The CFO's New Playbook in the Age of Technology

Welcome back to CFO Weekly, where we're talking with financial leaders about how to build efficiency in their teams, create time for strategy, and ultimately get results. With your host, Megan Weis, let's jump right in.

Megan - 00:00:31: Today, my guest is Beatty D'Alessandro. Beatty is a former Chief Financial Officer of three industry-leading companies. Until mid-2018, he led finance, accounting, technology, and manufacturing for Merchants Metals, an Atlanta-based carve out from Oldcastle PLC. Merchants are the second largest chain link fence manufacturer in North America and is now owned by private equity investors. In 2015, he retired as the Executive Vice President and chief financial officer of Univar, a $10 billion global chemical distributor based outside of Chicago. Prior to that, he was the Senior Vice President and Chief Financial Officer at Graybar, a $5 billion distributor of electrical and data infrastructure products based in St. Louis. Beatty spent a total of 10 years as the CFO of the two Fortune 500 companies mentioned above. Beatty was the Vice President and chief information officer at Graybar prior to being the CFO there. In that position, he led what was at the time the largest successful SAP enterprise resource planning implementation in a multi-billion dollar pure distribution company. During this project, he used a number of innovative strategies and newly developed bolt-on software products in order to deliver unique, high-value-adding functionality to the company. Beatty was Graybar's corporate strategist and led their mergers and acquisitions team prior to becoming their CIO. After leaving Graybar's board in 2012, and as one of the company's largest shareholders, Beatty led an unsuccessful attempt to convert the company from its employee retiree ownership structure. Since retiring from Univar, Beatty has advised private equity investors on over 20 transactions involving companies that distribute chemicals, building products, and industrial products. Beatty has been on the Board of Directors for Graybar and UMB Bank of St. Louis. Additionally, he served on the Large Enterprise Board of SBC, now AT&T, and the Strategic Customer Board of SAP. He was active in nonprofit and industry organizations as Chairman of Make-A-Wish of Missouri, Treasurer of Junior Achievement of Missouri, and through board membership at the Deloitte Center for Health Solutions, Missouri-based Baptist Medical Center, Junior Achievement of Chicago, and the University of South Florida College of Business. Beatty has been an executive in residence at Georgia State University's J. Mack Robinson College of Business since 2017. As a member of the faculty, he has taught the financial leadership course in the Masters of Science in Finance program and corporate finance in the EMBA and MBA programs. Beatty holds an MBA and a BA in business with concentrations in finance and marketing from the University of South Florida. Beatty was widowed in 2018 from his wife of 30 years, Kathy, and has two grown children. Beatty, thank you very much for joining me on today's episode of CFO Weekly.

Beatty - 00:03:35: It's great to be with you, Megan. It's a pleasure to meet you online.

Megan - 00:03:38: I'm excited to have you on the show and today we'll be talking about the role of the CFO in large public companies as well as the intersection of finance and technology I'm really looking forward to learning from you so let's jump right in.

Beatty - 00:03:51: Absolutely.

Megan - 00:03:52: First and as always, tell us about yourself and your career journey and how it is that you got to where you are today.

Beatty - 00:03:59: Yeah. Thanks for asking. So I'm a two-time Fortune 500 CFO. I was a CFO at Graybar Electric and at Univar Solutions. And I came to that early in my career. I was a field finance person, sort of a controller-level job at a branch level. And then found my way to the corporate office as the treasury manager, and did a bunch of banking and modeling around banking and that job. Then very traditionally got asked to run a region as a CFO for one of our business units. I did that. And that job, the CEO came to me and said, hey, we're going to engage McKinsey. We've got some sort of long-term planning that we need to do and we need an internal resource and we'd like you to do that. And so I jumped in, this six-month engagement with McKinsey, we sort of did a top to bottom, soup to nuts. Review of what the company's opportunities were and how to rank them. And that turned into the job as the corporate strategist, which also included M&A responsibility. And so I did that. While I was in that job, I was asked, if we were sort of the internal consulting team. One of the projects we were asked to do was to evaluate the current technology environment that Graybar had in place, which was a home-built ERP, 1980s vintage. The project was kicked off in 2000. So there was a lot of web stuff that was showing up and obviously resonated with the board and leadership. And so we did an evaluation. And at the end of that, I did a presentation to the board and I said, you know, our technology is unsatisfactory to our users, unsatisfactory to our customers, and unsatisfactory to our suppliers. So it might be time to do something. And here are three solutions, right? SAP, Oracle, and JD Edwards at the time. And the board came back and said, we agree with you. Thanks for validating it. You seem to know the most about it. Why don't you run the project to implement this new ERP system, pick it, and then run the project to do it? Which was, for me, a guy who had spent all of my career in finance, an interesting end strategy, an interesting opportunity to step into some real transformational work. And I did it. I mean, I was happy to do it and spent three, almost four years in the role. We did this really comprehensive implementation, border to border, coast to coast first one, and pure distribution that had been successfully pulled off three years before Granger had had a disastrous SAP implementation, they pulled the plug on it. And so there's this real, this attitude that maybe SAP couldn't do distribution and we proved them wrong. And so we had a business case 10, 10, and 10, 10% improvement in receivables efficiency, 10% improvement in inventory efficiency, and 10% improvement in employee productivity. Two years after implementation, I had to go back to the board and revisit the business case and we had about 8 % improvement in receivables for sales dollars. We had a 26 % improvement in employee productivity.

Megan - 00:07:03: Wow.

Beatty - 00:07:03: And we had a 45% improvement in inventory productivity. So inventory divided by sales dollars or sales dollars divided by inventory, 46% improvement. And so the project was a raging success on a financial level. It's a gigantic challenge on a company-wide basis.

Megan - 00:07:21: Yeah.

Beatty - 00:07:22: As far as it came out of that project, the CEO was retiring. And so she left, she had recommended me for the CFO job. I stepped into that role and then really got an opportunity to optimize all this great software that we had turned on. Did that, was in the running to be the CEO about eight years later, and came in second in that race. And so left the company to run Univars, to be the CFO at Univar. They were in the middle of a big SAP project. They wanted somebody with prior experience. Did that to completion, also prepped us for an IPO, moved the headquarters from Seattle to Chicago, integrated the biggest merger target, the acquisition target we had done in 20 years, and really enjoyed that work living in Chicago. Left that to start my own consulting, where I was helping private equity buy chemical companies and distribution companies, worked on about 25 deals, doing that, relocated from Chicago to Atlanta because I could work anywhere. The consulting role at Georgia State University approached me about coming on to be the executive in residence, which I did part-time. And then my wife passed away from cancer. And I wanted to do something that was less intense. So they said, why don't you become full-time faculty? And I did that. And that's where I land here today with you.

Megan - 00:08:36: Wow, what an amazing career you've had.

Beatty - 00:08:39: It has been incredibly interesting.

Megan - 00:08:42: Yeah, so many different roles. So as you look back on all the roles you've had, what would you say have been your favorite experiences and your proudest achievements along the way?

Beatty - 00:08:53: Yeah, I love doing the corporate transformation as a CIO. It was a technology project, but I was driving process improvement and process redesign. And so that was sort of an opportunity to do a bottom-up remake of the company that basically when we built our ERP system in the '80s, we paved Calpaths, we took a paper report, paper order entry tickets, and we turned them into green screens. With SAP, you really can't do that. I mean, they force you to optimize. I wish I could tell you, that I was the genius behind Graybar's optimization, but it was really the software sort of drove you into doing these more efficient things. But the opportunity to take a $5 billion company and sort of remake it from the inside out, I found that incredibly fulfilling. I also lived through 2008. I was a CFO in 2008, and the meltdown came. And I was in a position to manage us through that. And at the end of that, we didn't reduce or skip any dividends. We got through by the skin of our teeth, but we got through without any covenant violations or any issues like that. And so again, on a professional level, I find that very satisfying. We work at Univar, really taking hold of the move into a headquarters and remaking the entire finance, accounting, HR, and legal department in a new city. Again, an opportunity to leave a mark. The company, I would say along my career, is the first 25 years of your career, if you're lucky, you're formed by the organizations that you live with. If you're really lucky, in the last 10 or 15 years, you will form the organization. You will be responsible for changing or modifying what it is.

Megan - 00:10:33: That's a great way to look at it.

Beatty - 00:10:35: Yeah, that's what I'm most proud of though. On an accomplishment basis, I'm most proud that I've got two people who worked for me that are now CFOs. I think four people that are CIOs, I got four people that are treasurers, three people that are controllers, the folks that work in my organization and that I help to do professional development, they're really my legacy, right? Because now they're doing it. And hopefully, they're doing the same thing as far as training people is concerned.

Megan - 00:11:02: Yeah, that speaks volumes. I'm curious, As you look back on the ERP implementations, what do you credit the success on? Because so many of those just are over budget, over time frames, and just disastrous projects in general.

Beatty - 00:11:17: Yeah, clear. So-

Megan - 00:11:21: Definitely a driving force.

Beatty - 00:11:24: SAP came to us and said, you know, we think we can actually change distribution and use you guys as the model, but you can't force us to take your old screens and your old process and your old system and just duplicate it on SAP because it will fail. You'll never get it built. It'll be just like sort of custom-built software. And they said we have a roadmap for successful implementations. And it involves identifying a half dozen things that are really the secret sauce in the organization. And for every other process, you just need to conform to something that comes straight out of the box from SAP. So instead of trying to figure out your own unique payroll system your own unique journal entry system or your own unique inventory cash posting situation, you have to just take those right out of the box. Then let's focus on these half-dozens on pricing where inventory is how much inventory you buy and on how you get your rebates from your suppliers. Let's apply energy narrowly in a focused way to these things that are actually unique to Graybar. And that resonated with me. I told that story at every employee meeting that we're gonna move everybody's cheese. We're going to change the payroll system. We're gonna change the payable system. We're gonna change the receivable system. And we're gonna do that so we can focus our resources on things like pricing and inventory placement. There was a huge amount of resistance to that, right? You had people who had been on the job for 35 or 40 years, and they were the experts at cash application. And the thought that at 61 years old, they were going to have to relearn their job. They did not embrace that. In fact, they resisted it in many cases. We had a number of retirements, you know, folks that could retire in some of those really process-driven jobs, they did. And, you know, And in the end, well, the 26% improvement in employee productivity, the direct reflection of the software. Did things in a more efficient way than we had done it, right? Those are the kinds of things that made us successful, that we had this focus. Deloitte was our implementation partner. They called them signature processes. And our board was afraid, our CEO was afraid, and I was afraid.

Megan - 00:13:49: And so with that fear in place, we were able to sort of not step on the obvious landmines. And just taking a look at the role of CFO, how have you seen this role evolve during your career?

Beatty - 00:13:56: You know, it's funny. So I came out of undergrad in 83 and dropped into the business world and most of the CFOs at the time that I was aware of and that I knew, they were former partners of the Big Eight. And so the roller has really heavily weighted toward the accounting field. And the funny thing about the ERP and all of the implementations around software is most of those in the 80's and 90's were accounting-based. And so this need to be the smartest accountant in the company sort of got automated out. I mean, I think there are still 30% of the CFOs in the Fortune 500 are probably have accounting in their background, but the need to be the debits and credits kind of guy or girl, it became not nearly as important. And so you saw these other disciplines, finance and technology and strategy, those folks all of a sudden ended up on an escalator into those jobs. And you see a lot of finance people and a lot of strategy people and some technology people now that are in these industrial companies, CFOs. And so the backgrounds are significantly different and the skill sets are. More strategic and less closing-the-books kind of focus. And I'm not, I don't mean to take anything away from my accounting brother, and they serve a key and critical role. But a lot of things that we did on a spreadsheet or in a ledger, if you really go back, we're doing with the press of a key. And if you've got everything set up right, then you can close really quickly. And there won't be very many journal entries, and there won't be very many adjusting entries. And so it was really a change around what the skill set that was necessary. So now you need to be able to think about the business, and you really need to be good at thinking about how you think about risk. And there are all kinds of risks, but the unknown, the uncertainties are, in my mind, sort of the key capability that you need to be successful in a large public company as a CFO.

Megan - 00:16:06: So for people who are considering becoming a CFO and they're in the traditional path of accounting degrees, Big Four firms, what skills do you think they should be focusing on in order to understand the business and the strategic side of things?

Beatty - 00:16:23: Yeah. So again, now I'm giving you the speech that I gave again, hundreds of times during my career, the first five years of your career, whatever it is, whether it is accounting, if it is finance, if it is tax, if it is IT, you need to develop domain expertise. You need to be the person that everybody goes to about the bank swaps that are in place for the company because that's your narrow world. And nobody's going to get ahead by trying to be the CFO on the first day of the company, the first day there with a company right out of college. They need to show that they can master whatever it is that they've got that they have responsibilities for, and accounting, finance, or IT in my mind, or tax, that doesn't matter. But once you've proven that, then you're going to have the opportunity to manage some people. So you're going to be a player-coach. And so, you know, make sure you're a good player-coach. Don't be the guy that everybody's or the woman that everybody says, I would never work for that person or I hated working for that person. This is you actually doing the work along with the folks that are in that group. And so that looks like three or four or five years of managing the area of expertise that you have. And then, you know, you step into now I have a role where I'm managing my team that did tax, my team that was the controllership, and also the treasury team and maybe the HR team. Now I have a broader reach. At that point, you need to develop an expertise, not that you're going to be the expert, but an expertise in how these functions work and how they interrelate. And at that point, clearly, you need to have your head up out of your department. And you need to be connecting with the folks in marketing and in manufacturing and in distribution and in purchasing and logistics so that you understand, okay, I'm providing these services and how do we connect, right? How do I better serve you? And you're asking questions like, if you could get a monthly report or a daily report, what would that report look like? Trying to anticipate it. You're also trying to teach yourself business. And so then again, if you've been successful in that role, it's to step up. And now you're maybe doing something you've never done before. Maybe you're running a department, maybe you're running manufacturing when you used to be in finance. I do say this, and I think people sometimes don't understand the opportunities that are in front of them. You have to run toward the sound of gunfire when you're in these jobs. So if their word goes out that we're gonna do a restructuring, if word goes out that we're going to do a big acquisition, if word goes out that there's going to be something that's a total one-off, I tell folks that have worked for me and my students, you have to volunteer for those teams. Because what you do on a day-to-day basis, it counts for like 75% of advancement, but the 25%, the differentiator, is that you're on the restructuring team, and you may just sit in the back row, but you're part of it, and you're in the board meeting, or you're in the CEO meeting where the report outs are, and the person, here's the funny thing, the person who's leading that team, the restructuring team, the acquisition team, whatever it is, they're on a fast track to maybe be the CEO or the COO. And so now they get to know you. And so if you're 15 years in and you've never been on a special project, you're in a parking lot and you need to be asking questions. Whenever you hear that something new and unusual is going on, you need to say, hey, I have a 50-hour week job, but I want to volunteer. I'll work on weekends for the next four months because I want to be part of this transformation. Right? And that's what these projects are. And that's how you get into the room and get noticed if you want to go from being the head of tax to being the CFO because you've been involved in those kinds of projects, high-profile projects. I'd say that's also because you don't really start with a high-profile project. You start with the low-profile projects, the stuff nobody wants to do. It's the benefits team when they're rethinking who's going to provide healthcare benefits and you volunteer to be part of that and you're in accounting and nobody thinks that you have any expertise and you develop it as a result. Of that. And then your final step to really get to the C-level is you need some luck. The person who's in the CFO job needs to retire or, get a better job or needs to become the CEO or leave the company because there's a traffic jam at the vice president level. And this would be of all the disciplines, right? In manufacturing and logistics. And you end up with four or five individuals who are all ready to take the job already and they're behind someone who's 50. And if that person said, I'm going to stay until I'm 65 here, then you're going to age out. You're going to age out and you're going to age out with them. And so the luck of somebody leaving or the luck of somebody coming to you from outside of the company or you soliciting from outside of the company, I think I'm a good candidate to be sort of in your queue to be CFO. Those are sort of being lucky enough to get that. I know I'm rambling, but-

Megan - 00:21:20: No, it's great advice.

Beatty - 00:21:22: But the one thing I will tell you is the thought that I am the vice president of finance, and I'm in the queue to be a CFO, and what I'll do is I will work with a headhunter and they will get me an equivalent size company CFO job is not likely. Usually, you're going to have to transfer at the same level you are if you're a vice president of finance into a similar-sized company. The good housekeeping seal of approval is if you become a CFO of a large company, then you can be the CFO of a large company. And where you have been has proven your mettle and you are marketable. When you haven't been able to make that step up, you've got to realize if you step over to company B, then either you're going over at the same level, and that is you're going to be a vice president of finance or vice president and controller, and then you're going to be in a new queue where nobody knows you. Or you're going to go to a much smaller company as a CFO. And most of us who came out of really large companies, our skill set was in running really large departments. And so to jump into a billion-dollar company when you're used to running a $ 10-billion company and think that it's going to be similar, you're going to be a much more of a player-coach in that billion-dollar company where you're much more of a resource manager in a $10 billion company as CFO. And so you gotta be smart and lucky. And I was both. I mean, I think I was lucky. The timing was good.

Megan - 00:22:53: Yeah, so many CFOs I've spoken to have said that they got to where they were because they took chances and because they jumped at opportunities where they felt uncomfortable. I really think that that is key to, getting where you want to be is just to embrace being uncomfortable.

Beatty - 00:23:12: And being broad, right? I mean, you know, the thought that you're going to run a large company as the CFO means you've got to sit on the manufacturing committee team and on the purchasing team. And you've got to teach yourself the important parts of that discipline. And for me, doing the ERP project, right, I was in the guts of the company of all those departments. And so it was sort of an unfair advantage. I saw it all. I knew how it fit together. That was very lucky for me and the project succeeded. If it hadn't succeeded, then it would have been, I would have known a lot about processes that didn't work. I don't have had marketable that would have been, but this being uncomfortable, this my term as you run toward the sound of gunfire, you're always trying to get yourself where you're stretched. I think is the key attribute of every C-level employee, whether they be in marketing or HR or in finance, that I know.

Megan - 00:24:02: You touched on this in small versus big companies, but what role do you see the CFO playing in a large public company as compared to smaller non-public companies?

Beatty - 00:24:12: Yeah, really small companies, you're just the best accountant. And you, it's almost all controllership. And you do a transaction, you know, a loan or purchase once every two or three years. And you're really the guy who is the girl who's closing the books and preparing a report, you get a little bit, you get a little bit further up and you're a player-coach, right? So you're the treasurer and the CFO. And you might have the controller, you should have the controller working for you. And so it's a little bit you get and you're bringing your subject matter expert to some degree when you're doing that. But if, when you're a really large company, and I'm not talking about a bank or an insurance company, I'm talking about an industrial company, you're going to be the person responsible for sort of what I call risk scoring opportunities. And you're going to be the person that sets the priorities. We've got to close the books on time, got to report to the SEC on time, we've got to provide certifications for socks, and so forth. And you get to decide what number one is and what number 10 has in that priority list. Then you have the resources. You've got the pocketbook where you're going to put these people on that. You're going to say, I need two more people in SEC reporting. I need one more person in the internal audit. You're doing that resource allocating as well as time, as well as money, as well as people, resources on sort of a very large, on the most general scale. And then finally in that role, you're going to constantly fight the urge to become misaligned from the goals and the strategy of the company. You're running finance or when you're the CFO, your goal may be to close the books on time. And so the push is to simplify the way the chart of accounts and to minimize the number of sort of one-off things that you do. And all of that's great for you, but what if the company needs two sets of charts of accounts or three sets of charts of accounts and you're losing alignment and that you're doing what's best for you, but you're not doing what is best for supporting the company? And I would tell you it's surprising, but that drift, that drift toward chaos, or that drift into self-serving strategies is a really big problem among financial executives. Doing what's best for me versus doing what's best for the company and dealing with the efforts that are, that come with that complexity.

Megan - 00:26:24: So how would you suggest avoiding that? How do you do what's best for the company rather than yourself and make sure that you're always doing that?

Beatty - 00:26:33: Yeah, if you don't have a hand-in-glove relationship with your CEO and your senior leadership team, but really with your CEO who is charged with being the visionary at the top of the stack. And if that isn't not only cordial, but friendly and aligned, and you finish each other's sentences, then you should be working on that, right? Because at the end of the day, you don't really get to decide what the overall strategy of the company is. You may have a vote, you may have to say so, but at the end of the day, the board and the CEO are going to sort of from on high tell you, here's what we're going to do. We're going to open in Mexico and we're going to close in Canada. Your job as the CFO is to do that in a way that is the most efficient and the most beneficial, beneficial for the owners and stockholders of the company and the other stakeholders for the company. I think that the really short answer is it's not just being political with the CEO. You really have to develop a relationship with the CEO. You have to believe that they're doing the right things and that they're going in the right direction. The danger always is that if the CEO drives the company into the ditch, you're going with them, right? But I would tell you the thought that the CEO is going to go before the CEO goes in a situation where things are really bad, that's a really work that way. Usually, they fire the CFO before they get to the CEO. And so you better create that linkage and that alignment and that friendship and that alliance with the person who has ultimate responsibility for running the company.

Megan - 00:28:04: And let's talk about the concept of risk score opportunity. What exactly is this and how should a CFO be thinking about leveraging it?

Beatty - 00:28:12: Yeah, so you're sitting in a strategy meeting or a board meeting and somebody says, Hey, I hear there's a great opportunity in Brazil. And, you know, we can get in there with an acquisition and it can be the next great thing for the company. And the CFO's job is to be dispersion and come back and say, Well, the data shows that there are 18 competitors in our space down there. Acquisitions are trading at, you know, 17 times earnings, which is trading at 12. So it's going to be a negative carry for us. And the last two people that bought into Brazil, American companies that have bought into Brazil have been one exited after five years and the other is still struggling after eight years. And so maybe that's not the greatest idea. Maybe that's not the best use of our money and our talents. And that's an advisory role, right? Typically if it's the CEO that decided to go to Brazil, you're going to hopefully the conversation. Those elements that I just described to you, you would have with the CEO one one-on-one and say, Here are the reasons I think this is problematic. You're scoring it. You're saying the likelihood of this having happened, of this, of us being successful in Brazil is one in 10. Right? Let's go find the one in five, or let's go find the one in four and apply our time and our resources there. And that's that scoring process. And it's all very data-driven. Its others have gone, have they succeeded? How long have they taken? What are the multiples in order to get in? What are the timeframes? And those are things that are supposed to be somewhat second nature for the CFO. I think you develop it over time because you are in the middle of a lot of transactions, whether it's capital expenditures, you're buying plants and property and new equipment, or you're buying companies as you get further up the chain in your career. And so you've seen a lot of things and you've seen a lot of business cases and a lot of productions, and you've seen them when they haven't worked out. And so the zeal for the deal, right, to throw yourself into something and you're going to make it work when 9 out of 10 times it doesn't work. Sometimes it sounds like the naysayer, I would say in large meetings, I tried to never be the naysayer in small meetings with the CEO or the board. I could be very negative about opportunities, but always data-driven. It was never just to say we shouldn't do this because I say so. And in many cases, I didn't know. I didn't know whether I thought going to Brazil was a good idea or not until I pulled the experts, right? So I pulled the experts. So that's sort of the risk scoring the way I viewed it. You're going to see in that job, you're going to see lots of opportunities are going to come. Buying companies, buying property, buying assets that come your way all the time. And you need to have methodologies to evaluate those and say, these are the top two that we should do this year, and these are the ones we should do next year, and these are the ones that should go on a back burner in order to keep the company focused on its long-term objective of creating value.

Megan - 00:31:09: And I'm just curious, when something's failing, what's kind of your rule of thumb for when you walk away? When do you pull the plug?

Beatty - 00:31:18: You know. It's easy to go on either side of what the right answer is on that. It's easy to say a year in, this is a disaster, let's cut our losses and walk away. And almost as easy at the five years and you haven't met your projections to say, well, let's give it another year. And so for me, and this was the discipline we brought to the ERP project and the discipline we had both at Graybar and at Univar was we had a business case that we started with. And every six months we would go revisit the business case. And when you're building something, it is okay. We said it was going to cost $25 million. And so far we've spent $28 million. Obviously, our cost estimates were wrong. So now it's built and it's a $30 million on what was supposed to be a $25 million. So now you have to rebuild your business case about how it's going to pay off. And when you get three years into something and you're 50% below your business case. You're never going to catch up. And maybe it's 30%. You're never going to catch up. And so then you have to say, is it a crappy success? If let's say we only got 70% of what we thought we had, but that still isn't, it's still in the money and it's not really at our threshold or our hurdle rate. It's close. And if we give it some more time, maybe we'll be at our hurdle rate. But if you say it's never going to meet our criteria as a successful investment, which is what the business case is built on. At that point, you really have to say it was a great idea and the execution was pretty good. And the thesis on this was wrong. There wasn't that much market. There wasn't that much opportunity. And you generally, then you go try to find somebody to buy it if you're, if it's 10 and say, there's got to be an expert out there that's great at Brazilian fertilizer. Let's go find somebody who really has been good at it and sell them the business.

Megan - 00:33:13: And as a CFO who's obviously representing lots of stakeholders, how is it that you set priorities both for yourself and for the company as a whole?

Beatty - 00:33:24: Yeah. So as you get into these C-level jobs, the idea behind the pay packages typically is to create an alignment between the success of the company and the success of the individual. And there's a lot of negative press about what the large company CEOs and then some days the CFOs make, but almost always their base salary is X, and their long-term comp is driven by the value of the stock. There's plenty of action. And as long as they are pushing the valuation of the company forward, and they are enjoying the benefit of that increase in valuation, then you have this alignment between the shareholders, the people who gave you their money, and your own personal interests. And so that alignment piece, which is the theory today and the theory I grew up in, is that's a compensation conversation. And it's an option and the restricted stock grant kind of conversation to maintain that stockholder C-suite alignment. You have others, I would say, and it's never everybody's first list, but for me, the next group was the regulators, whether it was the IRS the SEC, and or the state revenue agencies. If you didn't serve them in the way they wanted to be served, that is filing on time and sending checks on time, you weren't going to be in business very long. And so sort of the death threats are if your shareholders think that you're destroying value, you're fired. If the IRS or the SEC thinks that you're not abiding by the rules, you're fired. And so you're managing those two constituencies sort of top of mind and almost equally, I would tell you, and the chair. And then you have your employees. And if you don't have good employees, the work, the quality of the work that gets done is not going to get done. And so a fair environment where competency is rewarded and where the company is viewed as a fair player is really, really, really important. And next, I'd fall into sort of the customer. The customers have to view what you do as valuable. They have to say, I couldn't do this myself, and so I have to hire an expert. And I would these experts really do it for they do it well. They do it as expected. They do it the way I would like. Below them are a bunch of suppliers where you're dealing with folks who are providing you with resources in order to do the work that's necessary in order to create value. And then sort of harder to define and not sure how you would measure your success in this is your community involvement. And we did at Graybar, we were very involved in junior achievement. And so we were measuring the number of hours that we were contributing to school systems around the area. And it can't be, I think it has to be something quantifiable. If you say my impact on the community is people like me, I don't quite know how to quantify that. But if I say, we put 27,000 hours into the public school system and the greater St. Louis area over the last two years, and our target is to do 32,000 in the next two years, then I would say, well, that's something you can actually wrap your head around. And hopefully, you've been insightful in your picking of whatever this is, this endeavor that you're going to do, and that it's going to have some sort of a benefit on the overall community. But these are really specific community goals or non-specific community goals, I don't know how you know you won. I don't know how you know you moved the ball if that's not something that you can wrap something data-driven and quantifiable around. And we loved that, you know, we had 500 employees that were in the public school systems every year and we thought we're selling the company brand, we're creating future recruits, we're helping out with the education process and we're teaching the benefit of free enterprise. We thought, when, when, when, when, when all over the place for us. I'm afraid that kind of really, measurable and quantifiable involvement doesn't meet maybe some of the more generalized, you've got to be a good corporate citizen, which I don't know what that means besides I pay my taxes and I don't break the law. A good corporate citizen gets bandied about as some measure of your success and community involvement. So those would be the constituents and sort of the way I would stack them.

Megan - 00:37:59: And let's talk about resources. So resources are finite, obviously, and they seem to be becoming more and more finite as the years go by. But the uses for those resources are always infinite. So as a CFO, how do you ensure that you're both providing the right resources and then allocating them in a way to maximize their return?

Beatty - 00:38:20: Right. It's an excellent question and hard to know until you're looking in the rearview mirror whether you did it right. Resourcing to me is time, money, and people, and maybe to some degree attention, but the priorities sort of set the attention, right? They said we're going to focus on getting into the South American market. That's going to be our priority. And then you model, right? I mean, you know, that's unfortunately, it's not sexy, but you build these models, these internal and capital models, these business cases. If we do this, we should get that. You compare it to the general business. So right now, our bid to ratio on the base business is 8%. And here's an opportunity. And if everything works, it'll be 14%. That seems like a good idea. And now you have to score it, right? You say the probability of us building a business that returns 14% in South America is one in three. Well, again, all right, so now you have to risk adjusting whether that works. Anyway, so you're looking at this opportunity menu of things that you could do with the business. Including investing in your core business that you already have, adding more salespeople, more manufacturing environments, and more delivery nodes, versus buying something, doing a greenfield expansion, or going into a different country. And then you score it and you decide whether this is highly likely and this is not very likely. This is, I say this, just we're not paid, CFOs are not paid only to do certain things. We have to pick things that are unlikely but high impact occasionally because those are the things that are going to make a big difference five years from now. And so if every decision we make is playing defense, which sometimes you do in 2008, every decision was playing defense, but in the normal course, if what you're looking at is, this is not gonna have a great effect in year one or year two or year three, but in year four or five, this was gonna be a core business for us. There's only a 25% chance that it's gonna work out. But if it works out, it's gonna really be transformational, then those are the things that you wanna resource, right? And so you wanna apply time, money, and people to in order to make that happen. And so that's sort of the priority feeds the resource model, right? And you've gotta have the priorities in order to make the resourcing decisions.

Megan - 00:40:45: And let's switch gears for a bit and talk about the intersection of finance and technology. So, when you look at technology, what do you feel like CFO should be prioritizing as far as investments in their technology stacks right now?

Beatty - 00:41:00: Yeah, I'd like to say, because it's very popular at the moment, that it's all AI investments. I think AI is going to be the co-pilot to a lot of executive decision-making. I don't think we're going to turn all of our decisions over to machine learning to make. And so there's an element of AI and what CFOs should be thinking about. For me, technology is about driving the speed that you have in sight, right? And so these are quick closes and these are granular level reporting on a product or a location so that you can do something before it's way off course, right? And the story that we would tell always throughout late in my career was the Korean Airlines 007. He's in Anchorage, the pilot's in Anchorage and he misses the compass by one degree. He misses the compass by one degree. He flies up, he flies into the Soviet Union and he gets shot down. One degree over 3000 miles, that's a big problem. And so we were looking to make that when we saw one degree to be able to sense a one-degree deviation from the plan or two-degree deviation from a plan, that we could begin to remediate, right? We could begin to make the appropriate adjustments. And so technology provides that insight at speed, right? The tempo of business is faster. Because of technology, systems exist that are capturing transactions, sorting them in a way that you can understand and providing, spitting out a report to you that's going to drive your insight. Now, the interesting thing is you're going to take that report and you're going to dump it into AI and it's going to say, here are the three things you should consider based on the report. That's helpful. Now I can make more decisions faster because I have somebody, something that's doing sorting for me. But at the end of the day, it's this ability to detect very small variations very early. That is what's exciting to me about the technology that's in place today and that is being rolled out today in large organizations.

Megan - 00:43:09: And of course, technology is important, but not always the magic bullet I think some people hope it will be. So what other changes does a company have to undergo to make the most of its technology?

Beatty - 00:43:21: Well, it has to be open-minded as it looks at its technology, as it looks at its technology portfolio. I think there's a tendency not to view a technology investment as a sunk cost. In many instances, you've bought it, you've put it on, you've got it up and running, everybody's focused on solving the Y2K problem. And two years after all those investments were made, all of this web-enabled technology showed up. And the typical response of the CFO and those who are responsible for return on investment is, well, I know we've got to get another seven years out of what we've invested in. It doesn't matter what's going on in the environment. And the answer is, it does matter what's going on in the environment. If you're building a data center and all of a sudden Amazon Web Services knocks on your door and says, we can take over your entire data center work and do it for less than you're doing, then sort of mid-project, you need to be able to say, gee, that didn't exist. Now it does exist, I need to stop and rethink all of my assumptions based on this new fact. I would tell you that's really hard. It fights sort of everything you have in you that is driven by momentum, that once you get something started and you've gone through all the effort of getting it approved, that you would see it to the end. If things change markedly enough, you need to stop and you need to reconsider and you need to redirect. And this again is to sort of this granular view of the business in real-time or nearly real-time, being able to read that, pull out the insight from that and then make informed decisions based on what is actually happening. And to me, that's exciting because the speed of business is so much faster than it was when I started, but takes us 20 days to close the books. And at Graybar, we were closing the books in three and a half days, at Univar, we were closing it in four days. I mean, just so much faster, and all the reports were automatically generated off of those really capable systems. And so we could get away from planning, washing the dishes, closing the books, and get into planning the menu. What do we do with this? Right? How do we react to sales are down in Montana? Right? I mean, what do you do about that? That's the fun of the business, not trying to figure out why the books didn't balance right on these accounts.

Megan - 00:45:48: Yeah. I don't think many people want to spend much time looking at historical things. I think most people would rather be looking ahead and thinking strategically.

Beatty - 00:45:58: The historical stuff provides you with the trends, and always in the C-level, you should be working to break the trend. The trend is 6% up, and so what can I do to get to 7.5%? What can I do to get to 8%? Because if we do nothing. It's going to follow that trend. And if you do nothing, why do you need high-paid executives? Why? Right? High-paid executives are supposed to be the ones that are the pathfinders, finding the next way forward, that's going to move the business from a 6% return on a bid to return to an 8% return, right? That's what you're paying executive management to do, not to do the same old thing.

Megan - 00:46:39: And as you look at technology, how do you feel it can help to drive uniformity of processes and increase controls?

Beatty - 00:46:47: Yeah. Well, so anybody on the control side, anybody who's been through a Sarbanes-Oxley implementation and I've been through too, will tell you without systems, you cannot provide the assurances that your accounting firm is going to require in order to give you a clean opinion. That is the system really has to be the system of record for the company. It can't be something that's dumped into some Excel spreadsheet an access database and some SQL server database. It has to be the hub and the middle of the business. The uniformity is you create these transaction types and what you should do is create an optimum transaction type, whether it's an order entry or applying cash-paying suppliers ordering materials, or whatever it is. And then you drive to that optimized approach. And so everybody, you're in 300 places. Now everybody is going to do order entry the same. And so every report is going to be a real version, a comparable version between locations, products, places, whatever it is. And that uniformity, I would tell you, it's interesting in sort of the 90s, every meeting started with an argument about this report is not accurate, right? You took it, you did it this way. You ran it on a Tuesday before four o 'clock. And that's when we load the final adjustments every week. And there'd be all this argument. You'd spend, you'd go to an hour meeting and it would be 45 minutes arguing about the methodology and maybe 10 minutes about organizing, about arguing about what we should do about it. And when these systems came in and you were in this uniformed approach and we were doing ordering the same, we were doing cash half the same, we were closing the books are the same, journal entries the same. We went from five minutes to talk about the methodology to getting the reports together. Oh yeah, that's the monthly report. That's the weekly report. That's the daily report. Nobody argued about that. And then you'd have 50 minutes of insightful discussion about what to do about it. What does it mean? And now what do we do, how do we respond to that? And I would tell you, it took a bunch of management time that was burned up in cycles about arguing whether Tuesday morning reports were the same as Tuesday afternoon reports. And okay, we've obviously got a problem in Denver. We need to do something about it. And now your speed, this is again, sort of the granular, the level of the insight and then the ability to respond to it with, and then in a rapid fashion, that's what has made a difference in the last 20 years in this country as far as earnings growth and overall growth. It's that ability to move toward doing something about the data versus arguing about the validity of the data.

Megan - 00:49:27: Great point. So as a business leader, what is it that's keeping you up at night?

Beatty - 00:49:32: Well, I say this on a really big scale. The invasion of the Ukraine was a real wake-up call for me. We haven't had a war in Europe in 70 years, right? And then things have been on the most, and I don't, nothing against the people who fought in some of the smaller wars, but the brushfire wars that we've fought in, in Vietnam, and in Afghanistan, and in Iraq. Thought that was the new model. These were going to be even smaller and limited wars, not the invasion of one country to another. And of course, that means from an economic standpoint, that Europe is not as safe as I thought it was. So if I have a choice between putting an $80 million investment in Poland and an $80 million investment in Canada, all of a sudden the political circumstances in both places or the political or the military threats potentially, all of them have become much more relevant to me. And, you know, I think that before, if you said we have an opportunity to put 80 million in Poland or Germany or 80 million in Canada, I'd say, you know, give me the returns, tell me what the numbers are. Now I would score down the Europe return and certainly the Taiwan return and maybe the South Korea return to include a lot of political risk and a lot of uncertainty as it relates to their bigger neighbors. And I would tell you that's been almost, I had to almost totally rethink the way I look at projects or evaluate projects that are ex-US as a result of what has happened. The only thing that it showed us, and COVID was the same, had the same effect, was being gigantic. Immediate impacts now in a totally connected world and asset prices. Right. You announce you're closing the US or that there's a virus that we don't understand. And you see this reset of trillions of dollars in value in hours or days. And you have a Russia roll into the Ukraine, and you have this reset in asset values, particularly European asset values, that it wasn't days, weeks, months, or years as people priced in that new risk. It was in an hour or two or eight. And so the thought that I'm going to be very careful and I'm going to listen for signals. And when something happens, I'm going to jump, I'm going to be an early jumper and get rid of assets and high-risk environments. It used to be, I would tell you, yeah, you could probably do that. Now I would tell you, if you're in there and this happens, you're caught, you're stuck where you are. And so you have to make your decisions about where you make your investments. You need to think about where you make your investments keeping in mind that if something really unusual happens, you're going to have to ride it out. You're not going to be able to sell your assets at what you thought you were. You're gonna have a 30% haircut in two days or three days because nobody wants to own all those assets anymore. And people are less interested in owning German assets because of how far this Russian impact is going to be. And so those are sort of the at-night things as well where I never worried about sort of military confrontation. Now I worry about what China is gonna do in Taiwan. I worry about what Russia is gonna do in the Ukraine and all the spillover effects that that's gonna have on the markets. And the bad news is that all of it has suppressed valuations, right? None of that is good. And the years we had between 1945 and 2021 or 22, I think we're gonna look back at those as a very special period in the history of the world where there were no major wars. I know there were wars and I know people died. I don't mean to belittle the sacrifices that were made, but what's going on now in Europe and what could happen in China, This shatters the peace and it changes the mindset, certainly making the US more attractive for investment. The oceans keep all of that stuff away from us, but all of our growth markets, make the hurdle rates even higher because of these military adventures.

Megan - 00:53:41: Beatty, thank you so much for being my guest today.

Beatty - 00:53:44: It was a pleasure, Megan. I really enjoyed talking to you.

Megan - 00:53:46: Yeah, I really enjoyed speaking with you, and thank you for finding the time to be here with us today to share your experience and knowledge. Appreciate it very much.

Beatty - 00:53:54: I look forward to staying connected.

Megan - 00:53:56: Yep, and to all of our listeners, please tune in next week, and until then, take care.

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