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State Farm CFO Tackles Challenges Over the Long Term

Michael Tipscord, CFO of State Farm.Michael Tipsord was named as State Farm Insurance Companies chief financial officer in 2002 in response to perceptions that it would be valuable to have a CFO who would oversee all aspects of State Farm's financial operations. Related, corporate scandals in a variety of US industries made the CFO function vital in sending the signal that State Farm had its financial environment well in hand.

During a recent Department of Accountancy Lyceum, Tipsord told students that he has a solid line reporting relationship with staff who perform accounting, compliance, incentive compensation, and internal R&D and a dotted line relationship with investment and pricing staff. In addition to his CFO title, he is a senior VP and treasurer of State Farm Insurance Companies and serves on the Board of Directors of five State Farm entities and as a trustee of another five trust organizations. Clearly Tipsord has a lot on his plate.

But that is to be expected for the CFO of the 18th largest company on the 2003 FORTUNE 500 list (based on revenue). State Farm, headquartered in Bloomington, IL, has more than 72,000 employees and more than 73 million policies in place. In 2003 they insured more than 39 million vehicles and took in more than $49 billion in earned premiums.

Tipsord asked the undergraduate accountancy students at the lecture to consider some of his day-to-day and annual challenges, citing as an example the 2001 statistic of a nine-billion dollar loss in underwriting. Suggestions ranged from off-loading risky investments and diversifying -- both of which were rejected because they would be helpful only in the short term -- to reassessing product pricing as well as risk. State Farm's strategy and one that Tipsord considers key to their success is to manage risk at the enterprise level. Where the company sees higher risk, it is offset by areas where they have determined risk to be lower. "Resist temptation," said Tipsord, "and have staying power."

Questions about State Farm's venture into banking showed the company's focus on its core competencies. Said Tipsord, "Banking is an extension of our customers' core financial needs … that matches the other services [State Farm provides]."

Key lessons he has learned over his career with State Farm include:

  • looking at the full picture, all the aspects of a problem over the whole enterprise
  • keeping in mind all your constituents -- customers, suppliers, and employees and, for some firms, stockholders

Those lessons were echoed in his personal advice to graduating seniors: "Have a long-term focus in how you approach your job," he said. "Be your own steward."

 

About the Speaker

A native of Illinois, Tipsord received a bachelor's degree from Illinois Wesleyan University in Bloomington and a law degree from the University of Illinois at Urbana-Champaign. He earned the Chartered Property Casualty Underwriter (CPCU) designation in 1995, the Chartered Life Underwriter (CLU) designation in 1991, and is a Certified Public Accountant (CPA).

A member of the American Bar Association and Illinois State Bar Association, he serves on the Board of Trustees of Illinois Wesleyan University.

 

--Ginny Hudak-David
May 2004