Supporting the Core While Planting for New Growth

06/07/2022

This article originally appeared in the Wall Street Journal's CFO Journal, sponsored by Deloitte.

Cox Enterprises has come a long way since its origins as a small Ohio newspaper publisher founded in 1898. Today, the privately held company has two core businesses, Cox Communications and Cox Automotive, along with an expanding portfolio of sustainable businesses.

President and CFO Dallas Clement has held a variety of finance, product and strategy roles over a 32-year career at Cox. Today Clement has responsibility over financial reporting, FP&A, tax, and corporate development, as well as  IT, legal, sustainability operations, strategy, and government affairs. He discusses how his  teams support a distributed portfolio of companies, with services ranging from shared services to performance analyses, with Gairy Moore, audit and assurance partner at Deloitte & Touche LLP.

Moore: What consumer and market trends have informed Cox’s decisions in the cable and automotive services businesses?

Clement: Our two main business sectors are relatively mature and in various stages of disruption, so we’re investing in them based on trends in the market. At the same time, we look for opportunities to save money and serve changing customer needs, such as with new digital channels to engage with customers and offer self-service capabilities. During the last two years of the Covid pandemic, for example, a lot of people realized the importance of having a robust cable broadband connection, with the surge in remote work and school. That led us to expand our investing in existing broadband services for consumers, as well as in the more competitive B2B space. We’re also investing into newer areas like wireless broadband.

In the automotive dealer sector, consumers and businesses are adjusting to supply chain disruptions. New cars are not being developed to keep pace with market demand, the value of used cars has gone up, and people are looking for new ways to find them. At Cox, we’re leaning in on digital across our businesses that serve different segments of the auto market, from the commercial wholesale auction market with Manheim to providing to dealerships white label digital solutions that can allow them to conduct a no-touch relationship with their customers. It’s consistent with what consumers are looking for and, in the case of dealerships, we are helping them take costs out of their business. Another important trend is the rise in demand for electric vehicles (EVs). The main value in an EV is the condition of the battery. We’re looking to service the value chain in this emerging market and investing to provide a trusted service solution to recondition and store batteries.

How do you have to adapt a finance team to support the core businesses as they pivot to meet consumer demand?

Clement: As a holding company, we need to have a finance community to support and coordinate with the businesses. The divisional CFOs at Cox Communications and Cox Automotive don’t report directly to me, but we have regular meetings and coordinate on many strategic decisions. I can draw on my 32 years of experience working within each of those businesses to provide insights on such matters as talent and risk at a time of heightened disruption in the marketplace, as well as aligning our goals of innovation and sustainability.

In addition, over the past two years we’ve established shared services centers of excellence in employment law, supply chain, real estate and other areas that coordinate on capital allocation and future investments. Making sure we’re serving our internal customers in an effective and efficient way is a high priority. With a new corporate function, it can be hard to determine the right size, the right cost structure, and if it’s adding value to the business. That’s particularly true for us because corporate departments have to be nimble to be efficient for the large, more mature businesses, but also flexible to support the smaller businesses that we’re building.

One of my finance community’s main roles is providing context to the businesses on how they are doing financially relative to our growth expectations, the budget, and our peers in the marketplace. We help the businesses level-set on how they are performing in the present and where we can invest for optimal opportunities going forward. In addition, we help the businesses apply standardization with process automation, giving employees more time for training or strategic work.

How have finance functions evolved in your view in recent years to make them more capable at contributing to overall corporate growth and strategy?

Clement: In the last 10 to 20 years, there have been two types of CFO roles. One is more a traditional controller-type CFO, whose main oversight is mainly limited to accounting, reporting, treasury and tax. The other is a more strategic CFO who can manage those finance functions as well as contribute to strategy at a higher level. At Cox, our finance leaders are more the strategic type, at the business unit CFO level as well as in my role. More and more companies want to have CFOs with broad experiences and a portfolio of skills that can help them balance short term and long term investments. The strategic CFO role also involves looking for ways to promote growth and manage risks in a very dynamic, uncertain environment. That proved to be especially valuable during the pandemic, when CFOs had to be a strategic partner to the business, consider the needs of employees, and be thoughtful about the bottom line.

Embedding finance personnel in large functional groups can help leaders think strategically about opportunities. Advances in IT such as cloud services are helping make finance employees even more effective partners to the business. Even our marketing department has a business operations person to help them think about tradeoffs, the costs, and the benefits about investments in that department.

How do you view the intersection of corporate development and sustainability operations impacting growth?

Clement: As we think about planting seeds for technology and business model innovation, our corporate development team will typically look for opportunities in sectors where disruption is happening. We look for opportunities that align with our values and strengths. That said, we’re not afraid of capital-intensive investments or deploying technology when the time is right.

Corporate development and sustainability came together in our Cleantech division. The business grew out of our internal efforts started 15 years ago to operate our core businesses more sustainably and with more of a focus on communities. Those internal electricity and water conservation efforts have resulted in our current goals for zero water usage by 2034, zero carbon footprint by 2034, and zero waste to landfill by 2024. About five years ago, we saw an opportunity to start adapting these internal sustainability capabilities into a standalone business under Cleantech. We studied nearly 100 emerging environmental trends, and we could see there were opportunities in scaling controlled-environment agriculture, based on priorities for reducing water usage and lowering emissions. As a result, we acquired BrightFarms, which operates large greenhouses that grow leafy green vegetables near major cities for faster local delivery with a smaller carbon and water footprint.

What is finance’s role in supporting Cleantech?

Clement: Many different teams come together for different aspects of scaling operations in businesses we invest in. For example, as we work to scale a newer business, we want to make sure to take advantage of the existing capabilities of our supply chain group, leveraging their capabilities and talent from a team that is already processing $6 billion to $7 billion worth of expenditures a year. The IT function is involved to make sure we are operating in a safe IT and cyber risk environment. We also offer FP&A support to help these growing businesses with budgeting and setting expectations. Our legal team supports efforts in litigation, employment law and new complex contracts.

Another role we play is helping establish metrics and targets, developing scorecards for more consistent and clear communication around performance. In addition, the new businesses collaborate with our strategy and corporate development teams in monitoring our capital allocation, to evaluate how the emerging businesses serve our broader strategy and how the story of the new business is taking shape. Finance also helps our leaders understand the risks, opportunities, and capital requirements of our organic and inorganic investments. What are the capital requirements? What are the paybacks? All this analysis is shared with leadership and helps with decisions about relative priorities and capital allocations.

Coming from a privately held corporation, what is your perspective on ESG reporting?

Clement: We are in favor of the reporting standards because we recognize the importance of people, particularly prospective employees and customers, to know what we’re doing and how we measure up against our goals and our peers. That said, several standards already exist, not just with sustainability but also with green bond issuance as an example. We believe it’s important to have a strong feedback loop that informs our progress. That’s why we’re implementing a system for sustainability that’s similar to the ERP software for financials, to capture a variety of sustainability information across our initiatives and help make operations more efficient. 

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