n o r t h e r n t r u s t c o r p o r a t i o n steven l. fradkin executive vice president &...
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N O R T H E R N T R U S T C O R P O R A T I O N
Steven L. FradkinExecutive Vice President & Chief Financial Officer
J.L. Kellogg School of Management, Northwestern UniversityFinance Conference 2006November 18, 2006
The Role of the CFOWhat They Don’t Tell You in Business School or in the Recruitment Process
2 J. L. Kellogg School of Management 2006 Finance Conference
Agenda
About Northern Trust
Overview
Our Businesses
The Role of the Chief Financial Officer
A personal journey to the Chief Financial Officer role
The textbook definition of the CFO’s responsibilities and how the role is changing
Myth versus Reality: What they don’t tell you in business school or in the recruitment process
4 J. L. Kellogg School of Management 2006 Finance Conference
The Northern Trust Difference
Unique in our culture, history, share ownership, and organic growth
Unique in our financial strength and stability
Unique in our business focus – one business serving two channels
Unique in our product leadership
Unique in our service model and consistent record of delivery
5 J. L. Kellogg School of Management 2006 Finance Conference
Northern Trust Corporation
Client-centric and Highly Focused
Northern TrustGlobal
Investments
Asset Servicing
Banking
Corporate &Institutional
Services
Serving institutionalinvestors worldwide
PersonalFinancial Services
Serving affluent private clients in U.S. and Europe
Integrated Operations & Technology Platform
Assets Under Custody
$3.3 Trillion
Assets Under Management
$667 Billion
Bank Assets
$55 Billion
As of September 30, 2006
6 J. L. Kellogg School of Management 2006 Finance Conference
Northern Trust Corporation
Client-centric and Highly Focused
Northern TrustGlobal
Investments
Asset Servicing
Banking
Corporate &Institutional
Services
Serving institutionalinvestors worldwide
PersonalFinancial Services
Serving affluent private clients in U.S. and Europe
Integrated Operations & Technology Platform
Consumer Finance
Retail Banking
ADRs
Investment Banking
Insurance
Venture Capital
Some businesses Northern Trust is NOT IN:
Corporate Trustee
Stock Transfer
Credit Cards
DC Record Keeping
Discount Brokerage
Merchant Card Processing
Some businesses Northern Trust has EXITED:
Primary Dealer
Corporate Finance
Futures
7 J. L. Kellogg School of Management 2006 Finance Conference
NTGI TraditionalAsset Management
NTGI Fully Diversified, Global,Multi-Product Asset Manager
Broad-based Orientation
From…
Tightly Focused on Core Businesses
To…
Product Orientation – Banking & Trust
Client Orientation – Asset Administration and Asset Management
PFS Chicago Presence PFS National Footprint
C&IS Domestic Business C&IS Global Enterprise
Strategic Evolution
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Who Are Our Clients?
Providing Solutions for Many of the World’s Leading Organizations
One Constant: Our Focus on Our Clients
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Trust, Inv. & Other Servicing Fees
Other Non-Interest Income
Net Interest Income
Total Revenues
Non-Interest Expenses
Net Income
Earnings Per Share
Assets Under Custody
Global Custody Assets
Assets Under Management
Year-to-Date9/30/06
% Growth 2005 to 2006
$1,333 Million
$363 Million
$588 Million
$2.28 Billion
$1,442 Million
$495 Million
$2.23
$3.3 Trillion
$1.54 Trillion
$667 Billion
+15%
+20%
+10%
+15%
+13%
+13%
+13%
+16%
+30%
+10%
2006 Results Reflect Excellent Performance
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$0.6
$0.8
$1.1
$1.3
$1.5$1.6 $1.7
$1.5
$2.1
$2.6
$2.9
$3.3
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 3Q06
$106$130
$197
$233
$292
$326 $320$303
$479
$572
$618
$667
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 3Q06
Assets Under Custody($ Trillions)
Assets Under Management($ Billions)
12/31/95 - 9/30/06 CAGR: 17%S&P 500 CAGR: 7%
12/31/95 - 9/30/06 CAGR: 19%S&P 500 CAGR: 7%
Outstanding, Long-Term Growth in Client Assets
Acquired $75 BN Index Assets
S&P 500S&P 500
11 J. L. Kellogg School of Management 2006 Finance Conference
Differentiated Financial Strength
Evidenced by Strong Credit Ratings
Northern Trust Corporation is one of only seven U.S. Bank Holding Companies to carry Standard & Poor’s Long-Term Debt Rating of ‘AA- or better.’
S&P rates approximately 200 bank holding companies
Other bank holding companies with a rating of ‘AA- or better’: Bank of America, Citigroup, HSBC USA, State Street, U.S. Bancorp, and Wells Fargo.
Northern Trust is one of only sixteen U.S. Banks to carry Fitch Rating’s ‘A/B’ individual rating or better.
Fitch assigns their individual rating to over 100 banks
12 J. L. Kellogg School of Management 2006 Finance Conference
A Differentiated Price/Earnings Multiple
19.0
18.5
18.4
15.8
14.5
14.5
14.4
1.
2.
3.
4.
5.
6.
7.
Northern Trust
State Street
Mellon
Bank of New York
PNC Bank
Wells Fargo
Fifth Third
13.7
13.3
13.2
13.1
13.0
12.7
12.0
8.
9.
10.
11.
12.
13.
14.
BB&T
Huntington
SunTrust
JPMorgan Chase
KeyCorp
US Bancorp
National City
12.0
11.8
11.7
11.6
13.8
17.6
15.
16.
17.
18.
Comerica
Wachovia
Citigroup
Bank of America
As of September 30, 2006 using 2006 “Street” projected earnings
Full Peer Group
Trust/Custody Peers
NTRS Premium to Trust Peers: 8%
NTRS Premium to Full Peer Group:38%
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NTRS: A High Performance Company
Note: Closing stock prices adjusted for splits and dividends. Annual EPS is as reported and adjusted for splits.
NTRS STOCK PRICE
GE EPS NTRS EPS
GE STOCK PRICE
$0
$40
$0.69
$35.30
3/31/81 9/30/06
CAGR = 16.7%
$0
$60
$0.94
$58.43
3/31/81 9/30/06
CAGR = 17.6%
$0
$3
$1.72
$0.15
CAGR = 10.7%
12/31/81 12/31/05$0
$3
$2.65
$0.20
CAGR = 11.4%
12/31/81 12/31/05
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Stock Price Performance
1. Procter & Gamble +5.1%
2. FedEx +5.0%
3. Southwest Airlines +0.9%
4. Berkshire Hathaway +0.8%
5. Microsoft -2.1%
6. Starbucks -3.8%
7. General Electric -4.0%
8. Johnson & Johnson -5.2%
9. Wal-Mart -11.4%
10. Dell -28.9%
S&P 500 +3.0%
NTRS versus Fortune’s Most Admired Companies of 2005
FY 2005YTD
9/30/06
+8.8%
+5.4%
+1.5%
+8.1%
+5.7%
+13.5%
+3.0%
+10.0%
+6.5%
-23.7%
+7.0%
Northern Trust +6.7% +12.8%
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NTRS+1,088%
$58.43
NTRS 17%
$4.92
1990 2000 2006
S&P 500
+305%
As of 9/30/06:
0%
400%
800%
1200%
1600%
2000%
S&P 500 9%
KBW50 +694%
KBW 50 14%
For Investors, Employees, The Community and Other Constituents…Consistently Over Time
Unique in Our Financial Strength and Stability
Delivering High Performance Results
CAGR since 12/31/90:
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... And Commitment to Community & Philanthropy
Northern Trust consistently contributes approximately 1.5% of pre-tax profits to charities every year
Ranked as the 9th most generous cash contributor by Business Week in 2005
Employees donated more than 230,000 volunteer hours in 2005
Awarded more than $13 million in cash contributions in 2005 to organizations, supporting causes ranging from literacy to affordable housing
High Performance Results can be Consistent with Companies Contributing to their Communities
Named one of Global Finance magazine’s
“World’s Most Socially Responsible Companies”
Northern Trust Named one of “100 Best Corporate
Citizens”
Northern Trust named one of the
"100 Best Companies for Working Mothers"
for the 15for the 15thth consecutive year!consecutive year!
Northern Trust named one of the
"100 Best Companies for Working Mothers"
for the 15for the 15thth consecutive year!consecutive year!
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The recognized leader in providing sophisticated financial solutions to high net worth families.
Target market: Individuals or families with $75+ million in investable assets
$1 Million $10 Million $75 Million
Delivering high-touch trust, investment management andbanking solutions to individuals through 84 offices in 18 states.
Target market: Affluent individuals withat least $1 million in investable assets
Delivering comprehensive, investment solutionsthrough a multi-manager investment program.
Target market: Individuals or families with$10 to $75 million in investable assets
Wealth Management
Wealth Advisory
PrivateClient
Client Investable Assets
Personal Financial ServicesIndustry Leader in Serving the Affluent Market
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Personal Trust Assets(Billions)
Source: SNL Financial as of 12/31/05
Personal Financial ServicesIndustry Leading Personal Trust Provider
Bank of America 100.8
J.P. Morgan Chase 80.5
Wachovia 59.8
Citigroup 54.6
Mellon 53.8
Wells Fargo 40.0
U.S. Bancorp 39.4
National City 35.0
PNC Financial 28.9
Northern Trust $135.4
Largest Personal Trust Bank in U.S. Source: SNL Financial
2.
3.
4.
5.
6.
7.
8.
9.
10.
1.
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Personal Financial ServicesComprehensive Advice-Based Solutions
Retirement Services Qualified Plan Services Defined Benefit Plans Defined Contribution Plans IRA Rollovers Investment Management Individual 401(k) Plans
Private Passport Online access to banking, trust,
investment management, mutual funds, and brokerage information
Corporate Banking Working Capital and General
Corporate Loans Secured and Cash Flow Lending Acquisition Financing Industrial Development Bonds Equipment Finance and Leasing
Checking & Deposit Services Personal Loans Real Estate
Development Loans Margin Loans
Stock Option Lending Home Mortgages Equity Credit Lines
Private BankingPrivate Banking Structured Investment
Services Asset Allocation Equity Investing Fixed-Income Investing
Short-Term Asset Management
Indexing Alternative Investments Single Stock Strategies
Investment Management
Comprehensive Trust Services Family Business Services Real Estate and Farm Management Minerals Management Charitable Services Trust and Estate Settlement Services Guardianship Services
Brokerage Full Service Brokerage Managed Account 10b5-1 Plans Money Market Instruments Safekeeping
Financial Consulting Retirement Planning Estate Planning Tax Planning Asset Allocation Stock Option Planning
Client
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Arizona(8)
Florida(25)
Source: IXI, Claritas.Source: IXI, Claritas.
Personal Financial Services
Extensive Reach in High Growth, Target Market
84 Offices in 18 StatesOver 50% of millionaire market resides within a 45-minute drive of Northern Trust offices.
Illinois(18)
Projected MillionaireHousehold Growth(Within PFS Footprint, Millions)
Projected MillionaireHousehold Growth(Within PFS Footprint, Millions)
Colorado(1)
Nevada(1)
Missouri(1)
Minnesota(1)
Washington(1)
Michigan(3)
Texas(7)
California(11)
New York (1)
Connecticut (1)
Delaware (1)Ohio(1)
Georgia(1)
Massachusetts (1)Wisconsin(1)
47%Increase
8%CAGR
1.5
2.2
2005 2010
22 J. L. Kellogg School of Management 2006 Finance Conference
$23
$65
$82
$101
$114
$124
$16
$61
$52
$38
$28
$65
$0
$25
$50
$75
$100
$125
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 3Q06
Personal Financial ServicesSpotlight: Outstanding Growth in Wealth Management
Target Market: Families with $75+ million in investable assets
Industry leading technology
AUC: $124.2 billion
AUM: $24.6 billion
22% of Forbes 400
350 families
Wealth Management – Assets Under Custody$ Billions
12/31/95 to 9/30/06 % Change CAGR
Wealth Mgmt. AUC +675% +21%
S&P 500 +117% +7%
As of September 30, 2006
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$128
$38
PFS Assets Under Management ($ Billions)
Dec 1995 Sept 2006
$243
$63
PFS Assets UnderCustody ($ Billions)
Reputation:
Outstanding Private Bank – Private Banking International
Serving 22% of Forbes 400 Wealthiest Families– Forbes
Fiduciary Culture:
Largest Personal Trust Bank in the U.S. – SNL Financial
Superb Ratings for Trustworthiness and Objectivity
– Spectrem Research
Institutional Scale:
World’s 10th Largest Asset Manager – Pensions & Investments Magazine
Top 500 Innovative Technology Users
– Information Week
Exceptional Client Service:
Client Satisfaction Rating of 86% – 2005 PFS Client Satisfaction Survey
Dec 1995 Sept 2006
Personal Financial Services
Growth and Industry Positioning
24 J. L. Kellogg School of Management 2006 Finance Conference
Fund Services
Fund Accounting Investment Operations
OutsourcingActive Collateral Management
Hedge Fund AdministrationPrivate Equity AdministrationProperty Administration
Asset ServicingSafekeepingSettlement
Income CollectionCorporate Actions
Information Services
RiskManagement
AssetManagemen
t
CashActivePassiveSecurities Lending
Manager of ManagersForeign ExchangeTransition ManagementCommission Recapture
AccountingReportingValuation
Attribution AnalysisValue at RiskCross-Border Pension Pooling
Rates of ReturnMultinational
HQ Reporting
Compliance MonitoringMarket Event Analytics
Corporate & Institutional Services
A Worldwide Leader in the Institutional Marketplace
25 J. L. Kellogg School of Management 2006 Finance Conference
Corporate & Institutional Services
Positioned Globally for Growth
Chicago(Corporate
Headquarters)
Toronto LondonNew York
Positioned to serve clients locally and capitalize on global opportunities
LuxembourgAmsterdamIsle of Man
Dublin Guernsey
Jersey
Singapore
Beijing
Tokyo
Bangalore*
Hong Kong
Trade Settlement
in 90 Markets
15 LocationsWorldwide
Clients in40 Countries
*Name change announced and to be implemented at a later date
26 J. L. Kellogg School of Management 2006 Finance Conference
28%
30%
36%
32%
30%
28%
31%
37%
34%
0% 25% 50% 75% 100%
Top 200 US Pension Plans
Top 100 US Corporate Plans
Top 100 US Public Funds
Top 50 US Endowments
Top 50 US Foundations
Top 50 US Healthcare Funds
Top 25 Taft Hartley Plans
UK Local Authority Plans
Top 200 UK Pension Plans
Source: Pensions and Investments 23 January 2006, 26 December 2005, and 30 May 2005; IPE Top 1000 Supplement, September 2005; and S&P Directory of Tax-Exempt Organizations, 2005.
Percent Served by Northern Trust
Corporate & Institutional Services
Strong Position in Target Institutional Segments
27 J. L. Kellogg School of Management 2006 Finance Conference
$108
$471
$727
$965
$1,240
$1,539
$85
$385$312
$200$149
$452
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 3Q06
Corporate & Institutional ServicesSpotlight: Outstanding International Growth
Global Custody Assets$ Billions
12/31/95 to 9/30/06 % Change CAGR
Global Custody Assets +1,710% +31%
S&P 500 +117% +7%
EAFE +66% +5%
15% 15% 15% 18% 23% 26% 30% 35% 38% 41% 46% 50%% of C&IS Total AUC
28 J. L. Kellogg School of Management 2006 Finance Conference
9%
19%
22%24%
21%
24%
27%29%
7%
23%
16%16%16%
21%
0%
5%
10%
15%
20%
25%
30%
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
% of Northern Trust Corporation Net Income resulting from International Activities
Corporate & Institutional ServicesInternational: Growing Contribution to the Bottom Line
29 J. L. Kellogg School of Management 2006 Finance Conference
$3.07
$0.55
Dec 1995 Sep 2006
$539
$67
Dec 1995 Sep 2006
C&IS Assets Under Management ($ Billions)
C&IS Assets UnderCustody ($ Trillions)
Industry has rewarded our efforts
Corporate & Institutional Services
Strong Growth in Client Assets
European Pension Fund Custodian of the Year International Custody And Fund Administration
3rd Consecutive Year (February 2006)
One of Two Custodians to Qualify In Each Region
R&M Survey (March 2006)
Custodian of the Year
Global Pensions 2006 Awards (January 2006)
Best Global Custodian – Billionaires Global Investor Global Custody Survey (May 2006)
Best Sole Custodian Global Investor Global Custody Survey (May 2006)
Best Global Custodian in Asia Global Investor Global Custody Survey (May 2006)
30 J. L. Kellogg School of Management 2006 Finance Conference
Northern Trust Global InvestmentsWorld Class Investment Manager
$667 BillionAssets Under Management as of September 30, 2006$667 BillionAssets Under Management as of September 30, 2006
$245 Billion(37%)
$113 Bn(17%)
$301 Billion(45%)
$416 Billion(62%)
Active
$218 Billion(33%)
Quantitative
$33 Billion(5%)
Manager of Managers
A Diversified Asset Manager
Across Asset Classes Across Client Segments
Equities
FixedIncome
ShortDuration
$539 Billion
Institutional
$128 BillionPersonal
Across Styles
Other$8 Billion
(1%)
31 J. L. Kellogg School of Management 2006 Finance Conference
Canadian & UK Programs Int’l/US Equity Manager of Managers Minority and Emerging Managers Investment Program Solutions International Equities EAFE Index Technology Large Cap Growth Socially Responsible Tax Advantaged Fixed Income and Equity Index Funds Core Fixed Income Municipals Government Short/Intermediate Duration Fixed Income Cash Management
Investment Options
Northern Trust Global InvestmentsA Continuum of Investment Products
Multi-Advisor Funds Hedge Funds Private Equity Small Cap Growth Mid Cap Growth Large Cap Value Exchange Fund Enhanced Index Funds International Fixed Income High Yield Stable Value
Active Investment Management
Growth & Value Equity
Short & Long Duration Fixed Income
Quantitative Management Index & Enhanced Capabilities
Manager of Managers Investment Program Solutions
Emerging & Minority Programs
Alternative Investments
PRODUCT BREADTH
Methods of DeliverySeparate Accounts
Collective Funds
Common Funds
Mutual Funds
Methods of DeliverySeparate Accounts
Collective Funds
Common Funds
Mutual Funds
32 J. L. Kellogg School of Management 2006 Finance Conference
Industry Has Rewarded Our Efforts
$105.5
$667.2
$0
$100
$200
$300
$400
$500
$600
$700
$800
Dec 1995 to Sept 2006 CAGR
Northern Trust 19%
S&P 500 7%
$ Billions
Assets Under Management
Dec 1995 Sept 2006
Northern Trust Global Investments
Strong Growth in Assets Under Management
10th Largest Asset Manager WorldwidePensions & Investments (May 2006)
3rd Largest U.S. Institutional Index Manager
P&I (May 2006)
4th Largest Manager U.S. Institutional Tax-exempt Assets
P&I (May 2006)
Winner: U.S. Equity (Passive) Global Investor Magazine -
Awards for Investment Excellence (April 2006)
Winner: Multi-Manager Global Investor Magazine -
Awards for Investment Excellence (April 2006)
Rated #1 Global Securities LenderInternational Securities Finance
(September 2006)
33 J. L. Kellogg School of Management 2006 Finance Conference
Northern Trust CorporationWell Positioned for Growth
Rich History 117 Year Heritage — Undiluted by Mergers & Acquisitions
Focused Strategy on Growth Businesses Exclusively Focused on the Management and Administration of Client Assets
Conservative Culture One of only 7 independent U.S. Bank Holding Companies Rated ‘AA- or better’ by S&P
Seasoned Management Team Northern Trust Industry
Bill Osborn - Chairman & CEO 36 Years 36 Years
Rick Waddell - President & COO 31 Years 31 Years
Sherry Barrat - President – PFS 16 Years 36 Years
Steve Fradkin - EVP & Chief Financial Officer 21 Years 21 Years
Tim Moen - EVP – Human Resources 5 Years 31 Years
Bill Morrison - President – PFS 10 Years 33 Years
Steve Potter – EVP – C&IS International 24 Years 24 Years
Jana Schreuder - President – WWOT 26 Years 26 Years
Tim Theriault - President – C&IS 24 Years 28 Years
Terry Toth - President – NTGI 19 Years 24 Years
Kelly Welsh - EVP & General Counsel 6 Years 28 Years
35 J. L. Kellogg School of Management 2006 Finance Conference
A Personal Journey to the Chief Financial Officer Role
Compliance Group
International Sales
Expatriate Assignment in London
Global Sales Head
General Manager for International
Business
Financial Management
CFO
1985 1990 1995 2000 2005 2006
NTRS Stock Price EOP
$2.35 $4.92 $14.00 $81.56 $51.82 $58.43*
*As of September 30, 2006
36 J. L. Kellogg School of Management 2006 Finance Conference
The Role of the CFO
Source: hrvillage.com
Textbook Definition
Job Description: Responsible for all financial aspects of company operations
Provide leadership and coordination in the administrative, business planning, accounting and budgeting efforts of the company
Primary Responsibilities: Coordinate the preparation of financial statements, financial reports and special
analyses
Develop and implement finance, accounting, billing and auditing procedures
Establish and maintain appropriate internal controls
Ensure compliance with local, state and federal reporting requirements
Develop and direct implementation of strategic and operational plans
Analyze cash flow, cost controls and expenses to guide management
Serve on planning and policy making committees
And much, much more …
37 J. L. Kellogg School of Management 2006 Finance Conference
The Role of the CFO
Source: Deloitte CFO Center
The Changing Role of Corporate Finance: From Steward to Strategist
Steward
Strategist
FinanceManagement
StakeholderManagement
Record& Report
Analysis &Interpretation
RiskManagement
CapitalOptimization
PolicyEnforcement
Planning
38 J. L. Kellogg School of Management 2006 Finance Conference
The Role of the CFO – Myth versus Reality
Experience, judgment, ethics, low ego, adaptability and fortitude are all important ingredients of an effective CFO.
Myth Reality
The executive suite or “C Suite”… … is not always sweet.
The CFO role is a financial job. It is a management job with oversight responsibility for financial functions
People generally fall in line with and work together to achieve financial goals.
Driving company performance drives people crazy. Not the right job if the goal is to win a popularity contest.
All corporate functions share in the blame when things are not going well.
When things are not going well, they are called “financial problems.”
Public company quarterly earnings conference calls are effortlessly executed.
“Fencing on a tightrope, 500 feet in the air, with no safety net below.”
Rising to the CFO spot means you figured it all, or most of it, out.
Counterintuitive career findings: Rising to the CFO spot enhances job insecurity.
The CFO works with a select group of senior managers.
The CFO works with directors, investors, management, regulators, auditors, employees, vendors, communities and interest groups, to name a few. Communication and management is key.
39 J. L. Kellogg School of Management 2006 Finance Conference
Conclusion
“It is not the strongest of the species that survives, nor the most intelligent that survives.
It is the one that is the most adaptable to change.”
-Charles Darwin
N O R T H E R N T R U S T C O R P O R A T I O N
Steven L. FradkinExecutive Vice President & Chief Financial Officer
J.L. Kellogg School of Management, Northwestern UniversityFinance Conference 2006November 18, 2006
The Role of the CFOWhat They Don’t Tell You in Business School or in the Recruitment Process