HOPEFULLY Christmas will bring a serious rest for the weary finance director - not just a break, but a proper switch-off from the maelstrom that has been business and economics this year. The eurozone crisis, urban riots, austerity measures, rising unemployment, elusive bank funding, Arab spring and civil war in Libya, earthquake in Japan and lack of certainty have all helped make this one of the most fraught years since 2007, when our financial woes began. Here is what Financial Director reported were the issues that kept us awake throughout the year.
We asked a group of finance directors to give us their thoughts on how to survive 2011. Neil McConachie, FD at Lancashire Holdings, said: “Don’t bet the farm in any one direction. Be cautious on strategy and be prepared to sacrifice a little bit of return on equity to reduce the risk of making a decision that turns out to be a bad call on the economy.”
He added: “It will be confusion over the health of the economy. I expect different messages to come through, with good news one week and bad news the next. The danger is overreacting in any one direction when the news hits.”
David Tilston, then FD at Mouchel, told us worryingly: “My perception is there are not many people in senior positions that have experience navigating through such an extremely tough downturn… The skills required to navigate a market such as this are not as widespread [as the 1990s].”
Energy companies came under pressure in 2011 for their prices, and even politicians waded into the argument. In February, the FD turned MD of British Gas, Phil Bentley, featured in Financial Director with these words: “We have a relationship with one in every second house - you have to understand it, not fight it. We should be celebrated as a national treasure, but we aren’t, so we have to do our best to explain.”
2011 saw some solid examples of finance taking a lead role in developing business models. Andrew Griffith, CFO at BSkyB, outlined how finance pushed for high-definition programming at the broadcaster: “Finance was at the heart of the strategy of pushing for HD. That has contributed to the 15% top-line growth we have seen.”
Julie Southern, chief commercial officer at Virgin Atlantic, concurred. In May she told Financial Director that her work was about “facilitating the right conversations, setting clear objectives and encouraging people to stray outside their areas for a better customer outcome”.
As reforms to the health service hit the headlines in July, our interview with Bupa FD Tom Singer revealed private sector interest in the government’s plans. He said: “The government is trying to transform the way in which healthcare is managed while trying to achieve efficiency savings. There is going to be scope for private sector players to support it in achieving that goal.”
But FDs were to face greater strains. August saw the riots in England and the destruction of the House of Reeves, the Croydon furniture store, in a fire. FD Trevor Reeves spoke about the experience.
“We can see the value of good marketing,” he said. “It’s not something that goes well with FDs. We’re not known for our artistic talents, but do not underestimate [what] you can gain from it. Without that we would have really lost our business.”
Out columnists have tackled some of the biggest topics in working relationships, regulation and accounting. January saw Robert Bruce laud the House of Lords economic affairs committee for its work investigating audit. The Lords report has since become one of the single most controversial documents in recent times for auditors. In January, Bruce was hailing former chancellor Lord Lawson for his questioning of Financial Reporting Council chief Stephen Haddrill during a session of the committee. He recalled an exchange in which Lord Lawson asked who the auditors of Northern Rock were. Haddrill replied that he could not recall. Bruce’s comment: “Keeping regulators on their toes should be the first law of corporate governance.”
Columnists like to take on big targets. In September our new IT columnist, Peter Cochrane, challenged traditional security measures and extolled the virtues of cloud computing. “In the cloud, security is no longer a static activity of limited richness. Every cloud is different and continually changing. This means companies no longer look big, dumb and static.”
In May, our economics expert, Dennis Turner, warned the chancellor after his 2011 Budget, saying: “The chancellor’s agenda will create a supportive environment for business, but he will miss his targets and be unable to implement his policies unless business is spending.” Later in the year the eurozone dominated economic debate. Turner observed in November that efforts so far had been inadequate and there had been little “unity of purpose”. He warned: “When the euro was discussed in the 1990s it was called EMU, which many thought meant European Monetary Union. It actually stood for Economic and Monetary Union and the issues avoided at the time now have to be addressed - with interest.”
Discomfort was something our new columnist, The Secret FD, felt keenly. When commenting on all the stakeholders that now make demands on the average FD, he wrote: “Your job as CFO is not only to serve these communities but to run the business well. Make sure the chief executive is aware of these issues, but recognise it can be more trouble than it is worth to accept too much help from the CEO in dealing with all these other bosses. And remember, the chief executive is the one who will recommend your bonus.”
There has also been concern from The Secret FD for his staff, believing they should hone their public speaking skills. To demonstrate the pitfalls, the October column told the tale of a novice financial controller who was overly excited: “He acted like a demented trade unionist on speed, shouting loudly and ranting at the audience, waving madly, forgetting the microphone, repeating and contradicting himself. I thought he was taking the piss; he thought he had performed brilliantly.”
The economic difficulties faced by the UK and elsewhere have ramped up the pressure on non-executive directors to be the fool-proof guardians of company accounts. The development has placed them in a precarious position as the risks have become ever-more acute.
Our cover story in February quoted Sir Roger Carr, then incoming president of the CBI. “Certainly the responsibilities of the role have increased,” he said. “The sense of risk has increased. And because the responsibility and risks are greater, the sense of involvement and the importance of the contribution have increased immeasurably.”
The handling of the economy has largely been in the hands of the coalition government. The Budget prompted United Business Media FD Robert Gray to suggest the company would consider relocating to the UK from Ireland. So far it hasn’t.
Other key relationships in the news were that of FDs with their bankers. Our banking survey in June found that more than 10% of FDs were expecting to change their bankers within a year. But there is a difference between intention and execution. Charles Schell, a fellow at Manchester Business School, which undertook the survey for Financial Director, said: “Anecdotal evidence suggests fewer than 2% of companies change their main relationship bank in any given year.”
Elsewhere, lessons were seen in the crisis that engulfed the News of the World and News International, especially in terms of corporate governance. At issue was how internal audit should be on top of matters if the CEO is not. NED Eric Tracey said: “You would think the audit function would need to have contact with such a dominant person, but it only gets so much time with someone like Rupert Murdoch.”
Another loss, the resignation of Apple CEO Steve Jobs before his death later in the year, raised questions about the success of founder CEOs. Financial Director quoted Oliver Wyman partner Adrian Slywotzky: “Under Jobs’ leadership, Apple has done 10 times the amount of relevant homework of most companies - internal competitions, supply chain training, endless deal-making, recruiting and sustaining employee excitement that you just can’t fake.”
As we neared the end of the year, new markets became a hot topic as companies struggled to progress in the economic head winds. Coca-Cola’s CEO said China is now an easier place in which to do business than the US. Our writer, Dr Junie Tong, begged to differ: “It may be difficult to push Chinese staff to comply with achieving the high-quality standards demanded at home or internationally since Chinese employees are likely to take the approach of Zhong Yong: the doctrine of the mean.” ■
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