Strength Test - SPACs COME BACK HANDLING RECRUITERS THE CFO OF 2030 - CFO Magazine
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NOVEMBER/DECEMBER 2020
CFO.COM
SPACs
COME
BACK
HANDLING
RECRUITERS
THE CFO
OF 2030
Strength Test
Hard-hit industries find ways to withstand
the pandemic.
Nov/Dec20_Cover.indd 1 11/18/20 1:37 PM
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a.indd 12 11/10/20 9:52 PM
IN THIS
ISSUE November/December 2020
Volume 36, No. 6
30
30 Cover Story
Profiles in
Resilience
Although the pandemic nearly crushed
their industries, these companies are
finding ways to thrive.
By Russ Banham
36
When Opportunity
Knocks: Dealing
With Recruiters
Think calls from recruiters are a waste
36 of time? Here’s how to make the most
of these career connections.
By Sandra Beckwith
42
Special Report: SPACs
They’re Back
Fueled by piles of capital, special-
purpose acquisition companies want
to take your company public. But are
they the best route to a listing?
By Vincent Ryan
Cover: Getty Images; this page : Getty Images (2) November/December 2020 | CFO 1
TOC.indd 1 11/18/20 2:45 PM
IN THIS
ISSUE
November/December 2020
Volume 36, No. 6
14
20
Up Front Health Benefit Costs Seen Rising
15 8.1% in 2021
4 | FROM THE EDITOR By Matthew Heller
6 | INBOX
8 | TOPLINE: Small Businesses weigh 28 | BUDGETING
Subchapter V filings | Beware this Crafting Realistic, On-Time Budgets
misstep with share buybacks | By Perry D. Wiggins
Wells Fargo abused COVID relief |
IBM to spin off infrastructure unit The High Costs of an Inefficient
| Deloitte fined record $19M | CME, Data Strategy
Nasdaq to offer water futures |
By Yasmin Siddiqui
SAExploration accused of fraud | SAP
to buy Emarsys | SEC drops proposed
whistleblower rule | Citigroup fined
over risk defects | and more
By the Numbers
20 | HEALTH BENEFITS
26 7 Ways COVID-19 Will Transform
46 | OUTLOOK
The CFO Survey
Health Care
By Jeff Levin-Scherz, MD, Steve
CFOs Skeptical About Recovery
Blumenfield, and Julie Stone Before Next Year
On average, finance chiefs anticipate
24 | TECHNOLOGY it will take months, if not years, until a
The CFO of 2030 full economic recovery.
By Hal Polley By Matthew Heller
26 | HUMAN CAPITAL 48 | THE QUIZ
What’s the Right Way to Do You Remember?
Return to the Workplace? Take our quiz on these finance news
By Saul B. Helman, MD, and David Berger stories to see how many you might
have already forgotten.
2 CFO | November/December 2020 Getty Images (4)
TOC.indd 2 11/18/20 2:45 PM
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FROM THE EDITOR’S
EDITOR
PICKS
◗ MANAGEMENT
All I Want for 2021 “If Pandemic Productivity
Is Up, Why Is Innovation
Slowing Down?” looks at
why working from home
We have no idea what 2021 will bring, but
has caused an innovation
here are some things I hope happen. ¶ deficit at some companies.
1. Remote work. Working at home has “Videoconferencing and
instant messaging apps
been a godsend for some people; it has
can’t perfectly replicate
taken its toll on many others. My wish is the dynamics of being
that next year C-suite executives scrutinize together in the same
room, hashing out ideas
how remote working affects organizational culture and innovation.
and feeding off the energy
If they decide to keep offices closed, I hope that CFOs also find a of co-workers,” write the
authors. Read more on
way to adapt HR practices and policies spending programs they prioritize and the Knowledge@Wharton
website.
so that employees feel less isolated and undertake.
regain a sense of esprit de corps. 4. Pandemic. One of my desires is for
◗ DATA
2. Small businesses. Next year Con- the U.S. health care system, its regulators,
The data economy is a
gress and the president need to focus on and related government agencies to be source of power and prof-
saving the 30 million small businesses that more imaginative next year in figuring out it, but Dr. Carissa Véliz of
are the engine of the U.S. economy. Large how to handle the COVID-19 pandemic Oxford University says
industries have the bankruptcy system, and any future outbreaks. Lockdowns are it is also a threat. Listen
highly competent executives, and liquid a blunt tool that have serious side effects. to “Should We End the
capital markets to keep them from running
The constant drumbeat of fear from the Data Economy?” to get
aground. Small businesses, on the other
media has overshadowed any balanced a perspective on what’s
hand, have fewer capital-raising options wrong with the data econ-
messaging from scientific experts and
and fewer routes to debt forgiveness. They omy and what proposals
knowledgeable health care officials.
are critical to any economic revival. experts have suggested to
5. CFOs. Twenty-twenty has shown us,
3. U.S. balance sheet. Implicitly and end it. Access the podcast
once again, how intertwined businesses
explicitly, many politicians have embraced on the Harvard Business
are with the macroeconomy, government
Modern Monetary Theory, the belief that Review website.
nations that issue their own currencies policymaking, and their customers and
can never “run out of money” the way partners. I hope that in 2021 CFOs begin
◗ EVENT
people or businesses can. Ergo, they are to take a positive role in solving all of the
Argyle Digital’s last
proposing programs under the notion that problems confronting our nation. They Finance Leadership Forum
the U.S. can spend freely to revive the have a responsibility to help make 2021 a of 2020 takes place on
economy. I hope that in 2021 policymakers year of historic recovery. December 17. The virtual
get a clear picture of the real limits of the event’s theme is “Finance
federal government’s balance sheet. They Vincent Ryan Strategy and Innovation
also need to show wisdom in the stimulus Editor-in-Chief in 2021 and Beyond.”
Speakers include finance
executives from IHG,
CFO, Vol. 36, No. 6 (ISSN 8756-7113) is published six times a year and distributed to qualified chief financial officers by CFO Publishing QuickLogic, Honeywell
LLC, 50 Broad St., 1st Floor, New York, NY 10004 (editorial office). Copyright ©2020, CFO Publishing LLC. All rights reserved. Neither this
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4 CFO | November/December 2020 Mark Bennington
editor's note.indd 4 11/18/20 2:16 PM
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Ad8.indd 8 8/19/20 6:58 PM
INBOX
◗“Fed Chair Jerome Powell
Calls for More Stimulus” (CFO. ◗ “The CFO of 2030” (page 24) asked how finance
chiefs are going to create value across the next
com, November 6) discussed decade. “A finance team should be stressing how
how the central bank chair said important robust and agile systems of budgeting,
fiscal stimulus is needed to help planning, and analysis are,” said one LinkedIn reader.
the economy recover from the “Many companies should have learned that preparing
effects of the coronavirus. for scenarios to better manage the business not
"I strongly believe we should face up to the only in a crisis but for taking advantage of market
COVID-19 challenge by instituting a robust nationally opportunities is a role where the CFO and his/her
coordinated and well-funded strategy, with state- finance team can bring so much value.”
specific complementary operating plans, to keep both “A CFO must be able to sharply recognize the
our American citizenry and our whole economy alive, internal capabilities and resources of the company
while making it possible to have a timely and full so they will know what the real needs are,” added
restoration of both our physical and economic health, one CFO.com reader. “That’s a [task] that must
in the long run,” said one reader. “Shutting down the be immediately completed. Then look for market
economy may be an effective scientific lab approach opportunities that can be taken by the company to
to control this disease, but our modern American expand business growth.”
society does not permit us this special luxury. There
is no alternative but to find a cure for this pandemic,
now, with effective, easy access to everybody.” ◗ In response to the online version of “Small
Businesses Weigh Subchapter V Filings” (page 8),
Another reader added: “Maybe, since the world one reader commented: “I am a bankruptcy attorney in
has so far shown that the virus is not stopped, it Chicago, and I can tell you that small businesses need
would be better to trust people to use common to be aware of this option. I have helped a number
sense and not stop the economy. Shutting things of small business owners save their businesses by
down will in the end, in my opinion, delay, not stop, using Chapter 11.” They continued: “Plain and simple,
the virus, and only hurt people more by not allowing it works. Subchapter V can make what can be a
them to work.” burdensome process easier than ever before.”
CFO PUBLISHING LLC CFO MARKETING SERVICES SUBSCRIBER SERVICES
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Executive Forum LLC, cfo.com/cfo-magazine
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STATS
OF THE TOPLINE
MONTH
BANKRUPTCY
Small Businesses Weigh
Subchapter V Filings
Small Business Debtor Reorganization offers advantages over
PAY CHECK
other restructuring options for owners brought to the brink by
COVID-19 shutdowns. By Vincent Ryan
4.4%
Increase in Many small businesses are using a niche zation process, says Stephen Klein, managing
middle-market part of the Bankruptcy Act to discharge director of Atlanta-based Bennett Thrasher's
CFO total direct their debts during COVID-19, and bankruptcy bankruptcy & restructuring practice.
compensation experts are encouraging other ailing small Second, "the absolute priority" rule does
(TDC)*
companies to consider the option instead of not apply. A debtor may retain its equity
shutting down entirely. interest even though unsecured creditors
6.9% About 1,000 small businesses have filed
under the so-called Subchapter V, Small Busi-
do not receive payment in full. In a typical
Chapter 11, the debtor cannot keep its equity
Increase in
retail and ness Debtor Reorganization, in 2020, accord- unless (1) creditors vote in favor, and (2) the
manufacturing ing to statistics cited in a session of the Amer- equity security holder "adds value." In many
CFOs’ TDC ican Bankruptcy Institute's
Insolvency 2020 conference.
Part of the reason might
$423K be the enhancement to Sub-
Average salary, chapter V in the Coronavi-
middle-market rus Aid, Relief, and Econom-
CFOs ic Security (CARES) Act.
CARES temporarily raised
$322K the ceiling on a filer's aggre-
gate secured and unsecured
Average bonus non-contingent and liquidat-
and annual
ed debt to $7.5 million from
incentives
$2.7 million. The higher debt
limit ends on March 27, 2021.
17% "[Subchapter V] is tailor-
made for small businesses
Middle-market
CFOs that took that can survive COVID
2020 pay cuts + and come out the other end," said Deirdre Chapter 11 cases, the owner loses its equity
O'Connor, a managing director at Epiq Global. and ownership in the business.
* For fiscal year 2019.
A Subchapter V filing has advantages over Third, in a Subchapter V, the management
Average of 600 publicly a Chapter 11. First, in Chapter V, a creditors' of the small business can remain with the
held middle market
companies
committee is not formed, and as a result, the debtor (absent expansion of the trustee's role).
+ Disclosed in SEC filings debtor's bankruptcy estate does not bear the And fourth, Subchapter V gives the small
between March and June
2020
committee's professionals' costs. A creditor's business debtor flexibility to pay administra-
committee has significant power in a Chapter tive claims over the life of the plan rather than
Source: The BDO 600
compensation study
11 case and is adversarial to the secured credi- in cash on the effective date of the bankrupt-
tors, which significantly impairs the reorgani- cy, Klein says. The lack of that flexibility has
8 CFO November/December 2020
20Dec_Topline.indd 8 11/16/20 7:15 PMimpeded the successful reorganization August and September. However, the There were also 52 mega-bankrupt-
of many companies, Klein says. fourth quarter could be much busier, cies (over $1 billion in assets), more
The bankruptcy bar and the courts according to bankruptcy experts. than the number of mega bankruptcies
are expecting more Subchapter V cases Data from Cornerstone Research in any full year from 2005 to 2019 ex-
to be filed this year and next as Pay- released in October revealed that cept for 2009.
check Protection Program funds are the first three quarters of 2020 saw "Mega-bankruptcy filings were
exhausted. Indeed, the U.S. courts have record numbers of large company concentrated in two industry sectors—
hired 250 new Subchapter V trustees. bankruptcies. About 138 companies mining, oil, and gas; and retail trade—
In other bankruptcy trends, Reorg. with over $100 million in assets filed as oil prices collapsed and remained
com's data cited in the session showed for Chapter 7 or Chapter 11 bankruptcy depressed, and traditional retailers
that 2020 has been rife with Chapter protection in that period. That figure is faced an increasingly difficult environ-
11 cases. The second quarter saw 138 84% higher than the 75 similarly sized ment," said Allie Schwartz, a Corner-
cases, and the third quarter, 133 cases. bankruptcies filed in 2019. The second stone Research principal.
(The quarterly average since 2016 has quarter's 55 filings marked the second- The decline in worldwide travel
been 97 cases.) highest total for any quarter since 2005, precipitated 3 of the 20-largest bank-
The months of June and July saw 50- only behind the 65 in the first quarter ruptcies: Hertz, LATAM Airlines, and
plus cases each, but filings slowed in of 2009. Avianca Holdings. CFO
REGULATION Then, in January 2018, they agreed to resume talks.
The order found that two days before the date set for
Beware This Misstep
resuming the discussions, Andeavor’s CEO directed the
company’s CFO to initiate a $250 million stock buyback.
With Share Buybacks
The stock was repurchased in February and March 2018.
But a company policy that was part of the board-
authorized buyback prohibited repurchases while
Think it’s an OK time to repurchase some of the com- Andeavor was in possession of material nonpublic infor-
pany’s stock? Better have the compliance depart- mation. Andeavor failed to maintain internal accounting
ment check with the CEO first, even he’s the one who controls that provided reasonable assurance that the
told you to pull the trigger on the repurchase. buyback complied with Andeavor’s policy, the SEC said.
That’s just one of the lessons from the Andeavor LLC The SEC said Andeavor used “an abbreviated and
case announced by the Securities and Exchange Com- informal process” to evaluate whether the buyback
mission in October. requirements were satisfied.
The SEC accused San An- More specifically, the process for
tonio-based Andeavor, now evaluating the materiality of the
part of Marathon Petroleum, acquisition negotiations did not
of controls violations related include discussing, with the CEO,
to a stock buyback plan’s tim- the likelihood of a deal between
ing. According to the SEC, while Andeavor and Marathon.
the company was in talks to be About one month after com-
acquired by Marathon in 2018, pleting the buyback, the order
Andeavor bought back $250 mil- found, Andeavor publicly an-
lion worth of stock, violating its nounced that it would be ac-
own policies regarding trading quired by Marathon in a deal
while in possession of material, valuing Andeavor at over $150
nonpublic information, and se- per share.
curities laws. Andeavor agreed to pay a $20
Andeavor and Marathon held months of confidential million penalty to settle the charges without admitting
discussions in 2017 about Marathon potentially acquir- to the violations.
ing Andeavor. But, the order found, in October 2017 The SEC’s order finds that Andeavor violated the in-
Andeavor’s then-Chairman and CEO and Marathon’s ternal controls provisions of Section 13(b)(2)(B) of the
Chairman and CEO agreed to suspend the discussions. Securities Exchange Act of 1934. | V.R.
Getty Images (2) November/December 2020 | CFO 9
20Dec_Topline.indd 9 11/16/20 8:04 PMTOPLINE
FRAUD
Wells Fargo Abused
COVID Relief
Wells Fargo fired up to 125 employees for allegedly misrepre-
senting themselves to obtain stimulus money intended to help
businesses hurt by the COVID-19 pandemic.
CNN, citing an internal memo written by Wells Fargo’s head of THE CLOUD
human resources, David Galloreese, reported the misrepresenta-
IBM to Spin Off
tions may have amounted to fraud against the U.S. Small Business
Administration.
Infrastructure Unit
In the memo, David Galloreese wrote that the bank identified
employees whom it believes may have “defrauded the U.S. Small
Business Administration (SBA) by making false representations in
applying for coronavirus relief funds for themselves through the IBM is spinning off its managed infra-
Economic Injury Disaster Loan program, which is administered di- structure services unit into a new public
rectly through the SBA.” company. The company said the move would
Galloreese wrote the employees’ actions did not involve cus- help accelerate its hybrid cloud growth strat-
tomers and were taken outside of their responsibilities at the egy and drive digital transformation.
company. “IBM is laser-focused on the $1 trillion
“We have zero tolerance for fraudulent behavior and will con- hybrid cloud opportunity,” IBM chief execu-
tinue to look into these tive officer Arvind Krishna. “Client buying
matters,” Galloreese needs for application and infrastructure ser-
wrote. “If we identify vices are diverging, while adoption of our
additional wrongdo- hybrid cloud platform is accelerating.”
ing by employees, we Following the spinoff, IBM will have
will take appropriate more than 50% of its portfolio in recurring
action.” He said the revenues products. It said it will transition
company would fully from a company with more than half of its
cooperate with law en- revenues in services to one with a majority
forcement. in high-value cloud software and solutions.
“As a company, we It said the spinoff company will imme-
are vigilant in detect- diately be the leading managed infrastruc-
ing fraud,” he said. ture services provider with more than twice
“While these instances the scale of its nearest competitor. The new
of wrongdoing are extremely unfortunate and disappointing, they company does not yet have a name.
are not representative of the high integrity of the vast majority of “We have positioned IBM for the new
Wells Fargo employees.” era of hybrid cloud,” Ginni Rometty, IBM
In 2016, the Consumer Financial Protection Bureau fined the executive chairman, said. “Our multi-year
bank $185 million over allegations it created millions of fraudulent transformation created the foundation for
savings accounts and checking accounts. In 2018, the Federal Re- the open hybrid cloud platform, which we
serve announced it was capping the bank’s assets citing “wide- then accelerated with the acquisition of
spread consumer abuse.” Red Hat.”
In September, JPMorgan Chase the largest lender under the IBM closed on its $34 billion acquisition
Paycheck Protection Program, said some of its employees had of Red Hat in July 2019. The Red Hat deal,
“fallen short” of company standards and participated in conduct the largest ever for IBM, was led by Krishna
around the program that may have been illegal. The bank reported- who took over as CEO in April.
ly fired several employees who improperly applied for COVID-19 re- The spinoff is expected to be tax-free and
lief funds through the Economic Injury program. | WILLIAM SPROUSE completed by the end of 2021. | W.S.
10 CFO November/December 2020 Getty Images(2)
20Dec_Topline.indd 10 11/16/20 8:05 PMThe Big Shot
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a.indd 11 11/10/20 9:56 PMTOPLINE
The FRC announced Thurs-
AUDITING day that the tribunal had upheld its
request for sanctions, with Knights
Deloitte Fined
and Mercer being fined 500,000
pounds and 250,000 pounds, respec-
Record $19M
tively.
“The significant sanctions …
reflect the gravity and extent of the
Concluding a years-long inves- failings by Deloitte and two of its
tigation, the U.K.’s accounting former partners in discharging their
watchdog has fined Deloitte a record public interest duty concerning
15 million pounds ($19.4 million) for Autonomy’s audits,” Elizabeth Bar-
“serious and serial failures” in its audits of software firm rett, the FRC’s executive counsel, said.
Autonomy. “The identified failures to act with integrity, objectivity,
The Financial Reporting Council’s investigation skepticism, and professional competence go to the heart of
focused on Deloitte’s audits of Autonomy’s financial state- audit,” she added.
ments before the company was acquired for $11 billion by The FRC alleged Deloitte allowed Autonomy to hide
Hewlett-Packard in 2011. 118 million pounds of loss-making hardware sales before
After a seven-week hearing last year, an independent the company was sold to HP. A year later, HP took an
disciplinary tribunal found Deloitte and two former part- $8.8 billion writedown on the deal, alleging accounting
ners, Richard Knights and Nigel Mercer, were culpable of irregularities.
misconduct for audit failings related to the accounting and “Our audit practices and processes have evolved signifi-
disclosure of Autonomy’s sales of hardware and its sales of cantly since this work was performed over a decade ago,”
software licenses to value-added resellers. Deloitte said. | MATTHEW HELLER
CAPITAL MARKETS global head of equity index and alternative investment
products, said. “Developing risk management tools that
CME, Nasdaq to Offer
address growing environmental concerns is increasingly
important to CME Group.”
Water Futures
Peter Gleick, a water expert at the Pacific Institute,
said the market could result in some users conserving
water and selling a surplus for a profit, but he thought
CME Group and Nasdaq said they plan to the impact of the futures market would be small
offer futures contracts based on the because selling was complicated due to rights
Nasdaq Veles California Water Index. issues.
The index, launched in 2018, is based “There are fewer places in California
on the volume-weighted average of the where water can be transferred legally,”
transaction prices in California’s five Gleick said. “The vast majority of Califor-
largest and most actively traded water nia water isn’t accessible to these water
markets. markets.”
In a statement, the companies said Rostin Behnam, a commissioner at the
each contract would represent 10-acre Commodity Futures Trading Commission, said
feet of water and allow users to lock-in derivatives based on water prices would be an
prices, increasing transparency, price discov- important way for businesses to manage climate
ery, and risk transfer. risk, citing increasing prevalence of extreme weather
“With nearly two-thirds of the world’s population ex- events.
pected to face water shortages by 2025, water scarcity “Every time I talk about this, these weather events are
presents a growing risk for businesses and communi- just validating the need to take action,” Behnam said.
ties around the world, and particularly for the $1.1 bil- Sales of the contracts would begin late in the fourth
lion California water market,” Tim McCourt, CME Group quarter, pending regulatory review. | W.S.
12 CFO November/December 2020
20Dec_Topline.indd 12 11/16/20 8:06 PMACCOUNTING million with a purport-
edly unrelated Alas-
SAExploration
ka-based company
that was in fact con-
Accused of Fraud
trolled by Hastings and
Whiteley. The defen-
dants allegedly misap-
The Securities and Exchange Commission propriated nearly $6
has filed civil charges against SAExploration million from SAE and
Holdings, a publicly traded seismic data acquisi- used the funds for a
tion company based in Houston, over an alleged series of round-trip
multi-year accounting fraud that falsely inflated the transactions. They then stole approximately $6 million
company’s revenue and concealed the theft of millions for themselves. Whiteley allegedly misappropriated
of dollars. an additional $4 million through a separate fictitious
In a complaint filed in the Southern District of New invoice scheme.
York, the SEC said senior executives engaged in an The U.S. Attorney’s Office for the Southern District of
“elaborate, four-year-long fraud.” It names former CEO New York announced criminal charges against Hastings
and chairman Jeffrey Hastings, former CFO and gener- in a parallel action.
al counsel Brent Whiteley, former CEO and chief oper- Hastings was arrested last month in Anchorage,
ating officer Brian Beatty, and former vice president of Alaska. A spokesperson for the company said he was
operations Michael Scott as defendants. It also names put on administrative leave more than a year ago and
the spouses of Hastings and Whiteley, Lori Hastings then resigned.
and Thomas O’Neill, as relief defendants. The SEC is seeking a permanent injunction against
The executives allegedly entered into a series of SAE and executives, civil penalties, disgorgement, and
seismic data acquisition contracts totaling about $140 office-and-director bars against the executives. | W.S.
M&A in a highly competitive space,” CRM Essentials founder and
principal analyst Brent Leary said. “Emarsys adds industry-
SAP to Buy Emarsys
specific customer engagement capabilities that should help
SAP CX customers accelerate their efforts to provide their
customers with the experiences they expect as their needs
German software giant SAP has reached an agreement change over time.”
to buy Emarsys, a cloud-based customer engagement Qualtrics was the last big acquisition under former CEO
platform, for an undisclosed sum. Bill McDermott, who was criticized for overpaying for the
“Once the transaction closes, SAP will enable brands company days ahead of its scheduled public offering. Ex-
to connect every part of their business to the customer, perience management remained the smallest of SAP’s four
including experience data,” SAP chief executive officer business segments, however.
Christian Klein. “We will de- In a statement, SAP said Emar-
liver a portfolio for a ‘commerce sys would enhance its customer
anywhere’ strategy allowing for experience portfolio and create
hyper-personalized digital com- a new paradigm to deliver om-
merce experiences across all nichannel enagements in real
channels at any time.” time.
The deal comes some two Emarsys was founded in 2000
months after SAP announced it in Austria and has more than 800
was spinning off Qualtrics, the employees in 13 offices around
customer experience (CX) man- the world. U.S. headquarters are
agement company it bought for in Indianapolis. It has reportedly
$8 billion in 2018. raised $55 million.
“This illustrates that SAP is The transaction is expected to
serious about CX and competing close in the fourth quarter. | W.S.
Getty Images(4) November/December 2020 | CFO 13
20Dec_Topline.indd 13 11/16/20 8:06 PMTOPLINE
lion in penalties and $523 million in tipster rewards.
The commissioners recognized “the importance of
REGULATION paying awards to whistleblowers and the invaluable
contributions whistleblowers make to protecting inves-
SEC Drops Proposed
tors,” Stephen M. Kohn, an attorney and chairman of the
National Whistleblower Center, said. “The unanimity of
Whistleblower Rule
support for the basic principles underlying the whistle-
blower reward law sends a powerful message to Wall
Street.”
The U.S. Securities and Exchange Commission The proposed cap applied to a whistleblower suit
announced changes to its resulting in monetary sanctions of at least
whistleblower program but dis- $100 million. In such cases, SEC staff would
carded a controversial proposal have had the discretion to reduce the award
to allow staff to reduce awards of percentage so that an award “[did] not
more than $30 million. exceed an amount that is reasonably nec-
The proposal for a discretionary essary to reward the whistleblower and to
“cap” on large awards had sparked incentivize other similarly situated whistle-
an outcry among whistleblower blowers.”
advocates and lawyers, who said An award could not be reduced to less
it would discourage tipsters from than 10% of the sanctions.
flagging the most egregious frauds. The business community had encouraged
The whistleblower program, which allows the SEC the SEC to revisit its evaluation of potential large awards
to reward tipsters whose original information leads to and some commissioners were also worried that large
a penalty exceeding $1 million with between 10% and awards would drain the independent fund from which
30% of the fine, has so far resulted in more than $2 bil- whistleblower payouts are drawn. | M.H.
RISK MANAGEMENT The OCC cited deficiencies in Citigroup’s enterprise-
wide risk management and compliance risk management
Citigroup Fined
programs, saying it failed to “adequately identify, measure,
monitor, and control risk.”
Over Risk Defects
In August, Citigroup mistakenly paid $900 million to
Revlon lenders who had sued the cosmetics company—an
error that heightened concerns over its risk-management
U.S. banking regulators have fined Citigroup $400 systems, which are a legacy of a string of deals in the
million for failing to correct 1990s that turned it into a financial
“serious and longstanding powerhouse.
deficiencies” in its risk-management The bank said in a statement that
systems. it was disappointed to have fallen
Citigroup agreed to the fine as short of regulatory expectations
part of a settlement with the Office and has “significant remediation
of the Comptroller of the Currency projects” under way.
that also requires it to “take broad Under the consent order with
and comprehensive corrective the Fed, the Citigroup board has 120
actions to improve risk management, days to submit a plan describing
data governance, and internal how it will hold senior managers
controls.” accountable for executing effective
The bank also entered into and sustainable remediation plans
a similar consent order with the Federal Reserve that and ensure they fix the risk-management problems.
said it had “not adequately remediated the longstanding Citigroup’s chief risk officer, Bradford Hu, left the bank
enterprise-wide risk management and controls in early November. He had been head of risk for eight
deficiencies” previously identified by the Fed. years. | M.H.
14 CFO November/December 2020
20Dec_Topline.indd 14 11/16/20 8:05 PMFRAUD allegedly was engaging
in a brazen fraud,” acting
Fraud Detection
Manhattan U.S. Attorney
Audrey Strauss said.
Ex-CEO Charged
NS8, which Rogas
co-founded in 2016, pro-
vides fraud detection and
The former CEO of fraud prevention startup NS8 has prevention software to
been charged with fraud for fabricating millions of dol- e-commerce merchants.
lars in revenue to raise $123 million from investors. According to the SEC,
The U.S. Department of Justice said Adam Rogas, 43, Rogas began no later than 2018 to download electronic cop-
altered NS8’s bank statements before providing them on a ies of the firm’s revenue account statements and “altered
monthly basis to its finance department to show revenue the text of those statements to grossly exaggerate the dollars
and bank balances that did not exist, resulting in an over paid by customers to NS8.”
$60 million inflation of assets as recently as June 2020. “As a result, each of the NS8 financial statements from
When NS8 raised approximately $123 million in two 2018 to 2020 [was] also false and materially misstated,
offerings, Rogas allegedly provided the false statements to among other things, the balance of the revenue account,
existing and prospective investors, pocketing nearly $17.5 NS8’s revenue, and NS8’s assets,” the commission said.
million of the proceeds for himself. A doctored balance sheet as of Feb. 29, 2020, showed
Rogas, who was arrested in September on federal charges there was $38.1 million in the revenue account in January
of securities fraud, is also facing a civil complaint filed by and $42.2 million in February when the actual balances were
the Securities and Exchange Commission. $39,005 and $45,408, respectively, according to the SEC.
“As alleged, Adam Rogas was the proverbial fox guard- Rogas resigned on Sept. 1, the SEC said, after an employ-
ing the henhouse. While raising over $100 million from ee in NS8’s finance department discovered the true balance
investors for his fraud prevention company, Rogas himself of funds in the revenue account. | M.H.
CREDIT demand for the loans to increase over the next three
months.
Banks Wary of
However, only 13.4% of banks said they expected
their willingness to approve loans to increase over the
Main Street Loans
next three months, with 83.6% expecting it would stay
the same.
Banks enrolled in the program “often cited concerns
An overwhelming number of U.S. banks do not expect about borrowers’ financial condition before and during
to become more willing to make loans to business- the COVID-19 crisis, as well as overly restrictive MSLP
es under a key pandemic relief program amid concerns loan terms for borrowers as reasons for not approving
over the financial condition of borrowers and overly MSLP loans,” the Fed said.
restrictive loan terms. More than half of the senior loan officers who respond-
The Main Street Lending Program (MSLP) is aimed at ed to the survey indicated they had rejected Main Street
keeping middle-market firms afloat that were solvent loans for firms that were “creditworthy before the
before the coronavirus pandemic. COVID-19 crisis, but too severely
However, only about $2 billion of a impacted to remain viable and
potential $600 billion in funding has hence unable to repay the loan.”
been approved by the Federal Reserve Nearly three-fourths of respon-
so far. dents said they had made no Main
According to a Fed survey released Street loans at all or were not reg-
in September, a major fraction of istered for the program and, for
large banks approved at least 40% most of those that had made loans,
of the inquiries for Main Street loans the program accounted for less
that they had received since mid-June than 2.5% of their overall commer-
and nearly a third of banks expected cial and industrial lending. | M.H.
Getty Images(4) November/December 2020 | CFO 15
20Dec_Topline.indd 15 11/16/20 8:06 PMTOPLINE
Puerto Rico, and the
U.K. “No patient or
CYBERSECURITY employee data ap-
pears to have been
Ransomware Hits
accessed, copied, or
misused,” the com-
Hospital Chain
pany said in a news
release.
But news site
A suspected ransomware attack shut down the com- Bleeding Computer
puter systems at Universal Health Services, one of the said the attackers ap-
largest U.S. hospital chains, and raised fears that the hack- pear to have used Ryuk ransomware, which is widely linked
ers gained access to patient and employee data. to Russian cybercriminals, and that “if this is a ransomware
The attack on UHS in September left doctors and nurses attack, there is also a high chance of the attackers stealing
scrambling to render care, with computers replaced by pen patient and employee data, which will further increase the
and paper. Telemetry monitors that show critical care pa- damage.”
tients’ heart rates, blood pressure, and oxygen levels went In 2017, a ransomware strain called WannaCry, created
dark and had to be restored with ethernet cabling. by hackers working for the North Korean government, in-
“These things could be life or death,” a clinician told the fected the U.K.’s National Health Service, disrupting at least
Associated Press. 80 medical facilities. In September, the first known fatality
CEO Alan Miller told The Wall Street Journal that the related to ransomware occurred at a hospital in Germany.
hackers used a previously unknown technique to break into “We are most concerned with ransomware attacks which
UHS’ computer systems. He declined to say whether they have the potential to disrupt patient care operations and
had requested payment from the company. risk patient safety,” said John Riggi, senior cybersecurity
UHS operates more than 400 facilities across the U.S., adviser to the American Hospital Association. | M.H.
FRAUD
Dow Jones in September 2018 after previously working
S&P Manager Traded
for the derivatives businesses of JPMorgan Chase and
BNY Mellon.
On Index Changes
As an index manager at S&P Dow Jones, he was
“privy to index committee discussions and related
matters, including the identities of companies that
A senior index manager at S&P Dow Jones Indi- might be added to or removed from one of [the compa-
ces and his friend have been charged with trading ny’s] U.S.-based indices,” the SEC said.
on inside information he misappropriated from his Yang and Chen allegedly made illegal trades in the
employer, generating $900,000 in illicit profits. call or put options of companies including Etsy, Grub-
The U.S. Securities and Exchange Commission said Hub, and T-Mobile, with Yang on some occasions
Yinghang “James” Yang of Flushing, N.Y., traded in the accessing Chen’s brokerage account directly through
options of 14 companies between June and October the internet and on others tipping off Chen.
2019 after he learned in advance that they would be The defendants generated returns on their option
added to or removed from one of S&P purchases as high as 624%,
Dow Jones’ three indices. the SEC said, with their most
The trades were allegedly executed lucrative trade being an
through the brokerage account of co- $18,014 investment in call
conspirator Yuanbiao Chen of Corona, options of CDW on Sept. 17,
N.Y., manager of a sushi restaurant. 2019. After S&P Dow Jones
Yang was arrested in September in announced CDW would be
a related criminal case. added to one of its indexes,
According to his LinkedIn profile, they allegedly liquidated the
Yang has a master’s degree from options the following day for
Columbia University and joined S&P $112,487 in profits. | M.H.
16 CFO November/December 2020 Getty Images(3)
20Dec_Topline.indd 16 11/16/20 8:07 PMFRAUD McAfee’s bodyguard, Jimmy Gale Watson, was also
charged with “substantially assist[ing] McAfee’s tout-
Tycoon Accused of
ing and scalping schemes.”
“Potential investors in digital asset securities are
Touting ICOs
entitled to know if promoters were compensated by the
issuers of those securities,” Kristina Littman, chief of
the SEC’s cyber unit, said. “McAfee, assisted by Watson,
Anti-virus software developer John McAfee has been allegedly leveraged his fame to deceptively tout numer-
charged with promoting initial coin offerings (ICOs) ous digital asset securities to his followers without
to his Twitter followers without disclosing that issuers informing investors of his role as a paid promoter.”
paid him more than $23 million in digital assets for the McAfee had increased his Twitter following to
promotions. 784,000 as of Feb. 17, 2018, in part by becoming
McAfee, 74, (photo) is the latest high- a booster for bitcoin. As he gained fame in
profile figure to be accused of illegally the digital asset community, the SEC said
“touting” ICOs, joining celebrities in a civil complaint, ICO issuers began
including music producer DJ Khaled asking him to promote their upcoming
and professional boxer Floyd digital asset offerings.
Mayweather. The ICOs he promoted raised at
According to the U.S. Securities least $41 million and he made approxi-
and Exchange Commission, the mately $23.2 million in secret compen-
cybersecurity millionaire touted sation, demanding an upfront payment
at least seven ICOs to his hundreds in bitcoin in addition to a percentage of
of thousands of Twitter followers the digital assets offered in the ICOs and,
from at least November 2017 through later, a percentage of the total funds raised
February 2018. from investors. | M.H.
Access valuable
finance information.
Anytime.
Anywhere.
Download the CFO Mobile App Today
December 2020 | CFO 17
20Dec_Topline.indd 17 11/16/20 8:07 PMLEADERSHIP
Take a bow, CFOs.
You deserve it.
CFOs at the Forefront of Crisis and in
Position to Impact the Future.
year 2020 will be re- provide guidance to better
The membered by finance
professionals as one
position CFOs and finance
leaders for continued
marked by great challenges, but also success amidst uncertainty.
by resilience and accelerated change. Topics discussed cut across
The global impact of the COVID-19 areas such as scenario-
pandemic and the resulting economic planning and improving
disruption presented CFOs and fi- accuracy of forecasts;
nance leaders with business issues not reducing enterprise costs; developing Looking Ahead
seen in generations, forcing them to agile operating models; transitioning The survey revealed five key insights
demonstrate greater resolve and stra- to remote and virtual workforces; that CFOs can draw upon to navigate
tegic leadership than ever before. deploying automation; and much more. current and future challenges and
Considering these events, FTI What’s clear is that the implications drive value in 2021.
surveyed more than 325 CFOs and from COVID-19 and economic instabil-
finance executives to uncover the ity have heightened the importance of 1. The CFO role has quickly elevated.
tremendous efforts that finance leaders Finance’s role to drive change across the The pandemic focused a spotlight on
demonstrated through adversity, enterprise. Survey respondents indicat- the CFO’s ability to lead the organiza-
and to provide a look at what’s still to ed that key priorities and initiatives for tion. The most successful CFOs drove
come. The insights from the survey 2021 were as follows (chart below): scenario and contingency planning,
took swift cost reduction actions to
ensure economic viability, and main-
Manage Business Adapt and Develop Prepare for the
tained liquidity by improving working
Volatility Capabilities Rebound
capital and tapping capital markets as
necessary.
• Improve planning, • Attract new talent • Improve capital
What it means: CFOs can and should
scenario modeling, and develop capa- structure and
and forecasting bilities strengthen balance do more to drive enterprise strategy,
sheet capitalizing on the inherent strength
• Optimize cash flow • Enable a remote
of the finance function to manage key
and working capital workforce and plan • Redefine operating
for corporate real model and expand initiatives, provide analytical insights,
• Manage enterprise estate, technology, use of external and free up resources for higher-value
costs and talent impacts partners activities.
• Identify and manage • Eliminate/automate • Develop analytic
risks manual processes capabilities 2. Finance maintained productivity
• Deliver real-time working remotely and moving to do
• Enhance data • Implement new
information to make management and technologies
so on a permanent basis.
faster business security In response to COVID-19 shutdowns,
decisions • Undertake M&A/
finance functions were adept in mov-
• Improve account- strategic alternatives
ing processes ing to both remote and virtual work-
and internal controls forces. Survey respondents indicated
that over 70%of their physical finance
18 CFO | November/December 2020
ND20_FTI Consulting Advertorial.indd 18 11/12/20 1:40 PMADVERTISEMENT
teams will remain remote; however, a value creator within Finance and be successful, the CFO must utilize
teams are likely to move to a hybrid demonstrating the benefits of these analytic insights to make enterprise-
model in the future as desire for solutions in other areas. Accelerated wide decisions that impact cost, work-
interpersonal connections and an in- adoption of the digital workforce will ing capital, liquidity, risk and capital
office presence increases. Addition- be critical to managing margin pres- markets. This pivot from a finance
ally, 61% of respondents stated that sures that are likely to persist in the and accounting professional to the
transitioning to and enabling their coming years. enterprise value creator role has been
remote workforces were either critical driven in part by adoption of digital
or a high priority in the next 12 to 18 4. Finance operating models are innovation and technology that helps
months. being redefined with expanded use provide visibility in volatile busi-
What it means: Going forward, CFOs of BPO. ness climates. There is also broad
will have to carefully consider real CFOs will change the delivery of the recognition—as supported by 89% of
estate needs, new office interaction finance function’s services in the next the survey respondents—that the CFO
models, compensation adjustments, 12 to 18 months. The underlying moti- and finance function have the talent
employee mental health and a scal- vation is driven by increased focus on and skills to drive enterprise value for
able engagement model. CFOs who reducing the cost of Finance without the organization. It is simply a matter
have already seen high performance undermining the function’s strate- of the CFO can harness the talent and
with a remote workforce will need gic objectives. In addition, CFOs are skill, with precision, to deliver results.
to optimize the remote experience to recognizing that BPO providers are What it means: In many organiza-
maintain or improve performance, growing front- and back-office capa- tions, the CFO has effectively act-
and they’ll need to anticipate how the bilities and offering economic incen- ed as the enterprise lead through
new operating models will impact tives such as variable, volume-based COVID-19, according to survey
corporate real estate, technology, and pricing, that further allow them to respondents. This favorable attitude
human resources requirements. manage through volatility. toward CFOs is attributable to their
What it means: A growing number ability to deliver accurate real-time
In a post-pandemic of CFOs recognize the value of execut-
ing finance processes within a central-
planning, reporting and data analysis
and quickly initiate efforts to reduce
world, there will be ized model. Now, CFOs are partnering and/or optimize enterprise costs.
no substitute for solid with BPO providers to source labor,
planning and leadership. expertise and automation in order Looking Ahead
to bolster enterprise value. Buck- There are high expectations for the
3. Automation proved its value ing recent trends, CFOs are increas- CFO to drive performance while
and the digital workforce continues ingly turning to BPO providers to also protecting the business from risks.
to grow. support non-transactional processes. Finance's imperative is to deliver
While most CFOs have started to Some CFOs are using BPOs to assist insights, steer strategy and opera-
adopt automation, the survey results with higher-value processes, such as tional decisions by facilitating effec-
suggest that it has not reached its full financial and profitability analyses, tive partnerships in the business. In
potential in Finance. Nearly 80% of and with budgeting and forecasting a post-pandemic world, there will be
respondents indicated that at least 5% using analytics. no substitute for solid planning and
of their finance team was composed of leadership, and Finance’s role in driv-
a digital workforce through automa- 5. CFOs will continue to lead ing change across the enterprise will
tion1. However, less than one-third of the way. be critical to thriving in future disrup-
the respondents indicated that one in The CFO and finance function’s abil- tions and shaping the organization for
five of their finance teams was digital, ity to provide predictive insights in success.
suggesting automation has more room an ambiguous market will continue
to grow. to position the CFO as an enterprise To obtain a full report of FTI
What it means: CFOs should encour- leader. Having guided their compa- Consulting’s CFO Survey, email
age the adoption of RPA and broad- nies through the COVID- 19 crisis, FTIOCFO@fticonsulting.com.
er intelligent automation solutions CFOs are well-positioned to lead the For more information, visit
across the enterprise by serving as way as enterprise value creators. To www.fticonsulting.com/OCFO
1
Automation can be characterized as Robotic Process Automation (RPA), automation via software-
enabled planning and reporting (e.g. Anaplan, OneStream), automated account reconciliation (e.g.
Blackline, Oracle FCCS), and dashboard automation/BI. November/December 2020 | CFO 19
19.indd 19 11/16/20 7:12 PMHEALTH
BENEFITS
7 Ways COVID-19 Will
Transform Health Care
The pandemic could promote disruptive innovation to lower costs, but it will take
pressure from the business community to make it happen. By Jeff Levin-Scherz, MD,
Steve Blumenfield, and Julie Stone
Health care in the United States is broken. CFOs know we four times as many adults (40.1%)
reported symptoms of major depres-
have the most expensive health care system in the world, yet sion or anxiety in July 2020 compared
our outcomes are worse than those in most developed coun- with a year earlier.
The pandemic has led to dramatic
tries. What’s more, long-standing efforts to decrease cost and increases in the use of digital and vir-
increase value through disruptive innovation have fallen flat tual mental health care. The treatment
ranges from digi-
due to the influence of established tal emotional
stakeholders, the persistence of restric- wellbeing tools to
tive rules, and the moral hazard of chatbots offering
third-party payment. cognitive behavior-
The COVID-19 pandemic provides al therapy to text-
us with a real opportunity to finally based coaching by
transform our health care system. We humans to robust
expect seven phenomena brought virtual networks
on by the COVID-19 pandemic will with access to a
accelerate change in health care. full continuum of
If managed effectively, they will mental health care,
allow health care purchasers such as including psychiat-
employers to harness the benefits of ric services. These
dynamic changes in the market. alternatives can
decrease costs and
1. The rise of virtual care. Americans help address gaps
avoided most non-emergency care this ter evaluation of suspicious lesions via in access to mental health services.
spring. Data shows massive decreases smartphone cameras. Good consumer
in preventive services such as colonos- experiences with virtual care will create 3. More entrepreneurial health care
copies (86%), mammography (94%), stickiness, and much care will continue startups. The first half of 2020 saw
and dental care (92%). to be delivered remotely even after the the greatest venture capital investment
Telehealth visits rose to as much as pandemic is over. in digital health ever—more than $5.4
14% of total visits at their peak in April. billion in investment. Buoyed by the
Patients saved time and parking fees, 2. New digital approaches to meet- successful IPOs of Teladoc, Livongo
and fewer ancillary tests were per- ing mental health needs. We have (now owned by Teladoc), Progyny, One
formed. Patients will not mourn the loss long had inadequate access to men- Medical, and others, investors now see
of packed waiting rooms and hours away tal health care, and the pandemic has great potential in this space.
from work for a 10-minute appointment. heightened needs that society and This torrent of investment could
Innovative virtual visit support tools employers alike were already feeling mean a future where patients can use
continue to evolve, and algorithms acutely. The Centers for Disease Con- apps to triage their needs, initially
and artificial intelligence enable bet- trol and Prevention found that almost connecting to an artificial intelligence
20 CFO | November/December 2020 Getty Images
Departments - Health Benefits 20 11/12/20 1:31 PMYou can also read
