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October 2003

Alumnus Offers Views on CFO Challenges

McDonald's is the largest fast-food company in the world. This global enterprise has restaurants in 119 countries and last year generated more than $40 billion in sales worldwide. Approximately 75% of the company's sales were made in the US and Europe and 90% of the company's operating income was generated in those regions.

McDonald's has faced some significant financial, organization, and cultural challenges in recent years. Working to solve these challenges are three Accountancy graduates from the College of Business: James R. Cantalupo ('66), chairman and CEO of McDonald's; Matthew Paull (MAS '75), executive vice president and CFO; and Mary Healy ('80), vice president for investor relations. Paull and Healy visited the College in September as part of the Department of Accountancy's Professional Lyceum.

Matthew Paull at the University of Illinois.In a special seminars for undergraduate and graduate students, Matthew Paull presented what he called the "brutal facts" about McDonald's situation and the challenges presented to leadership. In a nutshell, the company was building and opening new restaurants but not enhancing or even maintaining profitability. Paull illustrated how the decline in key business measurements (e.g., transactions per crew hour) revealed the depth and scope of the problems. A related stock price decline was inevitable.

A detailed analysis of the fiscal facts led the company to change its strategy, sending a signal to Wall Street that the company was serious about solving its problems. This change was also made in a business operating environment that was rapidly evolving in reaction to the various accounting and management scandals of 2002.

McDonald's senior management decided not to set short-term growth targets in which opening new restaurants played a significant part. They also communicated with investors about their new strategy to encourage investors to stay with the company for the long-term. The company wanted a chance to focus on strengthening the McDonald's brand rather than working to meet short-term growth targets. The new mantra became to "add customers to restaurants and not restaurants to customers."

One element in McDonald's "plan to win" is reducing to a few hundred per year the number of new stores opened, thus cutting capital expenditures. The company is also setting more realistic long-term growth targets and working to improve returns. They no longer issue quarterly and annual earnings per share guidance to Wall Street investors. According to Paull, the company also is "measuring everything that matters" -- from the cleanliness of the restaurants to how hot the food is. Mary Healy at the University of Illinois.

After the presentation, Paull and Healy took questions from the audience. The role of franchise owners within company management and how McDonald's communicates with that population were the foci of several questions. Approximately 85% of McDonald's restaurants are franchises. Paull said that franchise owners offer the company a "tremendous check and balance on mistakes," citing the recent promotion of 55 cent Big Macs as an example of a marketing strategy that was not well received by franchise owners. The company has a multi-tiered leadership council for franchise owner involvement. In addition to the formal structure of the council, owners have informal mechanisms to communication with corporate governance.


Matthew Paull

As executive vice president and CFO, Matthew Paull is responsible for all financial matters at McDonald's. He developed his expertise over 18 years with Ernst & Young LLP before joining McDonald's in 1993. As a partner at E&Y, he managed a variety of financial practices and consulted with large, multinational corporations.

Through his family, Paull is involved with the Kohl Children's Museum and the Chicago Symphony Orchestra. He also serves as a trustee for Ravinia and as an advisory council member for the Federal Reserve Bank of Chicago.


Fall 2003 Lyceum Speaker Series

The Department of Accountancy annually hosts a professional lyceum speaker series that serves as an integrative capstone to the core undergraduate and masters accountancy curricula The series features collaborative presentations by distinguished speakers -- from large public accounting firms, major corporations, regulatory agencies, and standards-setting organizations -- who visit the campus to speak and visit with students. Speakers for fall 2003 include:

September 11: Matthew Paull, Executive Vice President & CFO, McDonald's Corporation
October 9: Art Wyatt, UIUC
October 23: Donald Ryba, SEC Enforcement Division
November 6: Greg Garrison, Partner, PricewaterhouseCoopers LLP
November 13: Stuart Campbell, Global Managing Partner, Assurance & Advisory, KPMG LLP

The lyceum provides students with a rich opportunity to learn about issues the speakers face and about how they leverage the types of knowledge, skills, and attitudes that are embedded in the accountancy core curriculum, which is comprised of courses that focus on measurement, decision-making, institutions and regulation, control, and assurance.