One thing is clear: no CFO is likely to forget the hard lessons he or she has learned in areas like cash management, forecasting, risk, and human capital. “Those who lived through the Depression were forever more frugal, and I think you’ll see something similar this time” in the business world, says Dombrowik. He for one is planning to retain as much of Red Lion’s recent cost-cutting as possible when demand picks up again (although the soaps will likely be upgraded).
Other finance chiefs offer similar perspectives on how they are changing with the times, and which of those changes they expect to stick. On the following pages we present the key lessons they have learned.
Think Differently about Cash and Credit
If the past year has taught CFOs anything, it is to be more skeptical of banks. “Prior to this I never would have envisioned having to worry about the financial strength of my bank group,” says Mark Shamber, CFO of United Natural Foods Inc., a $3.5 billion distributor of natural foods to supermarkets including Whole Foods. Now, Shamber carefully tracks the financial reports of the publicly traded members of his bank group, looking particularly for write-offs and to what extent the banks are using funds from the Troubled Asset Relief Program. United Natural’s five-year, $400 million asset-backed credit facility is still safe, but Shamber knows he will have to work hard to secure comparable funding before the facility expires in 2012. (Many other companies will be in the same boat, having obtained five-year facilities in 2007, when cheap credit was still available.)
Ronald Mambu, CFO of JBT Corp., a $1 billion maker of food-processing machines and airport-services technology, was concerned enough about his banks to temporarily stop the normal practice of paying down its credit line by sweeping cash from operations. The company maintained that approach through March. “We didn’t want to be caught short if a bank said it couldn’t honor its credit line,” he explains. Where to keep cash has become a matter of concern, too, given the growing number of bank failures (69 in 2009 at recent count, compared with 26 for all of 2008). Safe places for Marvell Technology’s $1.1 billion in cash “are still emerging,” says Clyde Hosein, CFO of the $3 billion semiconductor maker, “and I still ask the question, Should I put it in a big mattress somewhere?”
Others say they are keeping a closer watch on cash inflows and outflows. Johnson Controls, for one, has begun “really focusing on when receipts and disbursements are coming and going” within a given month, says CFO Bruce McDonald, whereas in the past, such attention to detail wasn’t a priority. A silver lining: the $38 billion conglomerate specializing in automotive interiors and building services and products was able to make a 50% reduction in its monthly cash needs.
Overall, the newfound skepticism toward banks is likely to result in lower levels of corporate debt and higher levels of corporate cash. Take Extra Space Storage, a publicly traded real estate investment trust specializing in self-storage properties. Since last fall, CFO Kent Christensen and his recently expanded treasury team have been scrambling to build relationships with nearly 50 banks, in part to cover the $100 million of CMBS loans that came due over the past year and in part to give themselves a better cushion for the $1 billion or so coming due in the future. To conserve cash, the company also cut its dividend and is creating a joint venture in which it will swap partial ownership of some of its properties for $62 million in cash, among other tactics.