The following is an edited excerpt of a recent interview with Michael Poteshman, CFO of Tupperware for the past 7 years.

BF: Please tell us how Tupperware’s finance function responded to the downturn …
Poteshman: In the fall of 2008, we took a deep breath and expected a rough ride. Like everyone else, we looked at our capitalization and thought about how we could stay liquid. We looked to scenario planning and to be prepared for the worst case. At that point, we were kind of at the better end of high yield in terms of the leverage spectrum. We had done an acquisition in 2005 of several beauty businesses in direct selling, so we carried debt covenants. They were a little more stringent than for (typical) investment-grade companies, so we looked to be proactive and manage things in a way that meant that we were going to be able to be liquid and not impact our business in a difficult environment. When we saw the bad externals developing, we went into what we called vigilance mode, which was really something led by our CEO, but from a finance point of view we looked at our value chains to find ways to position ourselves and to make our profit and cash flow goals even if we might not make our sales goals.

BF: This was about monitoring costs … Poteshman: It was traditional cost savings, but it also involved how we were spending our promotional dollars within our sales system and how we were positioning our products and at which price point we were going to sell so that we could still come out okay even if we didn’t make our sales goals. As it turned out, we did pretty well. We ended up being up 6 percent in sales in 2009, which is pretty close to what we did in 2008 when we were up 8 percent, and the year before, we were up 9 percent. We’ve had a pretty good run with organic growth, and about half of our business is in emerging market economies, which have really powered through the cycle. We did see softer results in the 4th quarter of 2008 and the first two quarters of 2009, but we had a fairly fast turnaround and we did stay positive all the way through it. But our international footprint has certainly helped us.

BF: What metrics are most important to a direct-selling company? Poteshman: The key metric for any direct seller is the size of the sales force, and this is driven by the recruiting element and the people coming into the business. Direct sellers — and we’re no exception — have significant turnover in their sales force. In other words, there are always people leaving the business, and we always try and manage that down as best we can, but the key is really to bring new people in. Then we need to get them to be turning in orders and make them as productive as possible in terms of the size of the orders. So, externally we report on those metrics every quarter — the total sales force numbers that we end the quarter with and how many were active during the quarter — and we do that on a segment basis. We have five reporting segments, but internally we are really looking at those metrics on a business unit basis every week, including the recruiting and the sales, even though we’re not reporting that out by segment. Value chain–wise, we are a very high gross margin business and a return-on-sales overall type of business, and at the same time relatively not capital-intensive, although within the context of a company that does make most of what it sells. So we do spend some on capital, but it’s a good combination. We were over 12 percent as far as return on sales in 2009 went, without some unusual items, and that was pretty good. We’ve given an outlook for this year to be up into the teens and even deeper in the teens in the coming years, and that’s up from being at 5 percent in 2003. So we had a good run and have straightened out some things.

BF: How did you manage liquidity more effectively? Poteshman: We’ve done a good job of turning our income into cash, and that is something we’ve looked at very closely. When you ask about liquidity, it really does start with cash flow. And one thing we did — starting last year — was to add into our setup plan a key element of cash flow directly. Earlier, we had done some things with working capital measurements that went in that direction, but in 2009 we explicitly did part of our incentives on cash flow so that in and of itself it helps to focus people. We have worked to better understand how much inventory we should have in all of our units — how many inventory days — and we have become more systematic about how we identify where we may have been out of line and how we can better turn some inventory into cash. That certainly came through in our numbers in 2009, when things were tight. And then, in terms of managing liquidity, debt covenants also come into play because if you don’t meet them you can lose access to your credit lines. So we looked very closely at the key drivers there, and one of the things that moves our most sensitive covenant is EBITA. So that’s closely watched, and some of things we were doing with cash flow certainly helped EBITA.

BF: Back in 2003, when you first joined Tupperware, what did you have to do to move the organization in the direction you wanted? Poteshman: The thing that was of key importance for us when I became the corporate CFO toward the end of 2003 was better execution. Some of this was already under way, but our chief technology officer talks about “living with the business,” and I think that this is really a powerful way of expressing the idea that while there are a lot of important things that can be done on the back end, we need to find ways to give information to the organization. Being able to find ways to boil down what’s in your IT systems … and benchmark internally across our units in such a way that it takes us down the road to the right questions and to the right actions. We’ve made a lot of progress on this in the last 6 to 7 years, and one example of this is that we look at all of our businesses on what we call a net-to-company basis. So we have all different models out there as far as how we run our businesses goes, which makes them look different if you look at them on a reported GAAP basis, so we internally start with the retail sales dollars that consumers are paying. Think about how much is going to our sales force regardless of how it’s reported externally, and some of it doesn’t even get reported externally because of the way GAAP works. Then take what’s left for the company and look at what we’re spending it on across our units, and we’re able to see fairly quickly where we’re performing well and where we’re not. And when there’s an outlier, in particular, we take the time to ask the question: Why is that the case? And, Does this need to change?