Bush May Not be Ready to Use the 'R' Word, But Many CFOs and Controllers Are

The prospect of recession is becoming more and more likely with unemployment topping 5% recently and the market dipping with the arrival of the New Year—and these realities have not escaped the notice of finance executives. For December, the Tatum Index of Business Conditions plummeted to the lowest point in its six-year history. “There is an increasing probability of recession this year,” says Cynthia Jamison, national director of CFO services at Tatum LLC, an Atlanta-based executive search firm that conducted the survey of 259 CFOs and controllers. In the survey, for every one executive who expressed optimism, seven were pessimistic. That’s down from a peak of 12 positive to 3 negative responses in May of 2007. “The signs of eroding confidence are clear,” says Jamison. Capital availability, order backlogs and hiring were either lower than they were in November, or, at best, unchanged, she notes, while continuing writedowns precipitated by the persistent credit crisis, disappointing holiday sales, $100 a barrel oil prices and roller coaster markets all have contributed to the dreary outlook.

Always conservative, financial executives are playing it even closer to the vest than usual as economic uncertainty continues. “It’s a Catch-22 situation,” says Jamison. With CFOs providing ever more cautious forecasts, investors have little information on which to base their bets, which further depresses the market. And that, in turn, depresses CFOs who tighten the reins even tighter. According to Jamison, “It’s a question of who will blink first and show some optimism.”

Off Their Deathbeds, DB Plans are Hearing More Good News—But for How Long?

After riding out a rough quarter, defined benefit (DB) plans received some good news in the form of a projected increase in the discount rate used to determine liabilities and expenses. Year-end 2007 disclosure discount rates should increase by at least 25 to 50 basis points relative to the rates in the 2006 disclosures, according to SEI Investments Co. The 25-to-50 basis point projected increase is based on SEI’s analysis of the performance of indices of AA and AAA-rated corporate bonds during the first 11 months of 2007. Under FAS 87, the discount rate must be based on such indices.

Discount rates, which plans are required to disclose in footnotes to financial statements, are inversely proportional to a plan’s liabilities and expenses; an increase in the 2007 discount rate, for example, means that plans can expect to report lower liabilities for fiscal 2007. And because the rate is used to determine the following year’s expenses, a hike in the 2007 discount rate means DB plans can expect to report lower expenses for the 2008 fiscal year.

Pension funding ratios fell 8% in the fourth quarter of 2007, according to UBS’ US Pension Fund Fitness Tracker. The drop was driven by weakening equities, which diluted underlying pension plan assets, and lower interest rates, which increased liabilities. Many plans have adopted hedging and other strategies to insulate them from market swings, and these are beginning to bear fruit. “A significant percentage of plans have implemented liability-driven investment strategies,” says Judy Schub, managing director of the Committee on Investment of Employee Benefit Assets (CIEBA).

The discount rate hike will “improve the funding status of plans by reducing deficits or increasing surpluses,” says Jon Waite, chief actuary at SEI’s Institutional Solutions group. SEI might raise the projection even more based on December data; any revision would be made by mid-January, Waite says. In January 2007, SEI revised its discount rate projection for the 2006 fiscal year based on December 2006 data. Its original forecast had called for discount rates to stay flat, but the revised forecast called for an increase of 25 basis points.

TRIA Lives On

With only five days to go before the Terrorism Risk Insurance Act (TRIA) was set to expire at year’s end, President Bush signed into law legislation that reauthorizes the federal backstop for another seven years. The legislation extends coverage for acts of domestic terrorism, in addition to foreign acts of terrorism. Several House provisions were eliminated from the final bill at the last minute, including coverage of nuclear, biological, chemical and radiological events, adding group life insurance to the backstop and lowering the programs “trigger” level for coverage to $50 million from $100 million.

Improved Mental Health Parity Act in Limbo

After the House and Senate failed to agree on a few key provisions of the Mental Health Parity Act of 2007, Congress extended the existing 1996 law for one year until a compromise can be reached. Proponents of the new, stronger legislation had expected a resolution of differences before the end of 2007. The main hang-up centered on state’s rights. The stricter Senate version would force state’s to adhere to the federal law, while the House bill would allow states to add additional mandates beyond those in the federal legislation. Legislators in both bodies are confident that the new law will be passed this year, and President Bush is expected to sign it into law. The act would require that group health deductibles, co-payments and covered hospital days and visits for mental-health benefits be on par with those for other physical impairments.

Careers

The $5.7 billion, broker of exchange-listed futures and options, MF Global Ltd., based in New York, has named chief administrative officer, Ira Polk, as interim CFO. Polk, 60, replaces Amy Butte, who left the company to pursue other opportunities. Polk, has spent 22 years with MF Global, formerly Man Financial, including seven years as CFO. Before2 coming to Man Financial in 1985, he served as vice president of finance and administration at Rudolf Wolff & Co. For the previous three years, he assumed the role of vice president of finance at Johnson Matthey & Wallace Inc. From 1973 to 1982, Polk was a principal q5 the accounting firm of Arthur Young & Co.

Blue Cross and Blue Shield of Minnesota named Michael Morrow CFO of the $1.4 billion health plan, the largest in Minnesota. The health insurance carrier is based in Eagan, Minn. Morrow, 50, succeeds Timothy Peterson, who retired. Morrow’s career with the company spans over two decades. He has held various positions with the health plan provider since 1985, including vice president of financial planning, vice president of network operations and director of provider contracting and payment.

The $743 million provider of automation solutions and integrated subsystems, Brooks Automation Inc., with headquarters in Chelmsford, Mass., named senior vice president and corporate controller, Richard Small, interim CFO. Small, 50, succeeds Robert Woodbury, who has resigned from his post. Since joining Brooks in September 2003, Small has served as corporate controller and most recently as senior vice president and principal accounting officer. Before joining the company, he spent six years with Global Knowledge Network, where he assumed the role of corporate controller for five years. Prior to 1997, Small served as operations controller for Helix Technology Corp. and worked in corporate accounting and financial management at Bolt Beranek and Newman and in program accounting and administration at Lockheed Sanders.

Harte-Hanks Inc. has named Doug Shepard executive vice president and CFO of the $1.1 billion direct and targeted marketing company, with headquarters in San Antonio, Texas. Shepard, 40, replaces President Dean Blythe, who had been serving as interim CFO. Shepard joins the company from HVHC Inc. where he served as CFO and treasurer. He has also served as executive vice president, CFO, treasurer and secretary of HCHV subsidiary Eye Care Centers of America Inc. Prior to joining Eye Care Centers in 1995, he spent time with both a publicly traded restaurant company and Deloitte & Touche LLP.

Yankee Candle Company Inc., the $687 million designer, manufacturer, wholesaler and retailer of premium-scented candles based in South Deerfield, Mass., has appointed Bruce L. Hartman senior vice president and CFO. Hartman, 52, comes to Yankee from Cushman & Wakefield, where he has served as CFO since 2006. Prior to Cushman, he assumed the same position with Foot Locker for nine years. From 1986 through 1996, he held various financial positions of increasing responsibility with May Department Stores, Netco Automation and Daytona Hudson-Lechmere.

Netgear, the $576 million provider of technologically advanced, branded networking solutions, with headquarters in Santa Clara, Calif., announced the appointment of chief accounting officer, Christine M. Gorjanc. Gorjanc, 50, succeeds Jonathan Mather, who left the company in November 2006. Gorjanc joined the company as vice president of finance in November 2005. One year later, she was named chief accounting officer. Before Netgear, she spent 18 years in finance, serving in various capacities including, vice president, controller, and treasurer for Aspect Communications Corp., manager of tax for Tadem Computers Inc. and Xidex Corp. She also spent eight years in public accounting with various accounting firms.

BEA Helps Beat Integration Blues

BEA Systems has unveiled SmartConnect 3.0 software, which eases enterprise resource planning (ERP) integration by making it easier to plug ERP applications into a service-oriented architecture (SOA). SOA extends ERP deployments by allowing, for example, invoices and statements to be shared across the Internet and company-wide intranets, or making it easier for companies to integrate financial systems with those of merged or newly acquired companies. The architecture consists of chunks of software (services) with standards-based interfaces that can communicate with each other and be reused in a variety of composite apps and business processes.

SmartConnect lets companies do away with adapters—proprietary code supplied by ERP vendors—to integrate ERP apps. Instead it “exposes” ERP business logic as a shared service for use by other business applications and processes. “With traditional adapters, connectivity is an isolated component, making it difficult to share across implementations. SmartConnect turns connectivity into a shared service [under SOA] with all the benefits of reuse and lower cost of ownership,” said Quinton Wall, senior product marketing manager at BEA.

Adapter-based integration approaches suffer from a number of problems, such as lack of performance and quality and inability to perform data format customization. “SmartConnect provides native transports to unlock information buried in packaged apps without the associated issues of previous adapter-based strategies,” Wall says.

SmartConnect 3.0 is available for use with ERP systems from SAP and Siebel, and will be available for Oracle and PeopleSoft in mid-January. Pricing information is available from BEA.

QUMAS Kicks Off GRC Suite

QUMAS Ltd. has introduced its GRC Suite, which provides risk management software integrated with document and business process management, interactive dashboards and advanced reporting capabilities for real-time governance. The product allows companies to model and assess their risk environment, actively manage documents and monitor processes in accordance with multiple compliance requirements and regulatory changes and make proactive, risk-based decisions for better governance and improved business performance.

By consolidating GRC initiatives onto a single framework, Qumas says, companies can eliminate the risks and costs associated with managing disparate and siloed applications; achieve transparency in design and operating effectiveness across multiple GRC initiatives: and view business performance across all risk and compliance initiatives.
The GRC Suite includes My QUMAS, an intuitive Web-based interface enabling individuals to participate in all GRC initiatives. The content management system enables organizations to create, manage and securely store content, reports and records on one platform to ensure complete lifecycle control over compliance-related content.

The product also includes a business process management system that lets companies standardize and automate business processes, as well as a risk, control, and loss event system for defining risk objectives, performing assessments and testing and analyzing losses for cause and financial impact. QUMAS Kicks Off GRC Suite
QUMAS Ltd. has introduced its GRC Suite, which provides risk management software integrated with document and business process management, interactive dashboards and advanced reporting capabilities for real-time governance. The product allows companies to model and assess their risk environment, actively manage documents and monitor processes in accordance with multiple compliance requirements and regulatory changes and make proactive, risk-based decisions for better governance and improved business performance.

By consolidating GRC initiatives onto a single framework, Qumas says, companies can eliminate the risks and costs associated with managing disparate and siloed applications; achieve transparency in design and operating effectiveness across multiple GRC initiatives: and view business performance across all risk and compliance initiatives. The GRC Suite includes My QUMAS, an intuitive Web-based interface enabling individuals to participate in all GRC initiatives. The content management system enables organizations to create, manage and securely store content, reports and records on one platform to ensure complete lifecycle control over compliance-related content.

The product also includes a business process management system that lets companies standardize and automate business processes, as well as a risk, control, and loss event systems for defining risk objectives, performing assessments and testing and analyzing losses for cause and financial impact.