The Flaws In Human Capital Data What Banks Demand from CFO Borrowers OCTOBER 2016 | WWW.CFO.COM CLINTON v.TRUMP WHO’S BETTER FOR BUSINESS? www.bhspecialty.com Your solution, underwritten with exceptional expertise. Backed by formidable financial strength. Directors & Officers Liability | Commercial Crime | Employment Practices Fidelity Bonds | Fiduciary Liability | Professional Liability | Cyber WE CAN TAILOR THAT COVERAGE FOR YOU. Atlanta | Boston | Chicago | Houston | Irvine | Los Angeles | New York | San Francisco | San Ramon | Seattle Stevens Point | Auckland | Brisbane | Düsseldorf | Hong Kong | Melbourne | Singapore | Sydney | Toronto FEATURES October 2016 Volume 32, No. 8 COVER 28 STORY Clinton v. Trump: Who’s Better for Business? The choice for president is between big change now but few details, and gradual change with deep details. By Russ Banham 36 The Holes In Human Capital Metrics Prodded by investors, some companies are disclosing more data about their workforces. But how much value will that information have? By David McCann 36 40 ›› Special Report: Banking The Rules of Attraction How do corporate borrowers keep their bank lenders happy when there is so little profit to be made by providing lines of credit? By Vincent Ryan Cover: Getty Images; clockwise from top left: Getty Images, Thinkstock cfo.com | October 2016 | CFO 1 CONTENTS October 2016 Volume 32, No. 8 12 Up Front 4 ›› From the Editor 6 ›› Letters 8 ›› Topline w The SEC wages war on non-GAAP w choosing the optimal CFO w CFO pay rises significantly w money market holdings need more disclo- sure w specialty drugs spur health benefits cost increase w smartwatch sales sink w and more. 12 14 | RISK MANAGEMENT 22 | ACCOUNTING Will Insurers Embrace The Cash-Flow Clash Innovation? After years of neglect, cash-flow Technology can change the statements get FASB’s attention. w relationship between the insurer By David M. Katz and the insured. w By Vincent Ryan 24 | COMPLIANCE Risk Factors Vex Tech How to Meet the New Cybersecurity, customer loss, and Overtime Pay Rules heightened regulation are among Employers have several things to 22 the top risks facing tech firms. consider to comply with the new w By David McCann Department of Labor regulation. Here are some guidelines. w By Andre Volin 26 | SUPPLY CHAIN Show the Purchasing Department the Door Purchasing department employees must spend more face-to-face time with suppliers to drive true value. 48 18 | TECHNOLOGY w By Christopher Good The Wide Wide World of IoT Think CRM and ERP were trans- Focus on Days of Supply formative? The Internet of Things Freeing up cash in the supply promises to bring far more chain allows a company to dramatic change to business. increase shareholder value. w By Timothy Chou w By Nader Mikhail By the Numbers 48 ›› The Quiz 44 ›› BUSINESS OUTLOOK 46 ›› FIELD NOTES Reality Check Duke University/CFO Survey Results Perspectives from CFO Research The payments revolution is proceeding at a slow Don’t Tell Me, The Transformers pace in the business-to- How finance leaders are developing business world. Companies are using electronic pay- Show Me the capabilities they need to The third-quarter Duke/CFO ments in customer and implement dramatic change in supplier transactions, but Business Outlook Survey finds CFOs their automation of processes and not as often as you might will slow spending while awaiting use of analytics. think. Take our quiz to find a new president’s policy decisions. By Josh Hyatt out more. By Chris Schmidt 2 CFO October 2016 | cfo.com Clockwise from top right: Thinkstock (5) Seeing is believing. Uncovering anomalies is at the heart of audit’s value. With advanced technology in the hands of experienced professionals, KPMG audit teams can enhance quality by identifying anomalies which can lead to new insights. Find out how the ability to use more robust data and precision analytics can bring greater visibility to the business. kpmg.com/us/audit Anticipate tomorrow. Deliver today. ©2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. FROM THE EDITOR Vote for Growth ››I’m writing this column on the eve of the first U.S. presi- dential debates, and the race appears to be tightening. Among CFO readers in an unscientific survey in September, however, the race wasn’t close at all. The survey respon- dents clearly favored Republican candidate Donald Trump EDITOR’S PICKS over Democratic candidate Hillary a global market in which tariffs are Clinton. slapped on their goods because foreign The choice is hard to fathom, unless companies are forced to retaliate (a) Trump supporters, given their stri- against isolationist U.S. trade policies? dency, were much more motivated to Or find themselves in an economy fill out our survey or (b) chief financial deprived of the stimulus young immi- officers are disgusted with U.S. politics grants bring when they emigrate here and want an outsider, any outsider, and start consuming U.S. goods and to be the next president. There are services? PERFORMANCE many other unsavory possibilities, but The country can do better than the CFO’s Corporate Performance we shudder to think that a person as candidate either major party has nomi- Management Summit takes intelligent as the average CFO would nated. But given a choice between the place in Miami on January 25-26. not vote for Clinton (a) because she is two in November, I hope CFOs vote This year’s theme is “Accelerat- ing CPM.” Speakers include the a woman or (b) because she is not call- for a forward-thinking, highly qualified CFO of Firehouse Subs, the head ing for deportation of immigrants. candidate whose policies will keep the of finance at Swarovski, and the The fact is that Hillary Clinton is economic engine steaming ahead, and vice president of global procure- far from the ideal candidate for U.S. not one trumpeting protectionist poli- ment for the NBA. For more in- president. I’m sure CFOs can easily see cies that would assuredly constrict the formation, go to https://theinno- the contrast between their own highly growth of U.S. businesses inside and vationenterprise.com/summits/ accountable roles as finance chiefs of outside our nation’s borders. A clearer corporate-performance-manage- public companies and Clinton’s lack of choice for president has rarely existed. ment-summit-miami-2017. accountability as U.S. secretary of state for a rogue email server. But a Trump presidency, I think, Vincent Ryan will set U.S. multinational businesses Editor-in-Chief back 40 years or more. Do U.S. com- panies really want to be penalized by DECISION MAKING the federal government for opening When should you trust your gut? manufacturing sites in Mexico? Or face Almost never, at least when making business decisions, ac- cording to Nobel laureate Dan- iel Kahneman and psychologist Gary Klein. Read a McKinsey Quarterly interview with them CFO, Vol. 32, No. 8 (ISSN 8756-7113) is published 10 times a year and distributed to qualified chief financial officers by CFO Publishing LLC, 295 Devonshire at http://www.mckinsey.com/ St., Suite 310, Boston, MA 02110 (editorial office). Copyright ©2016, CFO Publishing LLC. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, business-functions/strategy-and- without the prior permission of CFO Publishing LLC. Requests for reprints and permissions should be directed to FosteReprints, (866) 879-9144; E-mail: [email protected]; website: www.fostereprints.com. Periodicals postage paid at Boston, MA, and additional mailing offices. POSTMASTER: Send corporate-finance/our-insights/ address changes to CFO, 45 West 45th Street, 12th Floor, New York, NY 10036. CFO is a registered trademark of CFO Publishing LLC. SUBSCRIBER SERVICES: To order a subscription or change your address, write to CFO, 45 West 45th Street, 12th Floor, New York, NY 10036, or call (212) 459-3004; or visit our website strategic-decisions-when-can- at www.cfo.com/subscribe. For questions regarding your subscription, please contact [email protected]. To order back issues, call (212) 459-3004. Back issues are $15 per copy, prepaid, and VISA/MasterCard orders only. Mailing list: We make a portion of our mailing list available to reputable firms. you-trust-your-gut. 4 CFO October 2016 | cfo.com Mark Bennington PUT ( your company ) IN GOOD COMPANY Not to brag or anything... But the fact is that Equity Edge Online® has been rated #1 in overall satisfaction and loyalty for 4 years1 running by providers like you. Maybe that’s because industry leaders appreciate having an industry-leading platform to help them manage their employee stock plans. Discover why many of the top companies rely on E*TRADE for the flexibility, sophistication and service capabilities to help them handle their stock plan administration needs. Learn more about how E*TRADE Corporate Services is leading the way in equity compensation: 1-800-783-3388 PLEASE READ THE IMPORTANT DISCLOSURES BELOW 1. As of June 30, 2015, Equity Edge Online® was rated highest in Loyalty, Overall Satisfaction, Flexibility of Plan Reporting System, and Ease of Exchanging Data with Corporate Systems in the 2012, 2013, 2014 and 2015 Group Five Stock Plan Administration Benchmark Study and Financial Reporting Benchmark Study. Group Five, LLC is not affiliated with E*TRADE Financial Corporate Services, Inc. or the E*TRADE Financial family of companies. In connection with the stock plan solutions it offers, E*TRADE Financial Corporate Services, Inc. utilizes the services of E*TRADE Securities LLC to administer stock plan participant brokerage accounts.