Chief financial officer, BNSF
Thomas has retired from this role since the interview.
BNSF Railway, formerly known as Burlington Northern Santa Fe, operates one of the largest railroad networks in North America with approximately 32,500 miles of track in 28 U.S. states and two Canadian provinces. The railway has a long history of mergers and acquisitions (involving 390 railroads over 150 years) and has faced a series of challenges along with the other companies in its industry. Chief Financial Officer Thomas Hund has been with the company for 30 years, the last 14 in his current position, and he says the rate of change is accelerating. Here, he shares his belief that a key job of the CFO these days is keeping the company nimble.
What is the state of the railroad business and does information technology play an important role?
We have been able to improve our returns pretty dramatically because we can offer a service that’s very reliable and very cost competitive compared to the alternatives. There are a lot of ways that the industry has improved its efficiency and competitiveness, and some of the key ones are related to technology. A primary focus is on getting more efficient locomotives and materials for infrastructure. We use information technology to understand how to optimize train schedules and plan maintenance more effectively, as well as to drive improvements in fuel and other efficiencies.
What are the biggest challenges the railroad industry faces?
The biggest challenge is responding to the accelerating pace of change. You have to recognize what’s happening and adapt more quickly now. Right now, we’re dealing with rapid changes in the energy markets—and these cut both ways. The technology breakthroughs in fracturing have produced a huge new supply of lower cost natural gas. That puts pressure on our coal-hauling business, but, at the same time, we’re considering shifting some of our locomotives to burning liquefied natural gas, so that’s positive. You have to be nimble to respond to these changes.
Has your role as CFO changed as a result of BNSF’s acquisition in 2010 by Berkshire Hathaway?
My role as CFO has changed dramatically. In the past, I spent a lot of time on investor relations because we had a large stockholder base. Now we’ve got one owner (Berkshire Hathaway) and it’s in Omaha, Nebraska. That clearly is different. Also, we no longer have an outside board of directors, now we have an internal board. We still do some of the things that were very helpful, such as our audit control reporting, but with less bureaucracy. There’s not the pomp and circumstance, the rehearsal, the presentations. So that has freed up time for me to focus on the business, which is great because now I’m able to spend more time other things, such as analyzing capital projects and major contracts.
As CFO, how do you help make the finance function more efficient and agile?
We have three sets of financial tools, depending on the audience. We have our GAAP-basis financials, which is what we report to the outside world. Then we have internal responsibility-based financials. That’s your departmental budget. Then the final thing is an activity-based cost system. We have had these three systems for several decades, but our ability to use them smartly has improved over time.
What about the rest of the company?
We’ve spent more time on financial training throughout our divisions, which are organized geographically. We wanted to give operations people knowledge and tools so they can analyze what’s happening in their operations, why it’s happening, and where they stand compared to benchmarks.
We also have lifelines—financial experts for them to call if they’re struggling with a problem. Rather than spending hours trying to figure something out on their own they can call one of the experts and get their answers. The hope is that, in time, they can become more self-sufficient.
We’re also training our financial staff to communicate complex financial information to non-financial people in ways they’ll understand. Don’t scare them with numbers or make them feel foolish because they don’t understand financial jargon. It’s our job to communicate with folks so they’re prepared the next time they have a decision to make.
What results have you seen from this training?
We’ve seen a tremendous change in the way our supervisory people in the field use financial information. They understand their budgets, and, they’re actually taking much greater ownership of their financial results. They have tough jobs. We expect them to deliver great service to customers in a safe way, and we expect them to do that in a fiscally responsible manner. This training helps them do that.
How are you using data analytics to make your operations more efficient?
Finance is responsible for the majority of the economic analysis of projects, of contracts and of alternative ways of doing things within the business. We gather and extract data out of our systems and analyze it.
One example is how we deal with contracts. If we have a major commercial contract coming up, we’ll look at the volume and frequency of shipments, and we’ll start costing it out and coming up with rates that will yield the proper returns.
We have been doing data analytics for a while, but these days it’s a business imperative to get insights and make decisions quicker. When we have to come up with a price quote quickly, we’re working in real time.
How do you see the finance function changing over the coming years?
If we go back a decade or more, at the time of Sarbanes-Oxley, finance was in a silo. We were focused on establishing financial controls and documentation. Now we’re exiting that. We emphasize to all of our financial people that, rather than thinking of themselves as an accountant or in the tax or finance department, they should think of themselves as a businessperson. It would be terrible if the company was considering a transaction and everybody looked at it from their silo—if the finance people found that it was tax efficient or financially efficient, but they didn’t point out that the transaction wasn’t very good economically. We tell people that their finance expertise gets them a seat at the table, but once you’re there, you are a businessperson.