Finance
Making a business case for AI
Good morning. If you’re a CFO, you’ve been in a board meeting—or will be very soon—communicating your plan to invest in AI. For some insight into that process, I sat down with veteran tech CFO Mark Hawkins. His first piece of advice? “Clearly and unambiguously define the use case.”
“The less difficult it is to understand, the more credible the opportunity,” he explained. “When people can’t explain it, as a seasoned executive, it creates a yellow flag for me.”
Hawkins spent more than 40 years in corporate finance, most recently as president and CFO of Salesforce, which then appointed him president and CFO Emeritus, a position he held through November 2021. He’s also been CFO at Autodesk and Logitech, and he held various positions at Dell and Hewlett-Packard (HP).
Bringing it back to AI, it’s important for CFOs to share with board members “the math, the ROI, the metrics of success” to help build credibility but also be transparent about any risks, and work on building trust, Hawkins said. “It would be wise to really articulate the governance framework for technology,” he added.
It’s also important to make clear the opportunities and potential outcomes—and how those align with the company’s overarching goals and principles.
“When you’re presenting to a super-sophisticated group of technologically advanced people, and most of them could have deep engineering and science backgrounds, it’s a different level of dialogue,” Hawkins continued. Use cases often require additional details, for example.
By 2027, spending on AI software likely will grow to $297.9 billion, with a compound annual growth rate of 19.1%, according to Gartner. The firm’s research also found that boards are asking about AI more than three times as often as considerations tied to cloud computing.
During our conversation, I asked him his personal thoughts on AI, which he compared to electricity, also “a big paradigm.” Artificial intelligence, he said, is going down the path of augmenting people’s abilities and productivity, a journey that potentially includes significant value creation and a chance to create business models that don’t yet exist.
Hawkins also took a moment to reflect a bit on his own journey, including when, at age 21, he joined HP—at the time, a $3.1 billion company. In 2023, its annual revenue was $53.7 billion.
“It was the beginning of my journey into technology,” Hawkins said, “and I’ve been there ever since.”
Sheryl Estrada
sheryl.estrada@fortune.com
Leaderboard
Matt Lesmeister was promoted to CFO at flyExclusive, Inc. (NYSE American: FLYX), a private charter jet company, effective June 25. He will succeed interim CFO Billy Barnard. Lesmeister joined the company on May 30 as EVP and chief of staff and has 14 years of public company experience across various finance roles. Most recently, he served as VP of transformation and strategy at Fox Factory Holding Corp., Before that, Lesmeister served in various roles of increasing responsibility at United Technologies Corporation.
Kevin Nihill was named CFO at Rhinebeck Bancorp and Rhinebeck Bank (Nasdaq: RBKB). Nihill replaced former CFO, Michael McDermott, who retired from the bank after 23 years. Nihill most recently served as EVP and CFO at St. Mary’s Bank. He also served as SVP and treasurer at Berkshire Bank.
Big Deal
Mercer recently published new research about the impact of AI on productivity. The findings, created in partnership with Oxford Analytica, suggest that AI may boost developed markets’ GDP growth up 0.5%, with emerging markets potentially seeing a 0.2% boost in GDP growth.
Another key finding is sectors will experience different AI-enabled productivity boosts: finance and insurance (14%), information and technology (13.4%), manufacturing (6.9%), health care and social assistance (6.3%), transportation and warehousing (5.7%), and hospitality and food service (3.1%, according to Mercer.
Going deeper
“Federal Reserve governor says AI is ‘not going to replace’ central bankers—at least not yet,” is a new Fortune report by Michael del Castillo. He writes: “Lisa Cook, a Federal Reserve governor, isn’t afraid of losing her job to robots anytime soon. Speaking at an Economic Club of New York event on Tuesday, Cook said that when you’re a central bank governor every word counts in a way that not only caught her off guard at first but that likely will catch AI off guard for quite some time.”
Overheard
“By taking a human-first approach and developing AI tools that solve problems everyday people experience, businesses can reach a global audience with broad demographics.”
—Matthieu Rouif, CEO and cofounder of Photoroom, an AI-powered photo-editing app, writes in a new Fortune opinion piece.
Major global climate finance alliances are increasingly at risk with European lenders reportedly mulling following major US banks in withdrawing from the UN-backed Net Zero Banking Alliance.
The timing of the departures of top US banks including Citigroup, Goldman Sachs, JP Morgan, and Morgan Stanley — as well as four large Canadian counterparts, and potentially top lenders in Europe, too — is significant: US President Donald Trump and other Republicans have led criticism of finance’s role in the energy transition, and the latest departures come months after the COP29 climate summit sought to increase targets for global climate finance.
Finance
Finance & Budget Committee chair Reiches wants city's fiscal level sound – Evanston RoundTable
Shari Reiches is a leader and a go-getter. You may be familiar with her name from earlier RoundTable articles about her work on the city’s Finance & Budget Committee where she is the group’s chair. The committee meets the second Tuesday of every month (except in August) and there is always an agenda provided ahead online. The next meeting will take place at 5 p.m., Feb. 11.
Business founder, author, volunteer
Twenty years ago Reiches co-founded the business, Rappaport Reiches Capital Management. Today the firm employees a dozen people and manages more than a billion dollars in investments for individuals, families and nonprofit organizations.
She enjoys public speaking; one of her favorite topics is financial planning and values. In fact, Reiches wrote a book, Maximize Your Return on Life — Invest Your Time and Money in What You Value Most, that explains her philosophy and vision of investing. Radio programs, television shows, newspapers, magazines and podcasts seek out her point of view when it comes to money matters. She also volunteers with many organizations important to her.
Reiches was previously vice chair and board member of the Illinois State Board of Investments (ISBI), a $23 billion pension system. Gov. Bruce Rauner appointed her on Jan. 30, 2015 and she served four years.
Evanston mayor Daniel Biss knew Reiches from her work with ISBI when he was a member of the Illinois Senate. He nominated her to be one of the Finance & Budget Committee’s three lay leaders. The other two lay leaders are David Livingston, an executive in business development and treasury at ITW, a global manufacturing company, and Leslie McMillan, a private wealth manager. Five council members are also on the committee.
Role of Finance & Budget Committee
The committee’s purview is related to bills, budgets, financial reporting and management, investments, rating agencies, Evanston Police Department and Evanston Fire Department pension boards; and the funding of capital improvements and other long-term obligations.
Under Reiches’ leadership, the committee’s goals for the 2024-2025 year include:
- Identify additional revenue sources
- Review expenses
- Review capital improvement plan
- Establish long-term debt plan
- Review status of pensions
- Utilize benchmarking data
“The Finance & Budget Committee does not have decision authority,” she said. “All decisions are made by the City Council. We give advice and guidance to the City Council. My primary objective for the Finance & Budget Committee is to set policies that will continue beyond our terms.”
Pension policy
Reiches also touched on her commitment to creating policy.
“I want to come up with policies,” she said. “So we’ve already come up with two big policies. The first one was a pension policy.”
“Illinois law requires pension funds to have assets that cover 90% of estimated pension liabilities by 2045,” she said. “Our finance committee recommended, and the city council approved, a proposal to fund pensions so their assets cover 100% of pension liabilities by 2040. As a result of this new policy, the City of Evanston in 2024 increased its funding of our fire and police pensions by approximately $10 million over 2020.”
“A pension is a liability,” she said. “You can’t just say ‘I’m not going to fund the pension.’ We could have kept going at the 90% rate, but then there would be a huge tax to pay in the future,” she said.
“We are proud of this policy because it is sound fiscal policy. It was our first big, big win,” Reiches said.
Going forward, the committee plans to meet at least annually with the presidents of the Evanston police and fire pension boards to review the respective pension plans’ performances as well as updated actuarial reports.
Non-budgeted expenses policy
Sometimes unplanned opportunities arise. One example: last year the city council approved the purchase of Little Beans Café, 430 Asbury Ave., at a cost of $2.6 million. It will become the city’s dedicated site for accessible recreation programs.
This purchase was not on anyone’s radar. The idea for the purchase also bypassed any review by the Budget & Finance Committee.
Reiches said, “Our second big new policy is a non-budgeted expenditure policy. Any expenditure over $500,000 that was not budgeted comes to our committee for discussion before going to the council. The alders have big agendas and a lot on their plates. We have the time to review possible non-budgeted expenditures in more detail.”
The debt level
Another topic that has consumed a lot of discussion time is the city’s debt level. Debt allows the city to purchase goods and services that are beyond the scope of the annual budget, similar to a mortgage for a house or a loan for a car.
As the city contemplates taking on additional debt, it’s important to keep in mind that it’s not an even switch due to inflation. Between what the city needs and the rate of inflation, the new debt could exceed the amount of the debt rolling off. Reiches wrote in an email that, “The committee strongly feels we need to understand the additional debt the city is taking and the future expenses related to the debt in context of the overall budget.”
In Reiches’ view, this is the main reason for creating a debt management plan.
A policy to plan and manage Evanston’s debt
At the November 2024 Finance & Budget Committee meeting, the committee directed staff to include an item on the January 2025 agenda to discuss developing a debt management plan. To begin this discussion, the committee reviewed baseline debt data for the City of Evanston and peer communities.
For this review, the peer communities include Skokie, Oak Park, Park Ridge, Palatine, Bloomington, Arlington Heights and Des Plaines.
Along with its agenda for the Jan. 14 meeting, the committee provided a debt analysis. The analysis shows the amount of General Obligation (GO) Bond principal to be retired by category for all outstanding issuances from 2025 through 2044. (Refer to chart on pages 9-10.) The amount for 2025 is $13.57 million.
The chart below shows the city’s property tax levy and its various components since 2013.
This note from the city document succinctly states the situation: “As shown, from FY 2013 to FY 2025, the Debt Service Levy increased by 13%, the General Fund levy by 14%, and the Public Safety Pension levy by 41%. During this time, the CPI [Consumer Price Index] has gone up 35%, with increases for construction materials outpacing CPI. Given that CPI has far exceeded increases to the levy and that dedicated revenues have not been identified for the CIP [capital improvement projects], the City will be able to complete far less capital work in FY 2025 than in FY 2013 despite growing capital needs.”
Selecting a debt level
Currently the City Council selects the projects to be funded and adds the total amount for estimated costs. The total estimated cost determines the debt level.
Reiches and the committee recommend an alternative process: determine the amount of debt (still to be determined) the city can afford. Decide which projects get funded based on that number. Determining the debt level also provides a backstop for overspending.
“Our biggest expenses are capital improvements, plus we have deferred maintenance with aging facilities and parks,” Reiches said. “We have underground water pipes that are more than 100 years old that need to be replaced and the alleys that need paving.”
Budget management
The committee is also trying to limit projects that go over budget. The city’s finance staff alerts the committee of any expenses that increase 10% or more over budget. The committee is discussing ways to reduce some expenses in 2025.
Last year the city’s finance team was recognized by City Manager Luke Stowe after the city received an award from the Government Finance Officers Association. Evanston received the Distinguished Budget Presentation Award for its fiscal year 2024 budget, with particular acknowledgment for performance measures.
Reiches praised the committee’s working relationship with the City Council and described them as “very supportive.”
The Finance & Budget Committee is a new committee for Evanston. “We’re here for strategy and the big picture. We’re not here to micromanage the staff or the council,” Reiches said. “The Budget & Finance Committee provides the Alderman with detailed information so that they can make prudent decisions. The overall decision are with the Alderman.”
Working toward the future
“When I took over as Chair of the Finance & Budget Committee, I quoted my dad in my initial comments. He taught me, ‘We can have anything we want, but we can’t have everything we want.’”
She added, “Whoever’s going to be here in 2040 will be so happy because the pension will be funded and the deferred maintenance will be done, but it will take a while.”
Related Stories
President Donald Trump has officially been sworn back into office for his second term on Monday, January 20. Trump has a slew of policies and executive orders he seeks to enact on his first day back in office following his inauguration ceremony. A hot talking point on the campaign trail and the time since his election victory, Trump announced his plans to put his tariff proposals on hold for now.
Yahoo Finance senior columnist Rick Newman and Washington correspondent Ben Werschkul join the show to discuss the executive actions Trump is still planning upon his return to the Oval Office.
Read up on Yahoo Finance’s Guide to Trump 2.0 and what the incoming administration still plans to pass.
Watch President Donald Trump’s 2025 Inauguration ceremony, while staying up to date with all the market news and economic data covered by Yahoo Finance.
This post was written by Luke Carberry Mogan.
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