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An Editorial about Executive Relationships

Beware Your CFO!

CFOs Can Make or Break the CEOs

PHOENIX, June 14 - They tend to sink or swim together.  The CEOs and CFOs seem inextricably linked, as if connected by an umbilical chord.  Rarely does a CEO find enough courage to cut the chord and cast his/her CFO pal overboard.   Not even after a CFO becomes a part of the ballast that's weighing down the corporate ship.  But there are exceptions.  As usual, they serve to confirm the rule.  

This editorial is about both... the rule and the exceptions; about the CEOs and the CFOs; and about their sometimes peculiar relationships.  It is based on more than 34 years of personal dealings with CEOs and CFOs of the largest computer companies in the world.  It is a digest of lessons we can learn from history.  

Our clients and friends may find the editorial interesting; some even amusing.  But the current CEOs had better play close attention.  They may find its key message vital to their long-term survival.  For, "those who do not learn from history are doomed to repeat it," as an old saw goes.

* * *

Take Carly Fiorina, for example, the HP CEO.  Last week, we watched her kick off a two-day conference for worldwide analysts in San Jose, CA.  It was the best performance by a CEO we have seen in a long time.  Fiorina was poised, relaxed and confident about her strategy and the HP future (stand by for our complete report on the conference).  Not since the days of George Conrades (the IBM heir apparent in the late 1980s), have we seen an IT executive who exhibited as much class, poise and understated self-assurance.

So you can imagine how stunned we were to read the following day a Street.com column in which Fiorina was pronounced one of the nation's worst CEOs!?  The other two "worst" CEOs profiled in a Jon Markman article were David Dorman of AT&T and Larry Ellison of Oracle (click here to read the column; click here to read our reply to the author - "Using Wrong Facts Discredits Your Opinions").


The EDS Stories...

"Great meeting you the other day. Sorry our time was short, but it was quality time -- what we did manage to spend together. Your commentary was 'straight on and content rich'."

That's how Dick Brown summed up in an e-mail our first meeting at EDS headquarters in Plano, Texas, in early April 1999, less than 100 days after he had taken over as chairman and CEO.  Jim Daley, his newly-appointed CFO, was also present.  So were the heads of corporate investor and industry analyst relations functions.

"Both Dick and Jim were pleased with your visit and commented to me how helpful your feedback had been," the head of the EDS investor relations wrote in a subsequent e-mail. "Thanks for taking the time to do so."

That's how it all began... Over the nearly four years that followed, Brown, Daley and this writer had had numerous personal and electronic interactions from all corners of the world on a myriad of EDS corporate and global topics. 


* * *

In early 1996, EDS was going through a "divorce" with GM.  The effort consumed the senior leaders' time and attention to such an extent that they took their eyes off the ball.  As a result, new contract sales plummeted.  

Alarmed by such developments, we issued several warnings about it.  Assured by the then CFO Jody Grant and other senior executives that all was well, Wall Street ignored the warnings.  Until late October, that is.  When EDS published its third quarter results, it suddenly dawned on its investors what we had been saying for months - that the company's sales were slumping, and the revenue and profits would soon follow, too, if the trend were to continue.


The IBM Stories...

IBM is a source of both "good" and "bad" CFO stories.  And sometimes even of "bad" CFOs who were good for the business (and, therefore, for their CEOs).

Enter Allen Krowe, the IBM CFO under both John Opel (1981-1984) and John Akers (1985-1993).  Pompous at times, and arrogant most of the time, Krowe nevertheless managed to have Wall Street analysts and investors eating out of his hand, just as our cartoon from August 1985 depicts.

Always a supreme marketer, Krowe made IBM look great even when the company was merely mediocre (see "Is IBM Mortgaging Its Future?", Apr. 1983).


Nonetheless, one could argue that Krowe was a "bad" CFO when it came to substance.  But he was a great "fluffmaster."  He managed well Wall Street expectations using his ample marketing savvy.

* * *

Frank Metz, the man who succeeded Krowe in his job, was the antithesis of his predecessor.  Metz spent most of his time micromanaging the numbers instead of glad-handing Wall Street investors.  In the end, he micromanaged himself out of the job (in January 1993).  Metz also dragged down with him John Akers, his boss and IBM CEO at the time, and Jack Kuehler, the president.


* * *

When Thoman took over from York, we thought his marketing skills would serve him well in his new job as IBM.  As it turned out, he didn't have many (marketing skills).  Thoman's main qualification for the CFO position turned out to be the same one that brought him to his previous job as the head of IBM's flailing PC business - his longtime friendship with the boss, Lou Gerstner.  Period.


* * *

Thoman was followed by another longtime pal of Gerstner's - IBM's general counsel Larry Ricciardi - who remained an "acting" CFO until Doug Maine replaced him.  In turn, Maine was replaced in late 1999 by John Joyce, a rare IBM insider who possessed both financial and marketing moxy.  While we occasionally made fun of his pontifications (e.g., "A Slam-dunk of Bunk," Jan 2000), Joyce certainly knew how to twist arms and minds on Wall Street.


The Amdahl Story...

We first met at Amdahl's Cupertino, CA, headquarters in November 1992, after this writer published an unflattering article about this erstwhile IBM competitor.  Ed Thompson was a smallish and unassuming man.  At a time when most CEOs and CFOs were over six feet tall, you'd never think that he was an important executive.  But Thompson quickly made up for the underwhelming first impression with his enthusiasm and knowledge. 


Other Contemporary Stories...

Harry You, Accenture's CFO, is a contemporary example of a CFO with loads of personality and marketing savvy.  A former Morgan Stanley investment banking executive, he joined Accenture in July 2001, just as the company was going public.  He never looked back.



We could go on with some more CEO/CFO "war stories," but will stop now and take stock of the lessons that the preceding examples can teach us.  Through all these decades and multiple personalities in various companies there seems to be one common conclusion and one common thread.  

Common Conclusion: A CFO can make or break a CEO.  Good ones will make them, bad ones will break them.

Common Thread: And what constitutes a "good CFO?"  Having superior marketing skills, not just financial knowledge.


"That's all she wrote," we're afraid, for those of you who are NOT Annex Research clients, and who are now reading the complete Annex Bulletin (11 pages in print edition), along with all charts which back up our story.

Qualified media and friends of Annex may request a TEMPORARY User ID and Password by clicking here and explaining why they wish to have access to this particular Annex Bulletin.  Or call Bob Djurdjevic at 602-824-8111 (cell) to promise not to copy it or otherwise republish it. 602-824-8111 (cell) to promise not to copy it or otherwise republish it.

To find our how you can become one of our clients, and read the rest of this and other Annex Bulletins, click on . Thank you.

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Happy bargain hunting!

Bob Djurdjevic

For additional Annex Research reports, check out... 

2004: Beware Your CFO! (May 2004); IBM: Changing of the Guard (May 2004); Capgemini: Texas-size Home Run (May 2004); Following the Money (May 2004); EDS: On a Wink and a Prayer (Apr 2004); HPS Wins by a Nose! (Octathlon 2004); Accenture: Burning the Track (Mar 2004);  IGS: "Crown Jewel" Restored? (Mar 2004); HP: Still No Cigar (Feb 2004); Cap Gemini: Another, Smaller Loss (Feb 2004); CSC: Good Quarter Gets Boos (Feb 2004); EDS: "Hot Air Jordan" Flaunts Flop as Feat (Feb 2004); IT Industry: Whither Goeth It? (Jan 2004); Cronyism Is Alive and Well at EDS" (Jan 2004)

2003 EDS: “Biggest Feather in Cap’s Cap,” (Dec 2003); "Pain without Gain" (Oct 2003), "EDS CEO Replaced" (Mar 2003);  Rebuilding Trust and Confidence (Feb 2003)

2002 EDS: Wall Street Legal Vultures Descend Upon EDS (Sep 27, 2002),  EDS Issues Earnings Warning (Sep 18, 2002),  Wall Street-Main Street Chasm Widens (July 3, 2002),  Analysis of EDS 4Q01 Results (Feb 8, 2002)

A selection from prior years: Annex Research Analysis of EDS 4Q00 Results (Feb 7, 2001),  EDS Takes Over US Navy (Oct. 10, 2000),  EDS Second Quarter Results (July 28, 2000),  Annex Bulletin - 2000-02 (EDS' e-Price Clubs).

2002 IBM: “Gerstner: The Untold Story”  (Dec 27), "Gerstner Spills the Beans" (Dec 13), "On a Wing and a Prayer" (Oct 21), "IBM-PwC Tie the Knot" (Oct 2), Big Blue Salami (June 19), "Looming IBM Layoffs" (May 14), "IBM 5-Yr Forecast: From Here to Eternity?" (Apr 2002),  “Tough Times, Soft Deals,” (Apr 25, 2002), “Gerstner’s Legacy: Good Manager, Poor Entrepreneur” (Jan 2002), IBM Pension Plan Vapors: Where Did $17 Billion Go? (Mar 2002), "Sir Lou OutLayed Lay!" (Apr 1, 2002).

A selection from prior years: Is IBM Cheating on Taxes, Annex Bulletin 99-17 (May 1999),  IBM 5-year Forecast 2001: An Unenviable Legacy (June 2001) "Break Up IBM!" (Mar. 1996), Fortune on IBM (June 15, 2000), “Smoke and Mirrors Galore,” July 2000), "Slam Dunk of Bunk" (Jan 2000), Annex Bulletin 98-14 ("Wag the Big Blue Dog"), Armonk's Fudge Factory (Apr. 9, 1999)Where Armonk Meets Wall Street, Greed Breeds Incest (November 1998)Stock Buybacks Questioned: Is IBM Mortgaging Its Future Again?, 97-18 (4/29/97),  "Some Insiders Cashed In On IBM Stock's Rise, Buybacks" 97-22, 7/27/97,  Djurdjevic’s Forbes column, "Is Big Blue Back?," 6/10/97;  “Executive Suite: How Sweet!,” (July 1997), "Gerstner: Best Years Are Behind", Aug. 10, 1999), "IBM's Best Years Are 3-4 Decades Behind Us" (July 1999), "Lou's Lair vs. Bill's Loft" (June 1999),  "Corporate Cabbage Patch Dolls," 98-39, 10/31/98; Djurdjevic’s Chronicles magazine October 1998 column, "Wall Street Boom; Main Street Doom", “Louis XIX of Armonk,” (Aug. 1996), "Mountain Shook, Mouse Was Born" (Mar. 25, 1994), “A Nice Guy Who Lost His Compass” (Jan 26, 1993), “Akers: The Last Emperor?” June 1991), Industry Stratification Trend (Mar. 30, 1990) etc.]

Or just click on and use "financial engineering" or similar  keywords.

Volume XX, Annex Newsflash 2004-13
June 14, 2004

Bob Djurdjevic, Editor
(c) Copyright 2004 by Annex Research, Inc. All rights reserved.
e-mail: annex@djurdjevic.com

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