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There are a lot of advantages and disadvantages in a company moving the Chief Financial Officer into the
Chief Executive Officer¶s position. I would like to take a look at each job, what the responsibilities of that
job are, and what skills a person in that job needs to be successful.

º



 

The responsibilities of the Chief Finance Officer of a company are extremely important and encompass
all aspects of a company¶s financial standing.

The CFO has to ensure compliance with all GAAP (generally accepted accounting principles) and SEC
(securities and exchange commissions) regulations.

They put together the company¶s capital structure and are responsible for communicating all plans to the
investment community and the board of directors.

The person who holds such a high position has to be very conscientious and accurate with all numbers.

The CFO has to have developed his or her communication skills in order to help investors and the board
of directors understands his financial plans.

They have to have a strong accounting background and know how to use their knowledge of the
company¶s numbers to backup their financial ideas.

The CFO must be able to manage all other financial managers in the company and their perspective
duties. The CFO manages the comptrollers, cash managers, insurance managers, credit managers and
many other tasks under their direct supervision.

º



 

The responsibilities of the Chief Executive Officer are they should be able to communicate well, be able
to manager personnel, have strong leadership skills, intimately know and understand the company¶s
products, be versed in the company operations, provide guidance, set goals and inspire the company to
meet those goals.

The CEO must understand how to get an idea off the drawing board and onto the production line with
support from his employees and if applicable the board.

The CEO has most likely learned these skills from previous CEOs and has worked his way up through
the company.

The CEO must have the ability to envision the direction he wants the company to go, assess the risk he is
putting on the company, and make the decisions that are tough. Along with these tasks the CEO must
keep his fingers on the pulse of the company and always be informed of what is going on.
There are several pros for promoting a CFO to CEO. According to Ian Butcher ³Part of the reason for the
trend towards recruiting the CFO who can behave as strategic partners is that the investor community
looks much more critically at the business performance and management strengths and weaknesses of
corporate.´ and ³The two most visible people in the company to the investor community are the chief
executive and the finance director.´

The pros of promoting the CFO to CEO will definitely be his financial background. The CFO has
intimate details of how current projects are financed and an accurate picture of the money required to run
the company operations on a daily basis. The CFO would already know financially which departments
needed to be revamped and which ones where performing satisfactory. The CFO also has the advantage
that they have already dealt with the board¶s members and the investors.

There are several cons to promoting the CFO :

The CFO traditionally has no production experience and has only served in the financial department
knowing only other departments by what their numbers look like.

The CFO is a company leader in the financial realm he may lack the communications skills to speak
marketing to the marketing department, production talk to the production people, when they all speak in a
language their own.

The CFO is a manager and while his skills are important to the company, he has not really had a chance to
demonstrate leadership skills that are required as the CEO.

³A competent chief executive must have an understanding of numbers, that doesn¶t mean that an
understanding of the numbers is all it takes to make a good CEO. If finance is the only skill a person
brings to the executive suite, in fact, the result can be disappointing.´ according to Ida Parker.

In conclusion, do you think finance departments are the best place to train future CEO¶s, I don¶t believe
we have clear answer. Even industry leaders have a hard time deciding if the finance department is where
the next leader should come from. My view is that it come downs to one thing, who is the person in
question for the job. I believe that some people are born leaders who adapt well and would accept the
position with ease while others may flounder until the board relieved them.

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The company selected for the is 


 . Microsoft Corporation is an American public
multinational corporation headquartered in Redmond, Washington, USA that develops, manufactures,
licenses, and supports a wide range of products and services predominantly related to computing through
its various product divisions.

In 2009 annual letter to shareholders reflected on the impact of the global recession and the difficulties
that all businesses faced in responding to one of the most challenging economic environments in the past
80 years.
Îow, just 12 months later, it was reported that fiscal 2010 was a year of remarkable accomplishments.
The company reported record revenue and earnings per share, showed outstanding momentum across all
our businesses, maintained a disciplined approach to controlling costs, and proved the deep commitment
to smart investments in technology innovation.

In fiscal 2010, there were three critical areas that lay the foundation for long-term growth and sustained
future success:

1. Our commitment to cloud computing

2. A product portfolio that is stronger than ever
3. Our record-setting financial performance

All this shows that the company will continue to grow and make profits in the future.

DIº º D IV Iº  Iº    º ºI 

DIº º

  
III0 º ! V "#$ D%!  &'!(#"

Chairman of the Board, Former Chairman, General Partner,
Microsoft Corporation President, Chief Executive August Capital
Officer, Merck & Co., Inc.
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Chief Executive Officer, Founder, Chairman and Chief Former Vice Chairman,
Microsoft Corporation Executive Officer, Îetflix, Inc. AT&T Corporation
D D'.#+  /0 $  ' - .#+#$
Former Chief Financial President, Harvey Mudd College Former Chairman of the Board
Officer, of Management, BMW AG
JPMorgan Chase

Board Committees
1. Audit Committee
2. Compensation Committee
3. Finance Committee
4. Governance and Îominating Committee
5. Antitrust Compliance Committee

IV Iº

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Chief Executive Officer Chief Financial Officer President, Windows & Windows
Live Division
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Senior Vice President, President, Server and Tools Senior Vice President, General
Human Resources Counsel and Secretary
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President, Microsoft Chief Research and Strategy Officer Chief Operating Officer
Business Division
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Revenue $6+#"8" $58,437 $60,420 $51,122 $44,282
Operating income $+"#098 $20,363 $22,271(c) $18,438 $16,380
Îet income $.8#760 $14,569 $17,681(c) $14,065 $12,599
Diluted earnings per share $+.0 $1.62 $1.87 $1.42 $1.20
Cash dividends declared per share $0$+ $0.52 $0.44 $0.40 $0.35
Cash and cash equivalents and short-term
$(6#788 $31,447 $23,662 $23,411 $34,161
investments
Total assets $86#..( $77,888 $72,793 $63,171 $69,597
Long-term obligations $.(#79.(a) $11,296(b) $6,621 $8,320 $7,051
Stockholders¶ equity $"6#.7$ $39,558 $36,286 $31,097 $40,104

(a) ÷

  
   
    
   

 

(b) ÷

   
 


(c) ÷


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The company is listed on ÎASDAQ.

Total dividends given = $ (0.13+0.13+0.16+0.16) = $ 0.58

Closing price as on March 11, 2010 = $ 29.29

Closing price as on March 10, 2011 = $ 25.41

HPR = ((25.41-29.29+0.58)/29.29)*100

= -11.26%

Most recent price = $ 29.29



*  (

dc With the Individuals owning majority stake in most of the publicly traded corporations in the
United States, a massive Agency problem can take place as opposed to companies in Japan and
Germany this is because the individual shareholder will push to maximize his interest, that is the
Stock price value, consequently he might push for projects and ideas that might compromise the
interests of the bondholders , the society and the top management. The company might push for
riskier projects , distribution of dividends leaving the company cash strapped hence risky and
over borrowing . The consequences of this will be that the bondholders might have a problem
lending to the company , the top management will be devoid of bonuses and the society costs may
also increase as the company will only focus on profit maximization.
 dc The new trend of financial institutions getting active in the company affairs may be an alleviation
to the Agency problem .The financial institutions represent a vast chunk of the shareholders and
their concerns should also be of paramount importance when it comes to running the company.
The presence of these institutions while taking any expansion decisions will bring in a complete
financial perspective to the table. A company that is governed by these institutions will attract
more investment by way of increased credit ratings. They will also have an impact on maintaining
the financial stability of the company and winning the public trust due to accurate financial
reporting etc. The bondholders will have complete trust in the company as it will be run by
financial experts which will result in profitable projects which will increase the shareholder
wealth and consequently the firm value.

dc This trend however will have an adverse impact on the corporate control as the influence of these
institutions will stifle the corporate freedom that the top management enjoys. It will result in less
risky ventures being taken thus minimizing the growth potential of the company. The top
management will also have a problem with governance as all their decisions will be under direct
scrutiny.



*  "



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Looking at the historical data, the pattern of price change is quite unpredictable. Observing the data of
past few days it might be said that prices are likely to fall within few months.

Beta = 0.95

The stock is risky since the price is fluctuating a lot.

Alternative investments can be treasury bills, bank deposits, mutual funds, other commodities like gold,
real estate.

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*  7

A) A large fire severely damaging three major U.S. cities:

dc This risk to some extent is non diversifiable to some extent with the case of US domestic
investors as most of the major companies would be situated in the major cities only. The local
companies could said to be vastly impacted by this. This could also lead to reduction in FDI and
FII inflow due to increased risk. But it could be diversifiable to a limited extent if the investor has
well diversified geographically.Whereas for international investors it could be highly
diversifiable as they invest globally and are well diversified.
dc A substantial unexpected rise in the price of oil:
 dc This is majorly a non-diversifiable risk as this an economic impact which could impact all the
companies. Almost all the sectors are impacted by this and thus cannot be diversified.
dc The risk could only be reduced to a minor extent by investing a part of portfolio in companies or
instruments relating to alternative sources of energy.
dc A major lawsuit is filed against one large publicly traded company:
dc This is absolutely diversifiable as it is a company specific risk and by investing in other
companies/sectors, the investor can reduce the exposure to this company to a minimum level.

B) Beta coefficient of the company is 0.95.Since the Beta is close to 1, therefore as the market value
increases the value of the stock changes accordingly. So my Portfolio will have a stock which carries the
risk of the market along with other riskless stocks.

Riskfree rate, Rf = 4.5%

Market premium, Rm-Rf = 6.5%
Beta = 0.95
So, Cost of equity = 4.5% + 0.95*6.5% = 10.675%

Google Inc. = 1.04

Yahoo Inc. = 0.89

Beta of portfolio = (0.95+1.04+0.89)/3 = 0.96

Expected rate of return = 4.5%+ 0.96*6.5% = 10.74%

The portfolio is still undiversified since the stocks are all of technology companies which have similar
kinds of beta values and market efficiency.



*  8

In February, 2008, there was a speculation that Microsoft is about to acquire Yahoo. Due to this the stock
prices of Microsoft started falling.

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Microsoft Dynamics ERP is an enterprise resource planning application primarily geared toward midsize
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includes five primary products:

dc Microsoft Dynamics AX (formerly Axapta)

dc Microsoft Dynamics GP (formerly Great Plains Software)
dc Microsoft Dynamics ÎAV (formerly Îavision)
dc Microsoft Dynamics SL (formerly Solomon IV)
dc Microsoft Dynamics C5 (formerly Concorde C5)
Also included are retail solutions: Microsoft Dynamics CRM is a multi-lingual customer relationship
management application from Microsoft that provides sales, service, and marketing capabilities, and
includes Microsoft Dynamics CRM Online.



*  9

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