CFO profile: Chief mechanic on mission to stay solvent

Among his myriad duties, Fritz Henderson, General Motors’ chief financial officer, has one over-riding priority.

“My first job and my treasurer’s job is to make sure we have a strong liquidity position to allow us to finance the turnround,” says Mr Henderson.

“We can’t run out of cash – it’s that simple.”

Keeping Detroit’s biggest carmaker solvent has not been at all simple since Mr Henderson took over as CFO and vice-chairman in January 2006.

GM reported a cash drain, before special items, of $3.8bn last year, following an $8.2bn outflow in 2005.

It has lost market share in its core North American market, it is on the verge of relinquishing its 76-year reign as the world’s biggest carmaker to Toyota and, of most relevance to the CFO, its credit rating is deep in junk territory.

Mr Henderson, who turns 49 in November, has carved out a reputation as GM’s mechanic-in-chief in the course of a 23-year career.

As head of Latin American operations in the late 1990s, he was confronted with an economic crisis in Brazil. He closed an assembly plant in Argentina in the midst of an election campaign.

He then moved to Asia, where he oversaw a turnround at Japan’s Isuzu and an acceleration of GM’s push into China. Most recently, Mr Henderson – whose real first name is Frederick, though only strangers call him that – was charged with fixing GM’s troubled European operations.

Just four months after arriving at GM Europe’s head office in Zurich, he unveiled a plan that included 12,000 job cuts.

Being at the helm of these regional operations provided an invaluable preparation for his return to Detroit, Mr Henderson says. “I know a lot of people, I know how the business operates, I know how we integrate functionally, I know how the finance role supports that. It helped me be a much better CFO. It allowed me to make more changes and take more risks in other areas.”

But his 12-year absence from North American finance and accounting has also required some big adjustments – not all of them, in his view, for the better.

“One thing I noticed is that the CFO role has really changed in the past five to seven years in the US,” he says. “I was trained in some principles of accounting, and accounting has become much more prescriptive.”

He cites the contentious 800-page implementation guide for Financial Accounting Statement (FAS) 133, covering derivatives and hedging activities. “This was the document that was purported to make it simpler for practitioners. How can an 800-page document simplify anything?”

GM is among numerous companies that have been forced to restate earnings as a result of errors in interpreting FAS 133. “I fall in the camp that says that there is a role for judgment in some of the basics,” Mr Henderson says.

He also has mixed feelings about the requirements imposed by the Sarbanes-Oxley bill and other rules tightening corporate governance. What has been gained in transparency has been lost in complexity and bureaucracy.

“I’ve never worried about accountability,” Mr Henderson says. “So this idea that I’ve had to assume accountability, it’s not a big problem. It’s just my job.”

Furthermore, “you need to be an incredible expert to understand our 10-K [annual report filed to the Securities and Exchange Commission]”. GM’s 2006 10-K weighs in at 262 pages.

“It’s incredibly complicated and you get to the point where you have to manage specialists so much because it’s so technical,” Mr Henderson says. “If you have to be an expert in financial reporting to understand the financial statements, that’s not the objective. The objective is to have experts produce financial statements that sophisticated financial readers can understand and make decisions on.”

Like it or not, Mr Henderson has pushed through changes at GM to take account of the shifting external environment.

The jobs of chief accounting officer and corporate treasurer have been combined. In an unusual step for GM, the job was given to an outsider recruited from Interpublic, the advertising and public relations group.

The appointment, according to Mr Henderson, reflected “the belief that we needed to significantly increase the role of the chief accounting officer. It’s a much more complicated world out there and we needed to have the strongest possible person in the controller’s and chief accounting officer’s job.”

GM has also beefed up its tax department, at the same time providing for greater accountability. Specialists in hedging issues have been assigned to its New York office. Regional business units in other parts of the world have been given extra accounting resources.

Mr Henderson says GM is keeping a close watch on hedge fund and private equity involvement in automotive parts suppliers. “We encourage capital to come into the supplier community, but you want to make sure you know who you’re doing business with.”

On his top priority of bolstering GM’s liquidity, he observes that “the basic theory is that you go to the market when you don’t need to. We don’t ever want to be in the position of having to go to the market, because it’s not altogether clear that it would be there for us.”

GM has seized the initiative on a number of fronts. It has sold several businesses, most recently raising $5.6bn from the disposal of Allison Transmission, a maker of heavy-duty transmissions. It has cut costs in its remaining operations. Banks have provided billions of dollars in credit lines, though they have forced the carmaker to offer security for the first time in its 99-year history.

In spite of a lacklustre North American vehicle market, GM’s reserves stood at $27.2bn on June 30, up from $20.4bn at the end of 2005. Though it reported positive operating cash flow of $600m during the first six months of this year, Mr Henderson and his colleagues are quick to acknowledge that they are by no means out of the woods. Mr Henderson, who is widely tipped to succeed Rick Wagoner as chief executive, says that, with few exceptions: “We’ve had great support [from lenders]”. Still, he observes that during these testing times: “You do get to know who your friends are.”

A day in the life of Fritz Henderson

One of the few routines in Fritz Henderson’s working week came to an end this summer when he moved his family from Miami to Detroit.

During his globe-trotting years as head of various GM regional operations, Mr Henderson, his wife and two daughters continued to call Florida home.

Even after returning to Detroit as CFO in early 2006, his week typically ended each Friday evening on Northwest Airlines’ last flight to Miami.

“I don’t have a typical day,” Mr Henderson says. Though he is normally at his desk on the 39th floor of the Renaissance Centre, overlooking the Detroit River, around 7am, he has no set going-home time.

“Being flexible is important in this sort of job,” he says, “because problems can’t wait”.

Not surprisingly for a company of GM’s size, Mr Henderson spends a big chunk of his time attending what he describes as “a battery of meetings intended to help drive the company”.

The key groups include GM’s automotive strategy board chaired by Rick Wagoner, chief executive, and product meetings led by Bob Lutz, GM’s other vice-chairman who oversees design and development of models.

“There are some days that are pretty much devoted to that,” Mr Henderson observes.

He also devotes a big part of his week steering improvements to GM’s finance operations and the services they provide to the rest of the business. Mr Henderson singles out four main roles: strategy development; technical functions, such as treasury, audit and taxation; risk management; and external reporting.

However, he sets aside some time for less formal encounters with colleagues and outsiders. “Part of what you do is to gather information so that you can be more effective as the company makes decisions,” he says. “So I try to make sure there’s time during the day to strategise, to network and to think.”

“Part of that is developing relationships, understanding how the network works within the company. It’s about knowing what’s happening in the business, whether it’s doing business reviews, an issue or an audit report. I don’t have a dull day.”

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