CFOs in Motion, Andrew Zezas:
Hello, and welcome to CFOs in Motion, where we bring you interviews with accomplished and insightful CFOs at middle market and enterprise companies. I’m your host, Andrew Zezas. Thanks for being with us today.
Today we have with us Ralf Hermkens, CFO, US operations of a European-based global manufacturing and industrial services company. Some background on Ralf includes, he was born in Germany and currently lives in New Jersey. His well-rounded career spans engagements across various industries and on multiple continents for almost 20 years, actually, for over 20 years. He served as a senior level leader of business strategy and execution in B2B companies.
He started as controller, later became auditor, later advisor to the German Ministry of Foreign Affairs and has served in CFO roles in several countries including South Korea and Russia. Ralf later served in regional and general management positions in North and South America and in Africa. He serves several European companies here in the US and from time to time takes on special restructuring and strategic consulting projects across the globe.
Ralf is a dynamic, process-oriented, customer-centric, results-driven finance leader with extremely strong communication, business development, controlling and operation skills, especially when it comes to global and cross-border businesses. He brings with him an astute knowledge of various industries with a global perspective.
As a goals-driven executive, Ralf has proven to solve problems and overcome obstacles in a seemingly effortless manner. He’s a global strategic business partner who is passionate about driving results and serving stakeholders with integrity and excellence.
Ralf’s agreed to speak with us today on CFOs in Motion on the subject of the global view. Ladies and gentlemen, it gives me great pleasure to introduce you to a true strategic finance leader and my good friend, Ralf Hermkens. Ralf, thanks for joining me today. It’s great to have you here on CFOs in Motion.
Ralf Hermkens: Thanks for having me, Andy. I’m excited.
Andrew Zezas: Well, we’re going to have some fun with this dialogue and I’m grateful that you’ve decided to spend some time with us. We set the topic today on what you and I call the global view. So let’s start off. In how many industries have you worked? Let’s set the stage for our discussion today. How many industries have you worked throughout your career?
Ralf Hermkens: As you have said in your introduction, maybe it’s easier to say what I haven’t done. I have never been done in the consumer industry. I don’t know why, but B2B, always business to business. I started there in the infrastructure business building power plants, building airports, went into manufacturing, industrial automation. It always somehow stuck to me to work with other companies who produce something. It got me excited, especially when I see stuff being built.
I was in the elevator business. I was in the waste incineration business, construction business, manufacturing, and that somehow was a different industry, but I stayed within my core. I was never excited to optimize a process of a million cans of soup running out of a manufacturing plant to consumers. Also, I guess communication and marketing is totally different from consumer industry to B2B. So I stayed true to myself over those 20 years in staying in the industry to industry.
Andrew Zezas: So you went from industry to industry, always on the B2B side and I would imagine that each company has different styles and different ways of doing business. As a finance executive having worked in different industries, what have you found to be different in the role of CFO from industry to industry?
Ralf Hermkens: I think the role of the finance person is similar in industries because finance people, our language and our communication style is numbers and this is the thing that we do in any industry. When it’s different then it comes to the industry culture and it’s more like what is the role in the different company rather than the industry how the CFO is perceived. Is he more like the equal level sparring partner in the executive team or is he more like wanted to be the number cruncher staying in the back and just not being in front? Those are the difference I have experienced in different companies, across different industries. It’s more like the role.
What helped me in my time is that I branched out of finance. You mentioned before I worked a year for the German Foreign Ministry in a lobbying function. I worked two years in sales myself. So when I go into a different industry, I always have a story or an experience in my background that I can relate to salespeople. I can relate to the engineers. I can relate to my accounting folks. I can relate to a different manager depending on the industry, which is sometimes hard for us finance people to do if we stick too much just to our numbers as our communication method, right? We need to adjust. If you can relate to a salesperson, “Yeah, I’ve been in front of a customer. I’m not hiding behind my spreadsheets. I know the pain you have there,” then it’s a much easier introduction of yourself into a new industry.
Andrew Zezas: I’ve seen you in action with various colleagues inside of finance and outside of finance so I understand exactly what you mean by your ability to relate if you will. But now, I want to ask you said something, you used a term that I’ve heard you use before in describing yourself as a sparring partner. What do you mean by that?
Ralf Hermkens: The sparring partner, it came to my mind years ago. I said what is the true role of a CFO and what is the role at least I’m comfortable with? I don’t have to be the front row showman, right? That’s like the guy who is the CEO who has all the external attention, but he needs somebody who preps him, who has his back and that’s what the sparring partner is. A sparring partner means you also box back, right? You hit back. You have your standing, but you always make sure that the other guy is going to be the winner, which is the CEO, which is a good team player. That’s just comfortable for me but I want to also make sure that I am not just the number cruncher in the background that has no say, right? After we did the internal sparring when we go outside, it’s a team play internally to the company or outside to shareholders, to investors, to owners, to customers, whatever. But we need to be sparring internally to fight for the best solution that we have.
Andrew Zezas: So said differently, when you mention the term sparring partner, you actually truly meet a partner. You’re standing next to the CEO, maybe in front of him sometimes, maybe behind him. You are his partner sparring with the opponents. You’re not a sparring opponent. You are a sparring partner.
Ralf Hermkens: Yes.
Andrew Zezas: I love that approach. I love that explanation. You talked about going from industry to industry, and you’ve obviously been in a lot of different industries. What’s it like to transition from one industry to another respecting that they’ve all been B to B, but very different industries that you serve?
Ralf Hermkens: Yeah. Every time I change industry, I research the industries. I research the company. I made my checklist. I thought about a hundred day onboarding and on the first day I threw it in the garbage, each time. So it’s different. It’s unique when you have a job interview or when you look at the company from outside, it’s a totally different perspective and a change from the day you enter and you become one of them. The rules I find is slightly changed. The appearance change. The culture change. So even though I try to prepare a lot, what I’ve learned, the only thing they can really do is be open minded and be sensitive to the new business culture.
The worst thing you can do is mention your old companies in the first hundred days in there, because nobody wants to be taught, “Oh, you know, we have done this one,” or you bring over your old buddies or your old processes, “Oh, I’ve done this a hundred times”. That doesn’t typically go down very well with the new organization. They brought you in because they want to have an outside experience, but they don’t want you to be just the outsider. Right? You have to become an insider first before you can bring outside ideas, information in. If not, you just create resistance.
It’s interesting. It’s not mainly, as I said before, the industry, it’s more like the culture of the company and this is mainly depending on as I have traveled around the globe and worked differently, it’s not really unique if you work in Asia, in Europe or in the US. The culture I felt is more dominant where the headquarter is, or if even now the company I’m working right now, it used to be a US company acquired by European so we have an interesting mix. Everybody thinks when we talk about culture differently, everybody is aware. You got an assignment, you go to China or India. Everybody knows everything is so different. People look different. People eat different. People dress differently, right?
When you compare Europe and America, everybody thinks we are so similar. We watch the same movies. We dress the same. But the difference I experienced are as different between Europe and China than between Europe and the US. It’s just harder to detect, which makes it much more difficult to become an insider here.
Even though I’m in the US now for 15 years and my wife is half-American, I sometimes still struggle between what is American or what’s European and now my kids are confused as well. So it’s an interesting thing that keeps me excited every day. But it’s a culture of the people.
Even if you have a diverse multinational team, there’s something unique about every industry and every culture of a specific industry. Let’s say the construction industry is very hands on, right? We talked a little bit more blunt in other ones. We are not very strategic. Everything needs to get built. There’s some stereotypes there, but then they also come specific to the company, what their history is, what has been shaped by the leadership, what is their experience. It’s a unique day-to-day exciting challenge.
Andrew Zezas: Did you find, or have you found that the CFO role and the expectations of the leadership of the CFO varies from country to country?
Ralf Hermkens: Yes. I think it varies. Yeah.
Andrew Zezas: In what respect?
Ralf Hermkens: It varies specifically in the legal setup. In Europe, the European Union, most of the European companies see the CFO and CEO at a same level, equal level. Literally they’re business partner, they are from both have their share of responsibility. If something goes wrong with the companies, they will go both to jail.
The US culture somehow is a little bit different with more like a hierarchical military style organized in the US business culture where there’s one true leader and everybody falls in line behind it. Sometimes the CEO is not that open to have a true business partner next to him. So it’s more like the CFO is a strategic partner, but also in his more limited role in finance, treasury tax, he just has to make sure that everything runs smoothly, keeps the company compliant. Right? If something goes wrong, most CEO will say, “Oh, I don’t know. I don’t understand about those accountant. That’s my CFO,” right, in there.
It’s more like, it’s less of a team and more like a segregation of duty here and there. But it also depends on if you work for a European company here that’s why as we have said earlier, my niche in the US have been European headquarters company because my true belief is, and my strength is to be that partner so I cannot just be the accountant in the second tier role. I found my niche in European companies in the US. That way I can bridge both cultures and it’s an interesting endeavor so far.
Andrew Zezas: Ralf, your career has been so diverse and you’ve changed the companies and the industries and the countries where you’ve worked so not frequently but often I will say, lack of a better term. There’s got to be a challenge in transitioning from not just company to company, because that’s always the case, but industry to industry and country to country. How did you overcome the ability or the challenges associated with transition?
Ralf Hermkens: Yeah. The interesting thing is maybe to answer from a different perspective is I did never planned my career. I never thought, ‘Okay, I need to get this job because I really want to have this one. Then in five years, if I move to Korea, I’m going to be in the US.’ It happened and it happened because I always said, “If the job really excites me and if I feel a passion for it, I will be a good performer.” So I picked opportunities that interest me. Some were lateral. Some were even down. I started in a multi-billion dollar company and I was a CFO for them in Russia. Then I went to the US, and my responsibility of a P and L went like from a billion dollars to 200 million, but it wasn’t important to me. It was more important to be okay, what is the challenge this company has?
I’m one of the few persons I think who do like change. I get tired and bored if something is already optimized and works like a lean machine. Then you go back to the typical finance shop, you do your closing, your forecast, and other ones and you come into this [inaudible 00:15:33] where every day is like the same. That’s not what excites me.
What excites me are acquiring new companies, merging things, restructuring companies who have a huge growths, who double in the growth, how you going to cope with having to add double your workforce where nobody out there wants to be hired right now? What are challenges of bringing different cultures together? What are challenges in your global supply chain? Those are all interesting things, but then once this big challenge is over, I somehow then lean back and say, “It’s a little bit boring right now. I need to do something different.” Then I might do consulting job or somebody else typically from the network calls me and say, “Hey, we have this issue, this problem. Would you be interested?” Then I’d rather look at the challenge first and the company second, and then the workplace.
Yes, I started move around the world when I was 16. When your kids in high schools, some people in Europe, they dream, ‘Oh, we want to do one year high school in the US’. It’s in the movies everywhere. I decided to go one year to Asia. So I have a Thai high school diploma when I was 17. Somehow this international thing then got hooked on me. We were traveling around the world, but then once we had family, it became more strenuous on the family life to move with family because my wife was working. You cannot have your spouse work in every country, visa issues and other ones. Then with kids, we didn’t want to move every three year to a different country. We went to the US and settled down here, and I just changed companies, but my family is stable. We live in the same house now for 15 years, which didn’t happen in my second half of my life.
Back to your questions, what is the most important things to get adjusted to different countries or industries? I would say be open and flexible. It’s sometimes hard for me because you have to be a very good listener in the first days. As I said before, if you jump to conclusions, sometimes it’s so easy and when you have a lot of experience, you have seen the problems before, so you know how to fix it. But the challenge is not to know how to fix it. The challenge is how to convince everybody else that this is the right fix. It doesn’t matter if you have the solution because everybody else need to agree that this is the right way. So bringing the solution too early is sometimes takes you on a longer road than just listening, smoothing it in, finding out and making sure, ‘Hey, if the idea comes from your team, it’s already implemented’. If it comes from you, you have a lot of convincing to do to get things done.
Andrew Zezas: Sure. Well, as you said, it’s not only about determining what the right solution is, but it’s about communicating and getting buy-in and collaboration. Right? Now, you talked about getting bored once the great things happen so would you consider yourself to be a growth CFO?
Ralf Hermkens: I do definitely I like the growths better than the restructuring. I like the big changes. I’ve done restructuring. I spend weeks at labor courts because we had to dismiss 80% of our workforce. I had companies in Chapter 7, Chapter 11. So this is an interesting challenge in itself but it’s not really personally rewarding, especially when you know all the people. Sometimes those things have to be done so I would not shy away from it. And I still build on my Chapter 7 and 11 experience in also my approach so I know what can happen if the growth gets out of control. It helps you, especially as a CFO, if you have been there so you know what you need to avoid. You still have to be a little bit risk averse, but sometimes if you’re in a fewer growth mode, it grows, grows, grows and then everybody closes their eyes on profitability or this one, that’s not a lot long term solution.
What I like to build up is a sustainable, large growths, but sustainable so it doesn’t collapse in itself, which sometimes is a challenge because you can also grow too fast or you can grow too small.
I have been in a venture already about almost 20 years ago for climate change. We had the best financial tool. We had it all figured out, but we were probably just 15 years too early for the market. So once the market came, we were already bankrupt because we couldn’t bridge the time. So we closed it, packaged it, sold it to somebody. It’s sometimes very important to have the right timing for your growth as well.
Especially now you mentioned the podcast thing about the global industry, what is always surprising now, we all thought we were at the end of the pandemic. So finally, the global supply chain is coming to ease. We can get shipments again. Everything is opening up and surprise, surprise. The next crisis hit and now we have Ukraine-Russia, another disruption. I think we just have to get used to those global disruptions while our supply chain and everything gets more and more interlocked. So it gets more and more challenging to even deal with this one.
Andrew Zezas: I want to come back to the supply chain question, but I have one other question that brings me back to something you said earlier. You drew a very clear distinction between corporate structure in Europe versus the US. Given that you’ve served in so many places around the globe, do you also see a difference in the leadership style from country to country?
Ralf Hermkens: Yes. I think one example in a European setting, if your CEO would ask you for open feedback, everybody would get excited and tell him what’s wrong in this company and he will take note.
In some US companies, if the CEO would ask for open feedback, he expects praise, or you will get fired. He would only accept feedback in a closed room. You can do one-on-one but in a group setting in front of employees or in the town hall, you’re better supposed to be very polite and you can smooth in a little question or hint improvement, but you don’t want to put him on the spot, right?
Where this is very interesting now, when in the companies I worked here, when the European headquarters come over and they want to have a town hall, or they even go around to the employees and then they ask questions, and then later we have a debriefing and say, “Oh, you guys are great. Everything is perfect here. Nobody has anything to say.”
So I need to explain them, “Hey, you need to warm up. You need to open up. It’s not that easy for them to tell you across hierarchy, within the same hierarchy is fine, but they are not open to tell you all the things.” So when I tell you, they get confused. When I give them my list, this is wrong. This is wrong. We need this and this and this. Then they talk to employees and say, “We are confused, Ralf. Everybody else says everything is fine. What is the problem you have? Why you need this all to be fixed?” That takes a longer time.
While when the Americans go over to Europe, they are very, very confused and say, “You guys are so rude. You have no manners. You tell it as it is. You don’t even start with small talk. We don’t even talk about a few minutes about our families or whether it is all private.” “Hey, let’s not waste time. We’re a meeting. We’re here to pick something. Lay everything on the table and talk about it.” Different things.
Now you move to the other extreme, maybe in Asia. There nobody says almost never what they really believe, because there’s so much etiquette and face saving. It’s very, very difficult to get the true sense, which is difficult when you do leadership development or you have your team, especially if you go as an expat and then sometimes I lived in countries where I could hardly speak the local language, then you have to work through a translator, which makes it even harder in your communication to get a sense, what is going on. What is the mood? What is the vibe of your team, which is essential to do change.
Andrew Zezas: Very different ways of leadership. Let’s go back to supply chain. Now you’ve got a global view, as we’ve talked about throughout this discussion. Supply chain challenges that many companies are experiencing have to do with scarcity or transportation or both. In the industries where you’ve worked, what kind of challenges are you seeing with respect to the current supply chain constraints?
Ralf Hermkens: Yeah. Right now.
Andrew Zezas: Specifically, I’m sorry, Ralf, specifically as it relates to the war in Europe.
Ralf Hermkens: Yes. Right now in the company we’re working, about 80% of our wood supplies used to come from Russia. So we are cutoff for our manufacturing. It’s a raw material that we need. It’s a special tree that only grows in Russia. I mean, it’s a huge country so we are cutoff. We have to find alternatives which is not easy to find.
We also just came out of the pandemic where we have seen container prices rising from typical was 5,000 now to 20,000 and it was easing up. Everybody who have seen those satellite views of the ports, where container ships are lined up because in the US, during the pandemic, everybody was staying home, still had decent income and moved their service spending into goods spending. Everybody bought more stuff. The US never imported more goods than during the pandemic while the supply chain was disrupted.
Now depending on how much you are able to pay, and then the B2B business is at the disadvantage of the consumer industry. We tend to have a longer lag time until our customers accept price rates. The consumer, maybe you see another inflation is a quicker pickup on your cost. We are a little bit more on a competitive base in there at least this is my assumption.
The only thing, what we have learned, and you hear voices, okay, we have to have all the manufacturing here in the US, which is a good idea. But then we come to the skill gap and do we actually find all the skilled labor force in the US or anywhere else is a different place because nowadays manufacturing is more automated and then you need a lot of engineers who run your manufacturing plant.
The thing that has helped us, and that might even bring me to further point is companies have squeezed their supply chain for centuries. They always thought this is the quickest profit improvements. If I just can get the piece a little bit cheaper, they squeeze their suppliers and now some of those suppliers, we squeezed for years, including the shipping industry who went from one bankruptcy to the other, the airline industry who was bankrupt all the time. Now it’s their market and now they say, “You have been treating me not as a partner. You squeezed me for centuries and now I can charge you $20,000. I got to charge you $20,000.” The only thing that saved us in this global world is having long term reliable partnerships with our suppliers.
I imagine one story my university professor told me. There was Ford. They had a supplier for the time when you still had to put a key in your car to lock it. They squeezed him so much. They hardly made the cost, but they had only one customer. They made millions of those key things. Now they got squeezed so much, they went on strike and they stopped. Within two days and just in time, everywhere in the world, Ford manufacturing were stopped because of one key essential component was missing. Now everybody learned, ‘Okay, hey, maybe direction was, let’s have two suppliers so we can squeeze two, right? If the one is better, I still think it’s good to have two or three, but you need to have a long term partnership with your A-list suppliers.
If they make money and you make money, even though there is a global disruption, we have still partners. They still deliver to us on the contract, even though they could sell it to somebody else who would double the price, because cause we were there from them when they had an issue, those long term, personal relationships in business, I think they got a little bit undervalued over the global … I guess where people try to buy and every information’s on the internet, you travel, you shake hands, you have lawyers, but building really long term business relationship, I think right now is the only recipe to overcome this in a partnership.
Andrew Zezas: Let’s talk about overcoming flexibility, growth and profitability, given all that’s going on with scarcity, transportation problems, war, the pandemic, who knows what’s coming tomorrow, how can companies focus on those three issues: flexibility, growth, and profitability in light of everything that’s going on?
Ralf Hermkens: I think there’s this buzzword, they call it the agile organization. We used to do 10-year planning, right? Now we still do it, but we don’t spend too much time. It’s more like a vision of where we want to be in there. We just have to build a flexible organization where we don’t know what’s going to happen next week. We have to be flexible in our human resources, which is very difficult because as the world turns more flexible, all our employees want to be less flexible. People are less inclined to move. You offer somebody now a job who lives in New Jersey in Houston. No, no. My kids are in school. I mean a few years ago, people will say great, but I don’t know if it’s a housing market, but I’ve seen over the years in the US that the mobile workforce, that was the great strength that the US had is not there. This includes management as well. How you going to be flexible when your workforce is not?
It’s even within the US. Now we have to find employees. We are still very attractive in the US. About 70% of our engineers come from different countries that come and work with us because we don’t find them locally and we are very attractive still. I think great kudos to our movie industry, to Hollywood. US still has the aura and it’s very a magnet for high skilled talent from around the world. But it’s a little bit disappointing that we can’t grow those talent within the US ourself. Then that got a little bit disruptive because the visa process was disrupted over the years so the big backlog. We are picking up on this one.
Back to your question is, I don’t know if a long term planning can help us to be flexible. As soon as you have a long term plan, you tend to stick to it and every deviation from the plan you need to explain. You just update your plan where, ‘Hey, let’s be just a little bit more hands on that let’s do what is right. Let’s have a vision out there. Keep flexible.’ Which also means again, as the finance person, cash is king. You can’t rely on your banking partners. Interests are going up so if you have the financial means, you can sit out a crisis. If you cannot produce for three, four months, which can happen. If you can’t produce, you can’t sell, but you must have as a company then the reserve to be able to sustain three months, six months without any business income in the industry. If not, try to call your banker, they’re going to be very helpful.
Andrew Zezas: So Ralf, given your expertise around the globe, your global view is pretty dynamic and pretty diverse. There are CFOs who are currently in a similar role then that you’re in and there are those who aspire to become the kind of CFO that you’ve become. What advice would you give to those CFOs who are either currently serving in global capacity or who aspire to do so?
Ralf Hermkens: I would advise everybody who can do this personally, get out of your home country. It’s very inspiring. It’s easier said than done as a European because in Europe where I grew up within one hour drive, I could be in four different countries. In the US, most of your neighbor are fish. You’re surrounded by Pacific and Atlantic and you have a small boarder to Mexico and then you have your friendly Canadian neighbors. It shapes a different worldview. It shapes a view that what you learn here is the normal, and that the whole world is like the US because you’re not exposed.
I would say, if you want to become a true global business partner, you need to leave your home country. Have an assignment abroad, at least start early at university or college, or take a job assignment, work two years in China. If you want to have business relationship with other countries, it’s going to change your perspective, going to change your perspective and also coming back.
The other advice I have is the only thing that you have as a finance person is your reputation so this is also at least it’s caught on me. We are the safe keeper of the company assets. We represent the shareholders and we have to be the link to the reputations also to our suppliers. If our word doesn’t count whose word then count, right? We always have lawyers and other ones. The only thing you have as CFO you have is your reputation. I would rather leave a company in the heartbeat or quit my job than to sign the wrong check or to do a wrong direction.
It’s comfortable for me to say now, because hey, if you’re financial comfortable, same as I organize in my companies, I organize my own life. I can live without a year of a paycheck right now. That gives me the freedom to put my reputation first. I get it for a lot of people, it’s more difficult, but still when it was difficult, this is the only thing I have. This gives you a reputation in the industry that speaks around and be true to yourself, and then opportunities out that it’s a great time now as a finance one, everybody’s looking for them, but we do need more with an international perspective. I think [inaudible 00:35:59].
Andrew Zezas: Your advice is protect your reputation, maintain your integrity as a finance executive and get out of your home country, basically, get out of your comfort zone.
Ralf Hermkens: Yes.
Andrew Zezas: Yeah. That’s great advice, Ralf. That’s great advice. Ralf, this has been wonderful. Thank you for very much for sharing your global view with us. It’s been great having you here on CFOs in Motion.
Ralf Hermkens: Thanks a lot, Andy. I enjoyed it very much.
Andrew Zezas: If you’d like to connect with Ralf Hermkens, contact me at Andrew.zezas@CFOintel.com and I’ll be very happy to put you in touch with Ralf.
Ladies and gentlemen, thank you for joining us today on CFOs in Motion. I’m Andrew Zezas. Please join us again for more exciting interviews with accomplished and dynamic CFOs. I look forward to seeing you again. Thanks for watching.