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22 January 2011

What makes an outstanding Finance Director?

Tag(s): Boards, Leadership & Management

  I recently contributed to a survey focused on the question “What makes an outstanding Finance Director”. The survey was conducted by the Directorbank Group with the support of Grant Thornton and was published towards the end of last year.  At a time of deep recession the Finance Director often comes to the fore as costs need to be cut, bank finance needs to be renegotiated , balance sheets need to be optimised and thus the often unsung hero comes more into the foreground.  However what stands out in this survey in the words of John Pearce, Executive Director of the Directorbank Group , is that “Today’s outstanding FD emerges as  right hand man to the CEO and a much more  rounded , commercial businessman than his counterpart of ten or twenty years ago.”

It was about twenty years ago or so, soon after I had joined Sony to run its Consumer Products business in the UK, that the Department of Trade and Industry invited Akio Morita, co-founder of Sony, to deliver its inaugural Innovation Lecture at the Royal Society. To an audience festooned with Nobel Prize winners he began by saying that it was a pleasure and a privilege to be with them. He loved Britain. This was the country of Newton and Faraday. He had had his sons educated here. There was just one thing he did not understand; why was it that we let our accountants run our public companies? The audience roared and Morita–san had them in the palm of his hand as he went on with his lecture. 

For some years after that I thought much the same and noted that there were many more accountants in the UK than in Germany but it was Germany that usually led the way in economic and business matters. But this survey is about the outstanding FD and as Scott Barnes, Chie Executive of Grant Thornton says, “Over the past two years the global economy has experienced one of the most turbulent periods of modern times, challenging the existence of many businesses and their management teams. The role of the FD has never been more important and, as businesses have fought for survival, FDs’ relationships with their CEOs have been put to the test. Unsurprisingly the key theme of this report is the need for commerciality and forward thinking from FDs. The outstanding FDSs are recognised for their excellent commercial, communication and people skills and because they are able to use them to best effect with their CEOs, customers and advisers. Understanding the numbers is no longer enough to make  a top flight FD; being able  to stress test their resilience to the business strategy and influence its development are just as important.”

So what does make an outstanding FD? First he is a great communicator who can win the trust of colleagues across the business and act as a partner to the CEO. He is very often a CEO-in-waiting. He really understands what drives wealth creation, where the money is made and he is planning ahead more than he is looking back. Of course, some things never change and all are agreed that FDs need technical ability, resilience, honesty, integrity, qualifications and years of toil before they can reach the top. But these are entry qualifications and to be outstanding respondents placed more emphasis on strategic awareness, commerciality, communication skills and leadership.

The need for commercials skills was persistently mentioned. So how do aspiring FDs acquire such skills? They learn them early on in their careers by grasping opportunities, taking on projects and often assignments overseas. They need an enquiring mind, a willingness to take risks and a proactive approach in seeking out the necessary experiences, preferably within the business. In fact such behaviours are not confined to aspiring FDs but apply to anyone who aspires to reach the board room. The key point here is that they also include FDs who can no longer hide behind their accounting skills but must show sensitivity for all the levers in the business, soft as well as hard. Steve Marshall, now Chair of Balfour Beatty and rated by others as an outstanding FD during his time at Thorn and Railtrack, puts it well. “The two most compelling attributes are nothing to do with numbers- they are an absolute fascination with the wealth creation process and an extremely high emotional intelligence.” A common denominator will be that they have pushed themselves outside their comfort zones, again advice I frequently offer to executives chasing after the top management roles.

Perhaps in such surveys we are too free with words like outstanding. In one business I worked in the assessment “Outstanding” was rarely used in appraisal and was numerically likely to only apply to 2% of the population. It was therefore with rare pride that I received such an appraisal on one occasion and took it as a signal that I should be looking for further movement up the ladder. However, it is clear what makes an ineffective FD. Four out of five directors sampled had worked with an ineffective FD. The most obvious signs were inaccurate, incomplete or late reports. Warning signs will be the loss of confidence in the finance team in their leader or different patterns of behaviour which should ring the alarm bells. About half the directors blamed a faulty recruitment process- including inadequate job specifications, lack of character assessment or references or all too often ignoring the references and backing gut instincts.

Outstanding FDs had usually qualified conventionally in a professional firm and some had added an MBA to widen their business perspective. Most, however, moved into industry early on in their careers and then looked for the opportunity to gain hard commercial experience. Many of the best had faced particularly tough challenges which at the time were the stuff of nightmares, but later on were seen as invaluable lessons. International experience was particularly worthwhile. Sir Richard Lapthorne CBE, Chair of Cable and Wireless Communications plc, who was FD at Courtaulds and British Aerospace, had early experience in Unilever. “I managed to change every Unilever subsidiary I worked for by a bit, had them adapt to how I liked things to be done. So Unilever sent me to France. I couldn’t change France. They knew that and they taught me to adapt to France. The language was a practical skills challenge- it took me six hours to clear my mail every evening until I became fluent. It made me understand I needed to listen.”

The key relationship is with the CEO. One outstanding FD commented that many FDs- if not all of them- think they can do the CEO’s job “because they are already doing 80% of it and from there it is easy for an FD to think they can do the rest of it.  But to me, the 20% you are not doing is the bit most CFOs find difficult and that’s the motivational leadership of the business”. Many FDs are ambitious to take the top jobs of either CEO or Chair. A third of the directors surveyed had seen an FD become a good chair while nearly half had seen FDs become good CEOs. This is slightly contrary to previous work that suggests that FDs may be better suited to the role of chairs than CEOs. This is attributed to the idea that a CEO has to run the company at all times and may find it difficult to hold himself back from this in the role of chair when his job is primarily running the Board while giving constructive support to the CEO. (See my blog 11/9/10 The Role of the Chairman)

The final question is what advice did the outstanding FDs have for their peers in the current economic climate. Most comments were made on the basis that the necessary cost cutting within the business had already taken place. All said that any banking requirements that had not been sorted out properly yet should be addressed immediately to make sure the business is adequately funded. With this in place the FDs placed more importance on making business improvements and investing for growth. Several mentioned the opportunities in emerging markets. This is encouraging because there was a time when I think the default position of such FDs would have been to batten down the hatches in a recession while I have always believed it is one of the best times to invest for growth, possibly at the expense of your more timid competitors.

Copyright David C Pearson 2011 All rights reserved




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