Role of the FD: Banks need finance direction

Bankers, so legend goes, have a traditional antipathy towards accountants. And part of the Johnson Matthey mess must be attributed to the effect that this mood has had on bank-management methods. There is, as a result, a delicious strand of irony running through the Bank of England's current efforts to beef up financial controls in the nation's banking industry.

Those very institutions that have been so keen to see well-trained people at the helm of potential borrowers - armed with precisely worded business plans and the latest in management accounts - have seemingly neglected the lessons that they're determined to see learned by their customers.

As the Bank of England committee said in its report last June on the system of banking supervision: "Banks have been relatively slow to follow the example of commercial companies and appoint finance directors to their boards." While the committee went on to say that this was understandable - "in the sense that all the executive directors are 'financial'" - it went on to spell out, in its own brand of no uncertain terms, that it expected the situation to change. "We believe ... that there is an important role to be played by a finance director who, apart from the managing director and the chairman, will be best placed to take an overall view of the business. It is not an easy role, as the finance director must be prepared to question and challenge the decisions of his colleagues, but it can be a most important one. JMB had neither a finance director nor an audit committee."

In terms of having professionally-qualified financial managers, the Old Lady herself has not exactly been a shining example. The same report notes that its supervision department has only two qualified accountants working within it and recommends "some increase" in that number.

To date, only two major banks in Britain have appointed outsiders to perform the task of finance director. And only one of those made the appointment at board level. Michael Julien, group finance director at Midland Bank, has impressed the City with an open and scientific approach to financial management. He is a veteran of chartered accountants Arthur Andersen and was previously finance director of BICC, where he displayed exactly the questioning and challenging qualities now sought by the Bank of England for Britain's lending institutions.

BoE follows Midland

Part of the central bank's new-found keenness for finance directors is thought to emanate from Julien's performance at Midland. While he was not approached by the supervision committee, it did spent a lot of time at Midland, discussing its troubled Crocker Bank subsidiary in California. "They spent a fair amount of time with us, discussing how we controlled the business," he said. "I suppose that with hindsight they were trying to learn what we were doing. One of the things they had never understood was how we were organised. We explained our structure and showed them how we had built up controls and information systems."

Despite his professional background, Julien does not believe that chartered accountancy is the essential training for a bank finance director, although clearly that profession is going to be one of the recruiters' main hunting grounds. "There is too much emphasis on the accountancy qualification," he said. "The tradition in US banking is that there has always been a chief financial officer. But this person could easily be a banker." The fundamental quality of a finance director as a sort of business interpreter to all of the different departments in an organisation makes bankers look less likely as candidates in the smaller houses.

Ian Martin, a bank auditor with Arthur Andersen, observed that most senior bankers in this sector are lenders first and foremost, while banking as an industry has grown into something more. Products like foreign-exchange dealing are vying for attention with the more traditional business. And management s tructure has not always kept pace. The outsider's advantage, as Julien sees it, is that he's not "locked in". A similar point of view is put by Julien's opposite number at the Royal Bank of Scotland, David Coulter. "A banker, if he's been with a bank all of his life, has never seen the outside world. There's a huge gap there."

Coulter, who as chief financial controller at the Royal does not sit on the board, knows that the skills he has acquired over his career could equip him for a financial-management job in any commercial or industrial organisation. A previous employee of BL, Nestle and Time Incorporated, Coulter has developed that "second sense" for financial ratios that bankers do not always seem to possess. "You could get a financial person in a bank producing a balance sheet that could be off by £50m on both sides and he won't realise it," he said. " You've got to have that ability to sense that on a certain level of assets you've got to expect a certain level of interest." Bankers, needless to say, don't entirely agree.

FD or general manager?

Charles Green, who is general manager for finance at National Westminster, has been with the bank, or one of the smaller institutions that created it in the mega-merger of 1970, since he was 16. His career has seen junior branch-work, export finance, long-range planning, corporate strategy and line management as manager of NatWest's Lombard Street office.

He was also managing director of Centrefile, NatWest's data-processing subsidiary, and general manager for business development before his present job. Breadth of experience is the "great thing about big banks", Green said. While acknowledging that there is a case for specifically trained financial managers doing the job, he added: "It depends on how you manage it. I am in the very genuine sense a general manager, with lots of chartered accountants supporting me." Green sees no culture clash between financiers and financial managers. " The role of the general manager, finance, in our bank is to act as critic and analyst of what the other general managers do," he said.

And he added that a banker's intuition in "thinking instinctively in terms of exposures that banks have to expect" gives him an advantage over the outsider. "An outsider would have to learn that," he said. So what exactly do these bank finance directors do? In Julien's case, one of his first tasks at Midland was the establishment of an internal audit function: "the custodian of the corporate conscience", as he put it. "When we sat down to consider the internal audit function at Midland, we found that people didn't know who was responsible for it," he said.