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What is the role of the CFO in today's world? Should the CFO act as a strategic partner to other parts of the company or just as a risk manager? Welcome to CurrencyCast. My name is Agustin Mackinlay. I'm the Senior Financial Writer at Kantox and your host. In this episode we have the pleasure to welcome Bonnie Tomei, who has held the position of Chief Financial Officer and Head of Finance at several US-based technology companies.
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Bonnie is a recipient of the FEI Silicon Valley Woman CFO of the Year. Bonnie, a very warm welcome to you and thank you for joining us today on CurrencyCast. Hi, everybody. Thanks for having me here today. Bonnie Tomei, could you introduce yourself? Sure. My name is Bonnie Tomei. I'm a California CPA, I'm currently the CFO of Spectra Server Microsystems, were a company listed on the Toronto Stock Exchange Venture Exchange.
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I'm also a board member for two privately held companies. My experience includes two IPOs, two despec process, extensive M&A transactions for various multinational companies, particularly in the semiconductor, SaaS and other markets. Thanks again. Let's start by asking the following question. What is a typical day of the CFO of an American Technology company? Well, I can say the typical day for most senior role would be meetings, meetings and meetings more.
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But I think the target really is to look at the strategic vision and how to apply those. As well as investor relations, customer relationships, supplier relationships. Obviously cash is king, queen or otherwise. And so managing that is also important. And a lot of times when you look at international companies or multinational companies, we're looking at different companies or subsidiaries in different geographic locations.
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And the involvement for our CFO could be looking at some of the more, I guess, difficult things that comes with managing international operations. But basically, depending on the size your staff, the level of involvement really changes based on what's going on. For example, if there is an audit and you have a team that deals with the audit, maybe you just get an update.
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But of course anything that could impact your P&L on your balance sheet, something but you always keep track of your right? Absolutely. Look, you mentioned headquarters and subsidiaries. Maybe we'll come back to that because it's also a very important topic to us. Tell us about the the difference in roles between the CFO or the Head of Finance, the Controller.
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You have held all of those positions before. Yes. And one thing I didn't mention is that all of those roles really in a typical day of a CFO is really to also help other divisions departments to achieving what they want, because the strategic vision is really about a team effort. So when I take a look at the differences of those three roles that you talked about is really about focus.
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The Controller may be more focused on compilation and making sure that the regulation requirements are done. The recording of financials, they may be much closer to managing the cash on a daily basis, because AP and transactional processing is under the purview of the Controller. But a Head of finance will probably be a lot more focused on the FP&A side of things.
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The more internally focused to supporting all of the teams across different departments. They may be also very involved in the M&A activities. And of course the CFO is the quarterback and also the CFO is looking at a lot more in managing investor expectations. The boards expectations as well as other nuggets are much more outward looking and also meeting the annual objectives and setting this strategic vision.
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Absolutely. All right. Now let's discuss, if you will, the difference in the outlook between now, say, the CFO and the Treasurer in particular, that it's a matter of skills. Is it a matter of strategic vision? Is it a matter of capacities in terms of risk management? Absolutely. You know, Treasury is, when you mentioned those three roles, Treasury a lot of times fall into the CFO role.
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And the reason being is that Treasury also manages risk, also manages cash, and also manages, you know, corporate vision about particularly M&A and other big decisions. However, all of those needs to really cross one more department, which is Tax. A lot of people think Tax it's just filing returns. But when you think about multinational, if you're they're not talking to each other, if Tax is not at the table, if Treasury is not at the table, a lot of these decisions could be siloed and therefore you're not going to get a good return, I guess, or process in getting your cash either repatriated where they need to be or sent out to a
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subsidiaries. You know, to to achieve what you want to have done. So all of that has to be really thought through right now. Give a quick example. A company wanted to pay off this debt as and when they're looking across all of the the cash that they have available and the capital investment they have made, they have determined that maybe one of the choices would be to sell a building in India.
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Well, in order to get the cash back into the U.S. to pay for a debt in the U.S. Withholding taxes, you got to repatriate you get to look at it from is it going to be a loan, how much of the loan in terms of percentage of interest you have to pay. Now we're going into the weeds. The moral of the story is without consideration of tax environment between all of these different geographic locations, you can't be making a decision that is the best for the company.
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Right. Right. I see the point, by the way, you mentioned the term silos, and that's a term that is a favorite to us because we are absolutely keen on removing those artificial silos within companies. But that leads to the question of technology, to what extent. So first, who is in charge of, say, broadly the digitalization of Treasury operations?
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Is it mostly the CFO? Is it the board, is it the Treasurer? And to what extent does technology enable those silos to be removed? Yeah, so it really has a lot to do with where you have your talent. I can see that a controller and I've been a controller for many years of my career, I have owned that Treasury role and you know, and again, looking at where the insurance is going to be for risk management. But a lot of times of the lead blocking and tackling is really about where is the cash, where are we going to get it in and where is it going to go out?
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And also planning for the big, you know, either debt or capital raises or M&A activities., All of that, generally, if you don't have a separate treasurer, you will have probably your controller group to manage that. And then strategically, the CFO would then pay all of the attention of, okay, great, you think you should pay these vendors, but we now have these other objectives.
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So then the CFO would give oversight. And of course, one thing that we also didn't talk about is or that we should talk about is the governance piece of it. So the board of directors, particularly the audit committee, should be adopting an investment policy so that we could use that tool to succinctly thought about where the cash should go.
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I can share with you. I work for my Bitcoin miner at one point in my career. So fintech is something that's really near and dear to my heart, right? That we hold Bitcoin, any corporate America can tell you that if I were in the shoes of a CFO in their company and they're not a Bitcoin miner, holding bitcoins is definitely not been widely accepted and it would be seen as thoughtless.
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And so we have to really have a good investment policy to dictate all of that. So what you said, the second question is how do you break away these silos? And I think the best thing is really about leadership is about sharing the strategic and best, you know, vision. Are we going to acquire something are we going to grow in this geographic location,
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what are the tax implications in getting everybody to the table and have a discussion? And of course, you talked about also sharing the information. The information would probably be much less about the cash itself, but more so if we were to move the cash. Where are they and how are we going to how are we going to accomplish that in the least, I guess costly now.
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Okay. Maybe indirectly to another topic, which is one topic I know you have a lot of experience about in accounting. First, a general question before going a little bit more into specifics. To what extent does automation technology. So is the task of accounting in general? Absolutely. The technology stack is very important to any financial organization and actually not just finance, but across the company.
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Whenever we think about the cash or the ERP system, ERP is now is no longer just an accounting system, right? It's enterprise resource planning system is really about the entire company and it touches upon everyone. So the automation of that is important. Now, I have to say, you know, we brought a company public and within the first six months put in seven different tools.
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And the reason why we need to do that is because whenever you are publicly traded or you're preparing to be publicly traded or to be a good company, to have insightful information that you can share, that it's not going to take three weeks to close your books and therefore have some meaningful information. You need to have the technology stack.
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So I can see, particularly in the financial or the treasury and management side, I can share with you pain points about how we wanted to know how much we can factor every day. And that information is only available when we can consolidate all of the information into one place. And a lot of times we all know how it happens.
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Everybody has a spreadsheet and the hand typed information in the foreign currency, they translate the amount and then, you know, they figure out, okay, well, you know, this foreign location is not going to be the place where we are going to make decision on hedging is all going to be done in the U.S. But I need to know how much I need to leave in that location.
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In a lot of times, the hedging decision could be naturally hedging. Let's just put more dollars more currency in that bank account today and lock in the rate. All of that information should be available at first glance. And of course, you always allocate a resource to do that every day. That's just knowing where things are. So it's a laborious process and we have also tried using the banks.
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Banks have to use empty 40 or is a reporting mechanism to pull all of that data into their own portal. But a lot of the foreign banks are not participating. And so you get not a very complete picture, and then even if you get the information, is not very easy to read and have you translate all of them.
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So yeah, it's is definitely a pain. So automation is important. Absolutely. Look, you mentioned, say the spreadsheet, the Excel, the files and there's a topic that is important to us as we advise companies to use application programing interface technology to do away with spreadsheet risk and also to fine tune also the cash position at any time. Speaking about accounting, once again, we've seen some of some potential clients telling us that they would shy away altogether from hedging their currency exposure because of the perceived cost of implementing hedge accounting.
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But we want to explain that right now technology is available with perfect end-to-end traceability that allows you to trace back all of the hedge items to the corresponding hedging instruments. And although here is not exaggerated, I mean, the fear that the accounting process or the compilation of the required information is such a costly process that you will decide to shy away altogether from hedging, is that not an exaggeration?
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Yes. Any time you think about adding complexity, hedge accounting particularly, the ASC is 1200 pages of documents and therefore it is complex. So unless you have a team, if my Senior Accountants, my Controller, my Treasurer has the background and experience dealing with it, then of course it would be very easy for them to implement. But I think there is a knowledge gap in terms of understanding what hedge accounting requires and how to put it into a very nice, neat package and therefore sending it off to the auditors at the end of the year or every quarter.
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So then they would fully understand what is it that we're doing and therefore reflecting the benefits of hedge accounting. I think the difficulty about that is not having that level of experience. In my management of all of these companies I've been with, the technical accountants don't generally have that experience, even if we were hiring them from a big four to be our technical accounting manager and eventually be a CEO.
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Those experiences obviously could be had is just not that commonly, widely available. And I think that's the difficult part. The trade off is, well, how much money are we going to have? What is the benefit? Is it really to cover the top side of revenue and therefore protecting your gross margin? But of course, a lot of times, as you can tell, American companies or U.S. companies are, you know, buying or selling specifically in the US dollars.
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So the risk, their currency risk is a perfectly naturally. And of course, that does not always that the possible if you think about all of the folks who are selling into a Chinese market, for example, they have to sell it locally and of course they have to derive renminbi as a, you know, income. How do they hedge against that?
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If you take a look at yuan have gone from 6.3 now up to 7.3, that's a very big, you know, devaluation. And how much could you really hedge that? You could maybe arrange with a local company that would buy the yuan? But when the yuan is is it's in such an exchange rate, you know, hopefully you have some foresight, you know, 24 months ago to start those hedge programs.
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But any rate so what I'm trying to get is is that the reason why hedge accounting is something that a lot of people don't think about or want to to get into it's because of the complexity. If to the end, you have to explain it to all the committee, you have to explain it to the auditors, you have to explain whether or not it's efficient or not.
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And it's just a lot of work for the team. So I think if anybody can make this easier, obviously that would be helpful. The second thing that I would like to say is that even though people don't think about evoking hedge accounting, hedging is something that all finance manager has to think about because we do need to cover a downside risk.
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Particularly if there is a fluctuation that you see this coming. This is the reason why a lot of my team is always encouraged, myself included, to attend seminars to understand which way is it going to happen. So we are almost at the crossroads between say, technology, accounting and taxation, right. Because you could think of, and we do, of hedging programs that would allow you to smooth out net income over time in order to avoid the taxation at higher rates and therefore optimize taxation.
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Bonnie Tomei let's discuss a little bit the hedging, so the foreign exchange hedging at U.S. companies. And let’s take as a starting point the case of Netflix, recently they announced that they were implementing they had hedging program because of a 200 million drag on on earnings due to the strong US dollar. And the question is not about the the direction of of the dollar right now.
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We don't really discuss that much but broadly, what is the what are U.S. companies doing? What is the the outlook in terms of using automation technology for the purpose of currency hedging? So let's first talk about hedging. Why does Netflix or any other company bother with it? And the reason is, if you're thinking about being the Head of Finance, you would probably put together a forecast of what you think the future is going to look like, the number of subscribers you have, or how many average ledgers you're selling at whatever the local currency rate. Then you have to think about, okay, well, what I told a street is going to be
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this dollar amount, it's going to be in the US dollar. That you may be meeting all of your metrics, but when you convert that into currency, you may lose something in between. Now then this is a reason why they have to explain the drag on the P&L. A hedging program obviously would be something that you would say, hey, since nobody know what's going to be next year, I'm doing my planning right now at this rate, exchange rate, let's say is 1.2 and I could probably buy a hedge program into a contract.
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I will sell them the currency that that current foreign currency at 1.2 in the next three months, in the next 12 months. And therefore now I locked in exactly how much I'm going to be making. A very expensive obviously, I'm not I don't know all of the information about Netflix or any other company for that matter. It is definitely a trade off
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you have to think about. When is it really going to do we think that the yuan is going to go further than 7.3? Who's got the crystal ball to really know where is going to go? So there is going to be this band of sensitivity studies that somebody have already done, possibly with someone, you know, looking at the Bloomberg desktop and looking through all these exports of information to form a decision about how to do this. Is really to share and saying, look, we got to manage this.
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And I think that both the hedging as well as tax. And when I talk about tax, by the way, I don't just mean tax like income tax, corporate corporate income tax. I'm talking about the tax regime about moving cash from one location to the other, which has a drag as well, because it's not meant to be efficient. A country that you have income in do not want that cash to leave that country and invested somewhere else.
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And whenever you move cash between countries and companies of subsidiaries, you always need to worry about what does that look like? Is that a big repatriation? Is there going to be additional tax? However, I can also share with you that the U.S. government has put in all these different rules now, even though you didn't bring the cash back in, you still have to pay taxes on it.
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And so if you have an income associated with that for an operation. So it's definitely something that everybody has to go back to the drawing board, see the forest from the trees and together as a sum to figure out how to make all of this 1%. All right, then if we go back just very briefly to the Netflix case, I find it really interesting that they were discussing a layered hedging program, which is very demanding in terms of execution of the hedges.
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And they mention also 45 currencies. So it's really very difficult to think that they could achieve that manually, right, with their own treasury team without advanced automation techniques. But one additional point that I'm interested in having your opinion is they say that they currently have 60% and even more of that of their total revenue in foreign currencies.
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How does it apply to other technology companies in the United States? Do you see a trend towards more international diversification of revenue flows? So I really think that that's very unusual because they're dealing with a local you know, their customers are consumers, right? A lot of the technology companies are selling to other technology companies. In my view, there has not been a lot of companies that really has been that widely exposed as revenue and cost of goods.
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Well, mainly COGS, really, because you know, the local economy may say, I don't want to hold U.S. dollars and I don't want to have them, you know, I don't want the risk. And therefore, I from a supplier perspective, from a COGS standpoint, you may need to hedge that just to make sure that you don't you don't pay more and punishing your own gross margin because of the currency exchange.
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So I think they're hedging applied to most technology companies, not necessarily on the revenue side, but definitely on the supplier side. And the layering, so when you talk about how to do this, boy Netflix is a huge company! It’s got great eople work and they have also at their disposal lots of expertise available. So I would not be surprised at all if they have not talked to all of their bankers.
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They've talked to at least one, if not two other big four or other esteemed CPA firms to provide this consulting services for them. I'm not surprised that they have not looked at to automated solution to manage all of this. So then they have a very efficient studying of whether or not this is effective or not.Because on a quarterly basis
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you need to say, are these programs effective? And if they're not, you now need to book more journal entries. And I'm sure auditors have also been involved in this process because they do that to de-risk the entire program that I'm going out to the post, to the world and talk about. All right. And just to to finish on that topic, it's really interesting that if they have to extent that they have foreign revenue and foreign currencies, especially, say, in euros, they're going to have the interest rate differential in their favor here as they hedge.
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So really, truly fascinating case. Bonnie Tomei, let's discuss a little bit, say of all the broad priorities for 2024, I read surveys that show a difference of really interesting one in the outlook of Treasury teams or finance teams in general in the U.S. compared to Europe. And as Europeans are perhaps mostly worried about financial risk, it turns out that American Treasury teams are more worried about things like cybersecurity.
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Tell us what is going on there. Well, I can tell you that I think we all worry about the same things. What keeps us up at night. Security, of course, is a big one. You know, we all heard about even the Pentagon got or, you know, a lot of different companies got hit that disclosure requirements in the US rages.
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You have to talk about what are not insignificant in its impact your P&L. You need in many states have different rules about cyber attack, whether or not consumer information has been shared and therefore there's a huge program on how you need to announce and disclose. Of course, all of that, you know, even the EU, I'm sure all those other companies are worried about as well.
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But of course, a lot of U.S. companies are targets. And the reason why they're targets is because their information is widely available. And of course, all of the folks from the bad actors are looking to take advantage of that. And I can tell you that on a daily basis, even with sophisticated software implemented in our system, I'm personally even in my own inbox, seeing at least 15 to 20 emails a day, even after filtering, that encourages me to click on something so I can download some kind of malware.
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It is amazing the level of attack that is going on right now. So I don't think there's a European vs a U.S. problem, Is really everybody's problem with cybersecurity. So yeah, you need to take those trainings seriously, right? Of cybersecurity risks and all of that. Now, Bonnie Tomei, recipient of the FEI Silicon Valley Women CFO of the Year.
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Thank you for this discussion today. We have gone through a lot of topics. We started out with the role of the CFO in 2024. We then briefly discussed the difference in outlook between the CFO at a medium to large sized U.S. technology companies and the Treasury team. We then went to the crossroads between technology, accounting and currency management.
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We finally discussed, of course, foreign exchange hedging at U.S. companies, and then we went to the topic of the outlook or the difference in outlook between the European managers and Treasury teams and American teams. And you said very clearly, let's not exaggerate those differences. And let’s think of that broadly the same risks. And I thank you for that. It was really, really very interesting point.
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Bonnie Tomei, is there something else that you would like to add? You know, when we talked about just the last topic of cybersecurity, I wanted to also emphasize on a tool that you get is really needed for the service providers to provide a tool that actually provides internal control. The internal control would be in multi-factor authorization as an example.
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It is to provide dual level of approval and authorization, or is going to make it not so easy for anyone as the executive team to part with the very valuable asset they have. And a lot of times it's cash. So thank you very much for that thought. Well thank you.
