President, Global Performance
Crown Castle International

Robert Paladino, former senior vice president, global performance at Crown Castle
International, closed the first day of the conference with a presentation on ways that
finance can use the balanced scorecard to instill a better understanding of strategy
and introduce a continuous improvement mindset into a company’s operating units.

Utilizing the balanced scorecard effectively is about continuous improvement, said

Paladino. When the cell-phone tower company first introduced the balanced
scorecard four years ago, it set 25 measures that it incorporated into the budget
template for each of its operating units. Since the program was a CEO-led initiative,
the measures were created and implemented in a top-down manner.

Today, only three of the 25 measures are left over from the original list, Paladino
said. The rest are the result of a more bottom-up process of determining which ones
are really relevant to improving results at the operating units. Crown Castle also set
up a Measure Council, including senior members of the management teams in each
country where it operates, to regularly review the list. “If we found a measure was
not being followed or really creating value for the company in terms of its causal
relationship to shareholder value, we’d take it off the scorecard,” Paladino said.

Continuous improvement also means developing a knowledge management system

that continually scans the units’ results to uncover “gems”—best practices that other
units can learn from, creating a multiplier effect. Today, when finance meets with
operating unit leaders at Crown Castle, the conversation centers on identifying key
strategy enablers—identifying the region, customer, account, asset or even a certain
tower that noticeably creates value or creates problems. Better use of performance
management tools helps make this possible. At the same time, this exception-based
approach has shrunk meetings from several days to less than a day.

Six Sigma also plays a role. Crown Castle has shifted its focus from acquisitions to
providing good operational service. Securing long leases with cell-phone providers
means steadier revenues and a more favorable view on Wall Street. Therefore,
regular customer satisfaction surveys play a critical role. If the surveys tell Crown
Castle that speed to market is a client priority, for example, the company must make
sure it’s aligning its internal operations to optimize speed to market. Six Sigma helps
create a process for improvement.

All Crown Castle salaried employees receive compensation tied to the company
strategy through bonuses. Establishing a reliable, understandable measurement
framework—for example, gross margin per tower—to determine bonuses, and
keeping it in place, helps make employees take the incentives seriously. The
company also “bakes” three or four key metrics into the job description of each new
employee, so that they always have a clear idea of what their priorities are. This
enhances employee satisfaction, Paladino said, because it helps them understand the
company’s expectations.

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 Corporate Performance Management: What CEOs Want from Their CFOs Today 14

Meanwhile, finance plays a vital role in achieving buy-in—by setting metrics and
coaching operating-unit leaders on setting targets to optimize their people and
resources to meet customer needs. That could include advice on augmenting
marketing’s role, encouraging preventive maintenance, and driving down costs—all
of which help build a solid relationship with the operating units.

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 Corporate Performance Management: What CEOs Want from Their CFOs Today 15

Rethinking Risk: Improving the Odds of Profitable Growth

Adrian Slywotzky
Managing Director
Mercer Management Consulting
Co-author, How to Grow When Markets Don’t

Starting off the second day of the conference was Adrian Slywotzky, managing
director of Mercer Management Consulting and co-author of How to Grow When
Markets Don’t. Slywotzky spoke on strategic risk management—an emerging field
that deals with how companies can respond to unexpected external changes in the market.

There are four basic categories of risk, said Slywotzky: hazard risk, financial risk,
operational risk, and strategic risk. Corporate America has made a great deal of
progress at managing the first three categories better in recent years—for example,
banks have much better tools for seeing themselves through economic slumps, interest
rate gyrations, and other financial risks than they used to. Strategic risk is different,
because it covers situations that companies—even very successful ones—aren’t
always equipped to see coming.

But there are ways to anticipate strategic risks and even turn them into opportunities
to build value. Slywotzky covered six key varieties:

Industry risk, when profit margins industry-wide crumble—as happened in airlines

and steel, for example. Often the answer is for the company to figure out ways to
collaborate with competitors and refocus resources on finding ways to differentiate
itself.

Technology shift, for example when cell phone technology shifted from high-end to
mid-range. Slywotzky said some companies have anticipated such risks by double-
betting on more than one technology. Technology shifts are a more common issue
today, however, because they can now affect industries outside the high-tech area,
such as retailers, brokers, and video distributors.

Brand risk, when consumer support for a brand collapses or erodes over time.
Slywotzky said companies need to redefine the scope of what brand investment is—
not just marketing and advertising, but also customer service, quality programs, and
training. Companies should ask themselves every 12 to 18 months what their brand
mix is and what needs to be done to improve it.

Unique competitor, such as the entrance of a Wal-Mart or other super-competitor

that dominates a business. Slywotzky said often it’s possible to see these coming,
but companies rarely do. Once they realize what’s hit them, companies often try to
compete with the interloper on its own terms, but they generally fail. To survive, it
makes more sense to define a customer layer that’s different from the super-
competitor’s and rebuild the business model around that definition. Target has done
this successfully to compete with Wal-Mart.

Customer risk is when changes in customers’ behavior, priorities, or segmentation

cause them to abandon one product or provider for another. The solution,
Slywotzky said, is to develop a proprietary database of knowledge about your
customers—built on perhaps tens of thousands of interviews and surveys
conducted nearly non-stop—that helps you to anticipate these shifts.

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 Corporate Performance Management: What CEOs Want from Their CFOs Today 16

Project risk is when a major initiative like a merger or an R&D project fails. The
trick is to understand the probability of success, and then figure out how to manage
the probability curve. That could mean prioritizing projects so that you do the less
risky ones first, or making many bets on projects that might or might not succeed—
but always keeping them small.

The CFO is probably the best-positioned person to take ownership of strategic risk,
Slywotzky said. That’s because the solutions so often lead to capital allocation shifts
or changes in the direction of corporate development that are harder for the CEO or
business unit leaders to reckon with by themselves. But once the CFO has identified
a danger point, it’s vital to get the CEO’s buy-in and then to find others in the
organization “who are hard-edged business thinkers and not prisoners of their position.”

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 Corporate Performance Management: What CEOs Want from Their CFOs Today 17

Developing Finance Leaders to Drive Global Operating

Performance

Peter Mondani
Manager, Financial Leadership Development and Human Resources
General Electric

Peter Mondani, manager of financial leadership development and human resources

at General Electric described GE’s finance training and leadership development
program, and explained how it has evolved in recent years.

General Electric recruits about 350 finance staff a year, and typically has about 700
people going through the financial management programming (FMP)—its basic
financial training module—each year. Mondani, along with CFO Keith Sherin and
the CFOs of GE’s 11 business units, are responsible for staffing some 200 execu-
tive positions from finance each year—40 percent of all executive offices, and at
least one every time the company makes an acquisition.

GE values and promotes finance staff who are clear thinkers, good communicators, and
who have the courage to stand up for what they believe is best, according to
Mondani. Developing their leadership skills is key, he added, because he never
knows when a key finance job will open up or another acquisition will go through,
requiring another seasoned individual to fill it.

The core of the development program is Session C, an annual review process that
takes place in the second quarter. Mondani and Sherin evaluate all the finance
people in every GE unit or functional area, then review the results with CEO Jeff
Immelt and the business unit CFOs. In the fourth quarter, another full review takes
place before the GE board.

GE has been working to keep this process simple, Mondani said. It switched two
years ago from a ranking system to a rating system with only three
designations—top talent, highly effective, and less effective—that’s used for salary
planning and determining bonuses. All of the appraisals are now online, eliminating
a huge volume of paper.

Another initiative is to “localize” talent in finance, since GE is becoming an ever

more global company, said Mondani. For example, its goal is for all its senior
finance people in China—its fastest growing market—to be Chinese
within the next five years. That means especially growing the two-year FMP
program there along with the audit staff—traditionally GE’s principal point of entry
into the finance organization for new hires.

Retention and career laddering are also major concerns. The FMP program—taught
in English and in the same way all over the world—is GE’s way of starting everyone
out on the same level. The company also tries to move promising people quickly
into “stretch assignments”—challenging positions that require them to use or
develop strong leadership and intellectual skills that show up in the results. “My
definition of a stretch job is, do you go home with your eyeballs rolling?” Mondani
said.

Audit staff work is a major differentiator: after two to three years, finance
evaluates individuals and promotes them either up or out. Those who make the cut
have the opportunity to be recruited by the business unit CEOs and CFOs at a career
fair each trimester. It’s a common career path for people to move from finance to
an operational responsibility and then back to finance, Mondani said. It’s also not

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 Corporate Performance Management: What CEOs Want from Their CFOs Today 18

uncommon for some to stay in operations. But strategically, it works: “I look at

our curriculum as developing business leaders with expertise in finance, versus
developing finance leaders,” he said, noting that 30 percent of the executives who
report directly to Immelt are finance “graduates.”

APRIL 2005 © 2005 CFO PUBLISHING CORP.

 Corporate Performance Management: What CEOs Want from Their CFOs Today 19

What Are the Key Deal Drivers for M&A in 2005? What
Financial Reporting Challenges Will Companies Face in
the Deal Environment?

Donna Coallier, Partner

Robert Filek, Partner
PricewaterhouseCoopers LLP

Following the conference’s second-day luncheon, Donna Coallier and Robert Filek,
partners at PricewaterhouseCoopers LLP, presented on the state of the mergers and
acquisitions market in 2005 and how a recovering economy and new legal and
regulatory requirements have affected conditions for deals.

Pent-up demand is likely to drive a strong M&A market in 2005, said Filek. That’s
because companies that struggled to turn in positive numbers in 2003 and began to
recover in 2004 are now ready to grow aggressively, through either internal
investment or acquisitions. Deal financing is easier than it has been for some time,
he added: mezzanine debt is available again, private equity funds are back in the
game, and the S&P 500 companies are known to have over $800 billion of cash on
their books.

Deals this time around will probably be done differently than in the frenetic late
1990s, however. “Companies have really taken to heart a lot of the disciplines that
they’ve put into their businesses in terms of governance and controls,” Filek said.
They are taking a lot more time preparing for acquisitions, boards are asking
harder questions, and companies are doing more due diligence so they are better
prepared to integrate the new units. The upside, said Filek, should be better results
for shareholders.

Where will the new action come from? Europe is one place to look. The fact that
the dollar is cheap is a double-edged sword, Filek said: assets are cheaper, but cash
flows are worth less when translated back into the acquirer’s currency. But since
many European countries are exporting heavily to the United States and receiving
dollars, they may see acquiring infrastructure here as a good offset.

Banks may be on the acquisition trail, since their profits from real-estate refinancings
are tailing off and some financial one-stop shops may be ripe for breakup. Utilities
are flush with cash. And health care, a sector under pressure, may see mergers.

Lawmakers and regulators haven’t been inactive the past few years, however.
Coallier spoke about new rules that companies will have to keep in mind. The
requirements of Sarbanes-Oxley Section 404 will force companies to spend more
time making sure that the certifications and processes around internal controls are
going to pull through after a merger. Greater Securities and Exchange Commission
scrutiny of intangible assets, and whether some should be amortized, means that
acquirers will have to examine the purchase balance sheet very closely. What are
the lives of the consumer intangibles? Are there intangibles that confer some
regulatory rights?

New consolidation rules also mean potential acquirers need to take a closer look at
targets that have done joint ventures and minority investments, leasing or securitization
deals, or off-balance sheet transactions, Coallier warned. “You’ve got to make sure
that whatever judgment decisions are made within that rule context are made in
accordance with the policies that you’ve set up inside of your company,” she said.

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 Corporate Performance Management: What CEOs Want from Their CFOs Today 20

New contingent rules are another potential worry: the Financial Accounting
Standards Board’s current proposal says that contingent considerations should go
into the acquirer’s balance sheet as of the date of acquisition, which means some
volatility up until that date. That’s also because acquirers will have to make
estimates of contingent assets and liabilities and potentially mark them to market.

APRIL 2005 © 2005 CFO PUBLISHING CORP.

 Sponsor’s Perspective 21

Using Technology to Drive Performance

As Mary Driscoll commented in her opening remarks, the CFO must once again act
as the voice of sanity in a world rife with corporate scandal, debt, and, more than
ever, competition. This year’s conference has shown us that finance departments are
employing a variety of strategies, at once innovative and pragmatic, to move their
companies ahead of the pack.

Whether focusing on leadership, measuring economic value, establishing company

strategy, planning acquisitions, or motivating employees, more companies are
realizing that all these performance-related activities are connected—they all have a
direct financial impact on the organization.

The challenge for CFOs, then, is not just to be aware of these connections; it is to
explore them and exploit them to the company’s advantage. Overcoming this
challenge requires intelligent use of an organization’s most abundant and strategic
asset: information. To implement performance strategies successfully, companies
must have a way to organize and analyze the droves of data that they gather every
day—about customers, suppliers, employees, risks, inventory, and more.

Unfortunately, this data is usually scattered across dozens of database, ERP, and
operational systems. To make sure the data all works together, companies should
begin with a common intelligence platform—one that is built to excel within the
disparate reality of most corporate data structures. This foundation should also offer
comprehensive data quality and data management capabilities to turn all that data
into useful information about operations across every business unit.

Once the foundation is established, its power should be extended using sophisticated
reporting and predictive analytics. Analytics should encompass both forecasting and
optimization technology to help predict performance, risk, economic value, or any
other key metric.

The final step is to ensure that your technology provider offers expertise in your
industry—specific technologies and best practices that quickly address your business
problems and help you reduce the time it takes to gain real intelligence from your
data.

SAS® Financial Intelligence

SAS is the market leader in providing a new generation of business intelligence
software and services that create true enterprise intelligence. SAS solutions are used
at more than 40,000 sites—including 96 of the top 100 companies on the FORTUNE
Global 500®—to develop more profitable relationships with customers and
suppliers; to enable better, more accurate and informed decisions; and to drive
organizations forward.

With SAS Financial Intelligence, you can focus on specific financial business
processes—planning, reporting, budgeting, consolidation, risk assessment, forecasting,
strategy development, the audit process—and develop more predictive, accurate,
and timely results. SAS Financial Intelligence creates an environment for the
finance department to become a reliable, trusted adviser throughout the enterprise.

SAS is the only vendor that completely integrates leading data warehousing,
analytics, and traditional BI applications to create intelligence from massive amounts
of data. For nearly three decades, SAS has been giving customers around the world
The Power to Know®.

For more information about SAS Financial Intelligence, please visit:

www.sas.com/solutions/financial/

APRIL 2005 © 2005 CFO PUBLISHING CORP.