Wednesday, May 21, 2008

Carlyle's BAH Promotes CFO Salesmen

Booz, Allen & Hamilton, soon to be an affiliate of The Carlyle Group, released a report on the new Chief Financial Officer earlier this year. It used private equity underwriters (PEU's) as a model for CFO duties in the near future, jettisoning the cartoon image above.

Never mind that tight liquidity prevented Carlyle affiliate Vought Aircraft's joint venture from ramping up production of frame assemblies for Boeing's 787 Dreamliner. Was Carlyle's $2 million annual management fee to Vought a factor in tight liquidity? Boeing fired Vought from the JV as a result. The Dreamliner will be at least 15 months behind schedule. Some customers will get their planes up to 30 months late.

Those CFO duties didn't include ensuring compliance with accounting and regulatory standards. The BAH report concluded:

CFOs must be business partners that actively manage value creation, influence strategy, governance and leadership inside any firm. Small changes in the Finance function will lead to greater success such as including an ambitious planning process, high speed in all development initiatives, releasing the full potential of the organization through alignment, engagement and incentives, and activating leadership. In addition, CFOs must be willing to sell when there is no longer a way to create incremental above-market returns.

The pressure is there to achieve above-market returns, as private equity underwriters expect 20-30% annual returns on their investment. A CFO can either sell, lie or do a combination of both. Carlyle's acquisition of Booz, Allen & Hamilton's government services division is clearly intended to be synergistic with its over 1,000 affiliates, many of which currently sell to Uncle Sam. How can BAH consultants drive more business to their Carlyle sister organizations?

As for lying, recall Enron's fictional revenues? They were facilitated by their Wall Street backers. Get ready for another round, one led by CFO's pressured by PEU's expectation of grand returns.