The days of the bean counter are over

With the growing burden of compliance and regulation, the role of the CFO is as broad, demanding and influential as ever. This is as true in the UK as in the rest of Europe, with the CFO playing a central role in defining strategy, performance management, and communicating all this to investors.

As a result of this pivotal role, it is not surprising that CFOs, perhaps more than candidates from any other discipline, are perfectly positioned to become CEOs themselves. Indeed, Whitehead Mann’s research indicates that around a quarter of FTSE100 CEOs were formerly Finance Directors.

Every CFO needs to maintain robust financial control over what can sometimes be disparate internal businesses. It is taken as read, then, that CFOs must take a tight grip on the purse strings and ensure the strength of the internal audit function.

But being a great CFO is about more than management, accounting and key performance indicators. A great CFO needs to demonstrate a leadership style that creates a culture of openness and honesty, with transparent communication and where people are not scared of being the bearer of bad news. This is where the human skills of leadership play a key role.

This was highlighted at a recent awards ceremony I attended. Andrew Higginson of Tesco was awarded the title of the UK’s Top CFO for having helped Tesco deliver continued shareholder value growth – not simply for accurate financial reporting.

Not only was Higginson described as running a “fearsomely impressive finance department,” but was also praised for being “skilful in working with people – he is not the type to score points and antagonise people.”

In our increasingly regulated corporate climate, the role of the plc finance director is increasingly demanding in terms of compliance with various reporting and regulatory requirements (SOX, IFRS), many of which can materially impact on the reported results of the company and, therefore, its share price.

Take pensions as an example. The new rules on the inclusion of pension liability in the accounts can have a material impact on the reported performance of the company. Ensuring compliance with this legislation is taken as a given for CFOs. However, delivering a solution to mitigate the liability – hence removing it from the balance sheet takes a great CFO.

Take Bae, for example – through a series of initiatives involving employees worldwide, CFO George Rose managed to deliver a solution to this potentially significant issue that can impact the value of the company.

Managing stakeholder relationships and clear transparent communication are other critical elements of the CFO’s role. Managing equity shareholders and ensuring both strategy and performance is regularly communicated is central to the management and board and growth of the share value. The CFO will also enable the implementation of strategy by ensuring the availability of necessary debt funding. This in itself is increasingly critical in complicating the ever more prevalent bid activity from overseas businesses.

There are other CFOs who have led major restructuring projects or business turnarounds, and who therefore warrant similar accolade. For example, Adrian Hennah at Invensys has participated in the recovery of a business from potentially terminal decline by leading a critical refinancing project that helped save the business. The full impact in shareholder value creation is perhaps not yet evident, but his contribution in difficult circumstances was undoubtedly exceptional.

So, what experience and skills do these demigods need? Well, in short they need to have ‘been there, done that’. Generally they need to develop their softer skills of leadership, such as self-awareness, communication, relationship management and empathy.

Companies and shareholders, particularly the larger corporates, will seek CFOs that can demonstrate capability in financial control, performance management, strategy development and stakeholder management. The strongest candidates are groomed in blue chip businesses with high quality finance functions. They think strategically, relate well to others and actively communicate with all key stakeholders.

It is at this stage that Whitehead Mann starts to track them and monitor their performance. They may then cut their teeth as the CFO of a smaller public company where they can apply their experience, earning their stripes with investors to whom they become a known commodity. With the guidance of an executive coach they will be able to have the necessary impact in the early stages of the appointment, then be able to successfully transition into larger corporates, perhaps in the FTSE 100.

Coaching helps new directors to hit the ground running, which, given the average tenure for a CFO is 3.75 years, is important.

The common denominator in exceptional CFOs comes down to being strong business leaders, not just of the finance function, and having exceptional communication skills enabling them to influence both internally and externally. In order to build the necessary experience and leadership skills, high potentials need to manage their careers and development carefully to ensure they remain in the running.

SIDEBAR TEXT:

CXO speaks with Lindsay Johnston, Divisional Vice President, Finance, Oracle EMEA, and Thomas Kresser, Siemens SHC CFO, to get their thoughts on what makes a good CFO and what influences their roles.

FST. What attributes must a CFO have today in order to be innovative and make optimum use of the technology and tools available to them?
LJ. Integrity, leadership, excellence in communication and change management, aligned with a desire and commitment to implement strategic change to enable functional excellence as an integral support to sustainable business success.

Finance leaders need to demonstrate the vision to lead ongoing improvements in operational and cost-efficiencies, by adapting business processes, business controls, management reporting and decision support analysis, which uses technology to achieve functional excellence goals. To allow this, CFOs must be a key contributor to the company strategy, demonstrate a comprehensive business understanding of the short- and long-term objectives of the company and how the finance function contributes in this direction.

CFOs need to engage business leaders in determining key performance indicators and using enabling technology to deliver quality and accurate management information and financial control.

TK. Today’s CFO is involved in just about every aspect of the business and is seen to be the co-pilot to the CEO. Responsibilities today extend far beyond just the financial control of the company. Today’s CFO makes decisions regarding the maintenance and creation of the company’s technology infrastructure and its corporate policies and is responsible for creating, managing and adapting tools in line with ever changing laws, for example, the replacement of US General Accounting Principles (US-Gap).

The CFO needs to be the master of a complicated skill set with the ability to ensure sustainability, loyalty and problem solving. The CFO needs to know how to control the controllers while at the same time keeping the costs down.

A new challenge for the CFO is a complete assurance concept for the company including e.g. SOA processes.

FST. What are the biggest personal challenges you have faced as CFO to date and what achievements have resulted from this? What do you predict will be the most pressing issues in the coming years?
TK. My biggest challenge resulted from creation of Siemens Home and Office Communication Devices (SHC), which was carved out of the Siemens Communication group. As a result of the creation of SHC my authority extended overnight from treasurer to taxman to HR consultant and negotiator, not only were my responsibilities managing the numbers, but I instantly became a key decision-maker involved in different bargaining committees. For example, I was responsible for managing the negotiations with the IG-Metall, a local German union in agreeing the terms of our labour contract in Bocholt, where one of our factories is located.

The creation of SHC has meant increased flexibility and authority for me to manage.

LJ. CFOs, particularly in multinational organisations, operate in an environment of continual business and organisational change, ever-increasing regulatory compliance requirements, absorbing the impact of acquisitions and/or divestments, and ongoing globalisation of processes and activities involving different cultural sensitivities. In Oracle over the past five years we have encountered all of these challenges, and each has brought a personal challenge to be flexible and sensitive to each of these needs. In particular, I have tried to ensure that I lead both successful communication and implementation of change. The ability to influence strategic global functional direction is an ongoing and necessary challenge facing CFOs in geographic and business unit organisations to ensure the needs of both Internal and external customers are met. The ability to implement decisions to centralise and/or decentralise operations and processes is an ongoing challenge as the demands and complexity of business increase.

FST. What technologies have impacted, both positively and negatively, your job in recent years and what would make your job easier?
TK. Technology that has had a significant impact on my job includes the technology required to handle the adoption of new accounting standards. The IFRS adoption process has been as bigger technology challenge as that of Sarbanes-Oxley and the Y2K crisis. The technology needed in relation to creating these new accounting policies and procedures has been a challenge within a challenge.

LJ. In Oracle, we have successfully implemented for many years the full suite of our integrated enterprise resource planning solutions internally to provide the front- and back-office backbone to support our needs. Implementing our applications infrastructure on a single global database, or ‘single instance’, has allowed technology upgrades in applications and database functionality to be made quickly and efficiently, at low cost, worldwide. This technology advantage, aligned with the pre-requisite of establishing and documenting global standard processes for all key operating cycles via shared service centres in Dublin, Bangalore and the US, has enabled Oracle to operate successfully globally, facilitate Sarbanes-Oxley 404 compliance and efficiently absorb acquired businesses. We have globalised all management reporting, budgeting and forecasting in our Bangalore Global Finance Information Centre. We still have some room for progress in using the full capability of our business intelligence tools in developing real-time access to decision reporting and portal access to management information across all our business entities.

The ability of our finance organisation to demonstrate added value and support to our business units will be the key contributor as to how we measure the success of our global initiatives, in addition to the cost and efficiency improvements of our traditional processes.

What do you predict will be the most pressing issues in the coming years?
TK. I think the biggest issues will be:

• What happens following globalisation?
• The impact adopting the International Financial Reporting Standards (IFRS) will have on business.
• Will the euro be the future global currency?
• Dealing with the consequences high interest rates can have on Europe