Only about a quarter of Fortune 500 company Avnet's business is done in the U.S. That's probably one reason why the $24 billion Phoenix-based, publicly traded distributor of electronic components is little known beyond its name on the uniforms of the Arizona Diamondbacks baseball team.
“We're not necessarily going to be the sexiest company in the industry. We're the underdog,” Avnet CFO Ken Jacobson said.
Being invisible doesn't seem to be an issue inside the company. One of the many advantages Avnet, founded in 1921, has over its competitors is its low turnover and culture of promoting from within, including in the finance department. But like many organizations, Avnet is nearing the end of its experienced workforce.
We asked Jacobson how the company is addressing succession planning, why he stayed with Avnet after serving as interim CFO, and how rising interest rates will affect the distribution business.
Is there a culture of promoting from within your finance department and has this helped with recruitment?
We're not the highest paying company in the market by any means, so we try to promote the idea that you can have a career here. There's a lot of tenure in finance. We look at the positive aspects of tenure. How do we leverage that experience, especially when new people come in? They can learn a lot from someone who's been in the industry for 20 years. We also treat the finance team as an extension of the business. This goes for all the support functions. So it makes you feel like you're part of something bigger than just a finance person. You can be part of the business, you can be part of the solution.
You served as interim CFO for about seven months from 2017 to 2018, and then you returned to the Controller's Office. You didn't leave the company.
What happens after that is important [interim] I was given the opportunity to expand my responsibilities to take on the role of CFO. Five years before I became CFO, the management team [think I had] I did not have enough experience to qualify for the role. But they were comfortable to hire me on an interim basis while they looked for external candidates. I understood that and they were very transparent, which helped. When the new CFO was hired, my role was expanded as part of the onboarding of the new CFO. I combined accounting and back office with business support like FP&A. I got a lot more exposure to the business and a broader base of relationships. I think I had the right attitude and approach: to learn as much as I could and try to add value in my expanded role. I knew my turn would come. But sometimes people get frustrated when they don't get work or opportunities. I've used that as an example with my team. If you're ready to embrace the opportunities that come your way, you will be recognized eventually.
Does the organization have a formal succession plan for the CFO and other positions?
We have formal succession plans in place for all key positions. Whether a company that has a succession plan has the best options for succession is another matter. We take the succession issue pretty seriously. We have “talent talk” sessions twice a year. We look at employee assessments and succession planning, and we think of it as a 1-2 year contingency plan, and then a 3-5 year plan. We are intentional about having a backup plan in case someone wins the lottery. The board of directors puts a lot of emphasis on this. … Part of our job is to set up the company for future success. And it's not about the management, it's about the company and making sure the company can survive on its own without us.
However, there is not necessarily an ideal plan for all of these things, so they are not perfect. [succession] Scenario: One of the challenges with tenure is that we have some senior people retiring over the next five years or so. How do we plan an orderly transition and make sure it doesn't all happen at once? We work with executives on timelines and tend to talk openly about these things, but we try to be as thoughtful as possible and not be caught off guard.
Specifically, what are your plans for the CFO role?
We have a CFO in each of our four global regions. Two of them are likely to retire within the next five years. One has a good succession plan, the other doesn't have a very good succession plan. There's a gap there. So this year we've talked about identifying roles where we can put some talent in. [the CFO] Some people leave quickly, but five years can fly by. You snap your fingers and all of a sudden it's a year later. So we're trying to be intentional. When is the timeline to bring someone on? When is the timeline to test that person?
The Chief Accounting Officer would be the right person for the job. [for the head CFO job]but CFOs of business units are also potential candidates because they have extensive experience with credit and collections. A lot of our exposure and risk is in accounts receivable. We buy inventory, we sell parts to somebody, and we have a lot of accounts receivable that are outstanding. We can't be too exposed to any one customer. [CFO] role [at Avnet]and manage financial risks.
Do you have any special projects in the works financially?
Probably the thing we're looking at the most is the impact of rising cost of capital. A few years ago, interest rates on debt were 2-3%. We were growing a lot, but inventory started to slow down as it became more readily available. And inventory started to swell, which has put a lot of pressure on interest expense over the last year and a half. The problem we have is that part of our value is providing terms to our customers. We act like a bank or a middleman. We buy something, pay the supplier within 30 days, hold the inventory, and then we sell it. We might give the buyer 60-day terms. But in the past, we could give customers 60-day terms and hold the inventory for four weeks and still make a decent profit. [margin] If you claim 10 or 12 points.
Our interest costs have tripled, so are we still making the same amount of profit on the same deal? Or do we need to change the way we do business with our customers? How do we ensure that we are being compensated for the value that we are providing? How can we increase value by shortening terms or increasing customer costs? Our goal is to get a fair return on the cash we spend. So whether we get a higher price from the customer or shorten our accounts receivable terms, both of those things will achieve our goal. But we are trying to educate the business and help them understand that this is going to have a real impact. Adjusting our business model to accommodate the rising cost of capital is probably the most important effort that we are making.
