Bolstering growth as a business partner has been saved
Bolstering growth as a business partner
Diane Morefield, Chief Financial Officer (CFO), CyrusOne
In this conversation with Greg Endo, audit partner, Deloitte & Touche LLP, Diane Morefield, CFO of CyrusOne, discusses capital raising in a high-growth environment and how her finance organization supports the company’s overall strategy, as well as what it means to be a strategic CFO. Ms. Morefield also talks about her career journey and efforts to mentor aspiring executives, with Carol Larson, senior audit partner, Deloitte & Touche LLP, and champion for Women in Finance for Deloitte’s CFO program.
From Deloitte Insights for CFOs
When real estate veteran Diane Morefield was named executive vice president and CFO of CyrusOne Inc. in 2016, she recognized she was joining what some consider a non-traditional real estate investment trust (REIT), given the company’s specialization in data centers. Soon after coming on board, she led a strategic effort to realign the debt structure, including raising significant capital to support the growth of the business. In this conversation with Greg Endo, audit partner, Deloitte & Touche LLP, Ms. Morefield discusses capital raising in a high-growth environment and how her finance organization supports the company’s overall strategy, as well as what it means to be a strategic CFO. Ms. Morefield also talks about her career journey and efforts to mentor aspiring executives, with Carol Larson, senior audit partner, Deloitte & Touche LLP, and champion for Women in Finance for Deloitte’s CFO program.
Greg Endo: In your first year as CFO at CyrusOne, you were faced with a fast-growing business model in the data center space, which resulted in the need to raise approximately $2.5 billion in capital. What was the impetus for that?
Diane Morefield: Real estate is a capital-intensive business, and REITs, in particular, require third-party capital since they are required to distribute 95 percent of their taxable income in dividends. This restricts the amount of free cash flow that can be retained in the business to fund growth. More mature REITs typically provide a stable cash flow to shareholders but grow relatively slowly, maybe two to four percent annually. However, data center REITs are high-growth companies and require much more significant levels of third-party capital to fund the development and acquisition pipeline, which was the impetus for the roughly $2.5 billion of capital markets activity that we executed at CyrusOne in 2017.
Greg Endo: What does it mean to you to be a strategic CFO?
Diane Morefield: The first priority is being a partner to the chief executive officer (CEO) since the CFO’s role is to support the chief executive’s vision and strategy. I spent considerable time with Gary Wojtaszek, our CEO, before joining CyrusOne. I came in with a very clear picture of his vision for the company over the next five years. When I started in my new role, I presented Gary with my 180-day plan, which outlined the financial goals and philosophies that I felt would meet the strategic vision for the company. This plan became my roadmap for my first six months, and beyond. I feel that being proactive in setting out a plan for the CFO and the entire finance organization to execute against helps define a strategic CFO’s thoughtfulness for the business and its strategy, versus just reacting to what comes at you in your daily job. In addition, this plan provided me with milestones which I continue to use to measure my progress against and report out to the CEO and the Board of Directors.
Learning the business, particularly if you are in a new industry, is also critical to being a strategic CFO. For example, although I have been in the REIT industry for more than 20 years, data center REITs are a relatively new asset class and a very different type of real estate. They require understanding technology and the various demand drivers, as well as the traditional issues REITs face. So I work closely with my colleagues that run the various other functional areas such as technology, sales, and construction and design, in order to become educated in their areas and ensure that the finance organization is supporting their needs. In addition, staying on top of trends in the broader economy and your specific industry is critical to being a strategic CFO. You can never read too much.
As a strategic CFO, you are constantly thinking about the direction the organization is headed and how finance supports that vision. Developing that support structure requires having in place the right talent that can effectively lead six key areas of finance: Accounting, tax, financial planning and analysis (FP&A), investor relations, capital markets, and procurement. If you have the right people leading those areas, you don’t have to micromanage. If you hire well, the finance organization will naturally align to support the CEO’s strategy and vision for the business, rather than spending time being reactive and putting out fires. Sometimes that means making tough decisions if people are not the right fit or underperforming. In order for me to be productive everyone on my team has to be great leaders and as productive as possible.
Greg Endo: You’ve talked in the past about informed risk-taking. How does that play out in practice?
Diane Morefield: In the REIT industry, the most material risk we face is capital allocation. Compared to some other REITs, CyrusOne’s business model might be considered higher risk because most of our development involves new assets built from the ground up versus buying existing, stabilized assets. The company’s investment committee, and ultimately the board, approves our capital spend, but as CFO my team and I have to evaluate the risks associated with the underwriting process. The assessment requires a combination of strong analysis, asking intelligent questions of project sponsors, and not always saying yes. Also, an effective underwriting process should include modeling a base case along with upside and downside scenarios and providing guardrails for project development. In that way, the organization can stress test inputs—such as bank covenants and liquidity needs—against, for example, an increase in leasing activity or a reduction in CapEx spend. Always maintaining adequate liquidity and staying in front of capital requirements is critical to mitigating financial risk and something we are laser-focused on at CyrusOne.
Greg Endo: How does the finance function partner with the business at CyrusOne?
Diane Morefield: Finance is the center of the wheel that supports all other parts of the business. I inherited an organizational structure at CyrusOne that bolsters that support. Our FP&A group, which oversees the annual corporate model and five-year business plan, embeds senior financial analysts in operational areas, such as construction, operations, sales, and investments. Analysts report to finance with a dotted line to the various business units. That allows information to flow between finance and the operational functions in an efficient manner.
Our capital markets and investor relations activities are also centralized in the CFO organization so we can structure our balance sheet and capital-raising activities in a cost-effective and strategic manner. Our accounting and reporting functions provide information to the various business units to track performance and assist in critical business decisions.
In the end, the overall finance organization is there to serve our customers, the functional business units, and the overall business model, and we can never lose sight of our role.
Carol Larson: What experiences have influenced your career journey, and what are you doing to help others build their careers?
Diane Morefield: For me, having broad career experiences was the most important factor in reaching the CFO level. I started out in public accounting, then moved into banking, where I really learned about the capital markets. I also managed an investor relations (IR) function before being named to an operational position where I ran a 400-person region. I found the experience of communicating the corporate story to The Street and investors as an IR professional, and the profit and loss (P&L) responsibility of running a region, as important stepping stones to becoming a CFO.
Strong role models have been important to my career as well. Given I have spent most of my career in the REIT/real estate industry, most of my role models have been men. I was lucky to have many male mentors who taught me the business and how to be a good manager and leader, and who gave me great stretch assignments and career advancement opportunities. I had a wonderful father and have two great older brothers—so I am very comfortable around men as mentors, colleagues, and friends. (I also have two sons.) Moreover, I learned a great deal about executive management from a woman I consider one of my most important role models and mentors. She was a trailblazer as the first woman partner in a major international law firm and then one of only a handful of women executives in the real estate industry when she rose through the ranks. Her style is authentic, understated and resilient (and she is brilliant). I was fortunate to work with her early in my career, and today we are peers on a board of directors where I chair the audit committee, so I am still learning from her incredible wisdom and style.
Over my career, I’ve mentored highly talented men and women, but I’m partial to helping women advance their careers because they often lack role models. That’s one reason why I accepted the chairmanship of NAREIT’s (National Association of REITs) Dividends Through Diversity Initiative. This new initiative was created in 2017 to promote the recruitment, inclusion, and advancement of women in REITs and the broader commercial real estate industry. Having said that, many men who have worked for me over the years have gone on to become CFOs of public companies and have assumed other executive positions, which I’m very proud of.
Carol Larson: What traits have been helpful in shaping your leadership style, and what advice would you offer others aspiring to a leadership position?
Diane Morefield: In terms of traits, I’m very direct—which I think is a productive way to conduct business, although that approach may not work in all instances. Two of my most important traits are integrity and authenticity. In practice, integrity is always being true to your word and being willing to take a stand when you need to. Authenticity is being yourself whether you are with the CEO, your peers or the support staff. Being authentic makes one more approachable, and that can lead to more open communication and accurate information. In my opinion, it’s never just one trait or career role that propels someone to the C-suite; it’s quite the opposite. Building upon varied skills and experiences, having a strong work ethic, creating strong and lasting relationships, not taking yourself too seriously, and developing a team that understands and supports the corporate vision is how a career journey leads to the C-suite.
Editor’s note: This article is part of an ongoing series of interviews with CEOs, CFOs, and other executives. Ms. Morefield’s participation in this article is solely for educational purposes based on her knowledge of the subject and the views expressed by her are solely her own. This article should not be deemed or construed to be for the purpose of soliciting business for CyrusOne, nor does Deloitte advocate or endorse the services or products provided by CyrusOne.