Steve Player talks with Mark Blinn, SVP, CFO, and Latin American operations of Flowserve Corp.

With 14,000-plus employees in more than 50 countries, Flowserve moves, controls, and protects the flow of materials in some of the world's most critical industries, including oil and gas. In Blinn, Flowserve has a CFO who's not afraid to get down among the pumps and valves of the company's financials.

Steve Player: The Latin American operations part of your job title is an interesting twist ...
Mark Blinn: Yes. This is a company that's very focused on the development of its people. As part of overall succession planning, we want to make sure that leaders get relevant experience in multiple areas. As I speak Spanish and I've lived in Mexico, the company saw an opportunity to slot me into a role with responsibility for our pump-and-seal operations in Latin America. We have a great operation down there -- it's long-standing, with a lot of very talented people -- it just needed some focus, some energy, and a strategic overview.

SP: How big a part of the business is it?
Blinn: It has historically been less than 10 percent of our business, but it's certainly growing. We have a lot of opportunities in front of us. Look at Brazil, for example, a country that was designated as investment-grade last year. They have a tremendous amount of resources. They've been making substantial investments. And in general -- though we're all aware of the exceptions -- there's a very strong migration toward stability in the region.
There's a tremendous amount of talent in the Latin America region. When people talk about emerging markets, they often look to developing countries. China's a great example of this, and we've seen a tremendous amount of movement there to take advantage of this opportunity. And while there is a well-established reservoir of talent there, we are also seeing the emergence of very well educated talent in other parts of the world. I think that's one of the distinguishing elements in Latin America as well.

SP: It must be a very dynamic environment. How did your finance skills help to get you ready for that job?
Blinn: I don't always know what skill set I pull from at any given time! Earlier in my career I was a lawyer, which teaches you advocacy, but I think that more importantly it teaches you how to say what people don't necessarily want to hear. The finance discipline gives you an appreciation of risks and opportunities and the ability to interpret them through the common filter of financial information and to draw conclusions from this. And then the leadership skills that I've learned throughout my career have helped me work with what is a very different culture.

In addition to the finance roles, I've picked up some other roles as well, in global sourcing and in real estate. I'm a very operational CFO. I like to get out from behind my desk and understand the business.

SP: I want to come back to your background in just a minute, but let's go back to when you stepped into the CFO role at Flowserve in 2003. You knew that the financials you inherited were not pristine, and you knew that you'd eventually have to sign the financial statements. Why did you decide to take this challenge on?
Blinn: I was certainly aware that the company had had some challenges, and I had a pretty good sense that they were going into their second restatement of financials. But as I looked around and took into consideration the compliance environment at the time, I could say, "This could happen to a lot of companies."
More importantly, I spent time with a lot of the people who are on the management team right now, and I knew that these were really good people. And then for me, personally, it was an opportunity to become a public company CFO. I knew that there was a challenge in front of me, but I thought, "You know -- it's worth it."

SP: You obviously went through a deep thought process. What do you advise people when they're faced with this kind of situation, one that's simultaneously an opportunity and a challenge?
Blinn: First of all, of course, you need to understand the nature of the situation as best you can. But don't ever believe that you know it all going into it, because you don't. It was 15 months between the time I joined and when we completed the restatement. You need an understanding of how the company got there, and I definitely had a clear understanding that it really wasn't anything nefarious at all.

One of the most important things you also need to realize is that you can't do it alone. You're not the white knight; you're not going to go in and save the day. At best, what you're going to do is to set a tone and give people the support and resources that they need. You've got to have a very good team, and you've got to stand arm-in-arm with them.

One important thing was that I traveled very little; I was here as we were working through very, very detailed issues -- issues that normally a CFO wouldn't get into. But this does two things. First, it helps you a lot as you go through this discovery process in real time, because someday, of course, I was going to have to sign the financials. So it's good to have that continual due diligence. And second, it helps to keep people motivated. You're asking a lot of them -- you're asking them to work basically 24/7 -- and it's important that you're there with them.

So it gives you a different perspective. You've got to go with your gut first and foremost. You make the assessments, and after that it's a judgment call. You've got to draw on your experience to do it.

Another important thing, especially in a public company, is the way you deal with your external constituency. It requires some courage. You've got to be willing and able to stand up, and I was very public during this time, interacting with investors, saying, "Here's what I know, here's what I don't know, and I'll keep you informed." You don't try to tell them everything's fine, unless you are sure that it is. And you don't want to stay silent. And then, of course, you've got to work very hard with your board to keep them informed.

I look at myself as the point man on the basketball team. I'm passing the ball, and my job is really to make people effective, whether it's the operations folks, my team, the board, or whoever it is. A good CFO understands the arena he's in. And he's got data; he's got financial information. If you don't use it just as a historical indicator but really try to drive it toward future trends and opportunities, you can have that vision of where to pass the ball ultimately.

A restatement can get very overwhelming if there's no end in sight. So one of the things I did was to manage it as a project, not as a problem. It was very important to avoid making people feel like there was a dark cloud over the business or over them, or that there was any kind of taint. The attitude was: "This is a challenge. We're going to define it; identify roles, responsibilities, and expected timelines (which I know will change); set accountabilities; and manage it right through like a project."

We would meet every day in a big room and put all the things that we had to do on a chart that showed where we were, who was responsible for what, and when we were going to have it done. Once people started seeing progress, they started feeling better.

SP: So, a kind of visual control of information?
Blinn: Right. It's the same thing you do in operations. You go into what's called an accountability room and you go over all of your activities -- Who's on point? What are you going to do? When are you going to get back to me? What do you need? -- and you meet just 10 minutes a day.

SP: These are like short operational meetings, as opposed to long, laborious, time-consuming events that require you to prepare a lot of information ...
Blinn: That's right. But I also looked at entries going back a number of years to try to figure them out. I wasn't just the captain leading the charge; sometimes, I was the soldier down in the field, and happy to do that.

After we got the restatement done, my focus changed. I started building a financial planning and analysis [FP&A] team. I see finance as a dynamic process. You look to the future, you forecast. As the future gets closer, you readjust, tweak your assumptions, and validate them. As the information becomes real-time, you assess it. And then it becomes accounting information; you close the books and report it. Then you go back and ask "What did I learn from this?," and you take that and put it back into your future model.

The key is that my FP&A group needs to become very ingrained in the operation. Again, this goes back to my operational side. I don't want them just using third-party statistical data; I want them to understand that if this large, complex pump stays on the floor another three days, it's going to cost us X dollars. So it's a question of taking operations and bringing the results to the shareholders. This is really what I'm supposed to do; I'm a conduit between what happens out in the field and what happens for our shareholders.

SP: What role does the budget play in your operation? Do you see yourself moving to a rolling forecast?
Blinn: The budget's a commitment, a benchmark, an expectation that you talk from. And it becomes obsolete the day after it's approved for purposes of the forecast. This is a very important point, because companies historically have managed to the budget. But a lot changes in most businesses three months after the budget's complete, and if you're managing to the budget, you're managing to three months ago.

Our planning group puts the budget together, and they also do a rolling forecast. The key is communication. The forecast puts something down on paper for me, but the most important thing is that it encourages dialog. It means that we know what's going on, and we interact with the folks in operations till we understand it. I can't tell you how many times I've gone on a site visit and learned something that made me realize that we needed to think about things differently. Because a forecast is just that; it's a vision of the future. But the more you understand what drives the business, and the more you talk to people out there, the better the vision.

A CFO, as you know, allocates not only capital, but also resources -- and that's expense. You need to hold people accountable and have a business discussion on both sides of the benchmark. You may decide that you need to go ahead and invest in a particular area, so you might want to flex that budget. On the other hand, you may decide that you don't need those resources; you may need to reprioritize.

So we are, absolutely, going to maintain a budget process, because that's how compensation is set, and it gives you something to hold people accountable to.
When we set our budgets, we set the traditional stakeholder metrics around operating income, controllable income, and certainly cash flow. But we also put in operational metrics -- for example, on-time delivery, billed material atrophy -- that help us to build a sustainable business.

SP: How do you keep people from negotiating low-budget targets?
Blinn: Well, that's important. Our process is top-down and bottom-up. We set targets based on trends, and we hand those targets to the businesses. It's important to understand what they're based on, because if I send them a target that's not even based anywhere in relevant fact, then all I do is cause frustration. So we set high-level targets, and they go through a bottom-up analysis and deliver against the targets.

Typically the way in which we design it is that we try to set targets fairly aggressively on trends, and the businesses typically also set out guidance within their organization that's fairly aggressive. The concept is that you build contingency as you roll it out. You stretch it, and then you bring it back and make it reasonable, and that's where the negotiation occurs. But it's negotiation after the targets are set, and it propagates all the way up through the organization. The individual sites negotiate with the region, which negotiates with the division lead, and so on all the way up.

But it's always part of the budgeting process that everybody tries to low-ball you. They come in with, "You know, next year is going to be the worst." And you have to understand enough to say, "No, I don't think so."

And you've always got to take a step back and look at your budgets and ask yourself, "Am I motivating the wrong things?" You can have the best intentions and still drive poor business decisions. I've seen it happen. A good example is a sales organization; if you compensate your salespeople on sales and not on margin, they can sell you right out of business. But if you compensate them on margin, then maybe they will make the wrong choice there, too. You really have to think through these things.

The most important thing is that the budget should be a collective effort. Don't make it like two tablets coming down from the mountain. Make it less of a negotiation and more of a conversation, which is what it should be.

Once we get the budget locked, it becomes somewhat irrelevant at that point in terms of how we think of our business going forward because, as I said, if it becomes the benchmark then people manage to the budget. So what you need to do is to start managing against your rolling forecast.

In this industry, whatever you say you're going to do is your bond, so there's a reluctance to forecast anything other than what I can absolutely commit to. Which is great from a conservative standpoint, but you always want to make sure that you have a good view. So that's why we take the rolling forecast and run it separately from the budget process. It's a case of "Tell me what you think you're going to do -- and, by the way, tell me what can go good and what can go bad."

SP: What are some key skills that you think people need to focus on if they're trying to aspire to greater responsibility in finance?
Blinn: Leadership skills are critical. The concept of EQ -- emotional quotient -- is very important. I place the highest value on teams, and a strong team is one that communicates, one in which people help each other and hold each other accountable. They've got to be competent, but it's not just technical competence; it has to be emotional competence as well. This is especially true in a complex organization, because complexity requires communication.

I've learned a lot about my own characteristics and how they impact other people. What I've realized is that I'm fairly introverted. I tend to keep to myself at times, but others may interpret that as not being available or not wanting to talk to them. If you want to be that point man, you've got have that leadership, those human skills. It doesn't mean that you need to be the funniest guy in the room or anything like that, but you definitely need to be willing to accept feedback because that's what breaks any barriers around communication.

SP: Take me through your earlier career history, because most people don't enter the finance profession through a law background. How did you make it into the CFO ranks?
Blinn: I wish I could say that it was well thought out and planned; I always admire and respect people who have their careers all mapped out. But mine has certainly taken some turns.

When I came out of law school, I really didn't know what I wanted to practice. I wanted to do something around Latin America. I had the opportunity to get about as close as you could without crossing the border, and that was to go to San Antonio to work for a small firm on complex corporate matters around M&A, primarily related to banks.

At about the end of 1991, there was an opportunity to work for a very small business that was doing asset-based lending. About a year after I got involved with it, it ran into some difficulties, and I had to restructure a lot of its debt and turn it around. I took over the helm and spent about the next two years building it back up. We ultimately sold it to a bank group, and I stayed on for about a year.

And this was when, through some relationships in Dallas, I got a call from the legal department at EDS, as well as from the treasury department there. It would have been difficult for me to reenter the practice of law, and I wasn't sure that I wanted to do it. But I met with the treasurer, who said, "This seems like an interesting, varied background; we've got a senior analyst job open in our pension and investment area." And I really got into the role; I enjoyed it. While I was at EDS, I went through business school, and I got my CFA [chartered financial analyst] designation.

Well, the treasurer left to become the CFO of a mortgage company called First Plus Financial -- this was about 10 years ago -- and brought me over with him as his treasurer. And then Centex Corporation, which is a home builder with a big financial service arms, was looking to shore up its corporate finance. I was brought in to help them structure the balance sheet. After a year and a half or so in a corporate finance role, I moved to the chief accounting officer role.
Then a gentleman I'd met at EDS was becoming the CFO at Kinko's. He gave me a call and said, "Look, here's a real opportunity. This group will go public at some point. Why don't you come in and be my treasurer, head of tax, run a number of these functions?"

It was exciting because I knew that we were going to be building something. I stepped into the CFO role in February 2003, and our team really came together that year. I spent a lot of time in the field. I worked in the stores, two days a month if I could, to try to understand the business and the customers.

SP: How important is that for people in finance?
Blinn: It's very important -- probably the most important thing. I'll give you an example. When I was working at one of the Kinko's locations, working the machines, running copies, and interfacing with customers, I realized that when the branch manager was on the floor, the captain was at the helm on the ship. All of the hands knew what to do, and things worked very smoothly. But when he was in the back office, they just didn't have the same level of direction.

What I discovered was that the company held branch managers responsible for their branch P&L -- which meant that a manager would spend a lot of time on the phone calling corporate, for example, trying to find out why there was an excess charge on his lease agreement for the property. And I'm thinking to myself: "He doesn't negotiate the lease, he doesn't sign it, but he cares about this charge because it impacts his compensation."

I observed at other stores and talked to more branch managers, and I realized how much time they spent worrying about things that they couldn't control. In the next planning process, I modified their P&L to what's called a controllable P&L. Everything that was non-controllable dropped below the line, and they were not compensated on it. They got focused, and they quit worrying about things they couldn't change.

One of the highlights of my career came in the fall of 2003. As much fun as the team was having, we got an opportunity to sell the company. We were very subtly approached by FedEx, and my boss and I went and pitched it to them at the end of November. We had an offer in two weeks, and we closed two months later. This opened the way for my eventual move to Flowserve.

SP: In a company like Kinko's, I can see the opportunity to get out into the stores, but how do you get involved in operations in a company like Flowserve?
Blinn: Well, basically, a lot of what I do is that I go on site visits. I go on operational reviews, walk the floor, talk to people. Sometimes, I've put on gloves and boots and gone out and turned the wrench on a pump. You learn so much from being on the floor.

There are things that they won't let me do, but I just spend some time there, talk to people and meet their teams. It's a little wear and tear on the body, but, boy, it's well worth it.