You can come out of your bunker now. The ICAEW says so. FDs who have been weighed down by the corporate governance agenda for the past couple of years are now being encouraged to get back to their value-creation role. A new report from the institute’s faculty of finance and management urges FDs to be “more commercial and business-aware, and not just perform a prudential role”.
Such advice is hardly new. The beancounters versus value-creators’ debate has been raging in a very one-sided fashion for more years than we can count. But, according to ICAEW chief executive and one-time serial FD Eric Anstee the timing of this report is particularly appropriate.
“Boards have been spending a lot of their time over the past 18 months dealing with scandals and looking at the regulatory agenda, which the FD tends to lead,” Anstee says. “That’s all very well but companies have to turn back and look at where they’re adding value and creating value.
By issuing this report now we’re hoping to remind people of the wider role the FD plays in boardrooms.”
The report contains a survey of faculty members’ views on subjects such as the role of finance, desirable qualities and skills for FDs and outsourcing, as well as a number of articles and interviews with present or former FDs such as Jim Pettigrew (ICAP), Michael Queen (3i), Christopher Pearce (Rentokil Initial) and John Coombe (GlaxoSmithKline). Also part of the mix is a number of contributions from leading consultancies.
There probably aren’t many actual surprises, though, as Anstee admits. “We would like to remind boardrooms that they need to get back to the core agenda of developing value. I think the responses we received from the questionnaire were very positive in terms of what we were expecting to see about this wider role. I think this role of strategic partner, the increased emphasis on strategy and on business development certainly comes through.”
In response to a question regarding the most desirable attributes for finance personnel, integrity tops the list; business acumen comes second.
“Boardrooms look to the finance director to lead on both integrity and risk, and to ensure you can rely on the accounting functions and the financial reporting of our industry,” Anstee explains. “I think that’s an area where the UK has a global lead and we shouldn’t forget that. One of the fundamental principles of our membership is integrity and ethics.”
The survey suggests that, as an essential characteristic, business acumen is actually quite a distant second to integrity. “What that’s saying is that business acumen is not necessarily something they’re going to be leading on all the time,” explains Anstee. “But they are absolutely going to be leading on integrity, risks, probity of financial reporting and so on.”
One surprise, however, was that interpersonal and communication skills were ranked more highly than traditional accountancy skills. Just a few years ago, this almost certainly would have been the other way round.
“Part of the role of finance personnel is to interpret, to help and guide,” says Anstee. “What’s the use of the figures if you’re not using them for decision-making? Therefore, it’s important the figures tell you something and you’ve got to communicate that.” He adds that specialist skills and knowledge such as international accounting standards, taxation and law can be bought in.
So what’s the biggest challenge for FDs trying to reassert their value-creation credentials? “They can’t move far away from the need for integrity, probity and making sure that accounts are reliable, because recent scandals have shown what can happen when the integrity of the financial reporting breaks down,” says Anstee. “But I think business acumen and being able to use financial information strategically is critical to adding value.
“I think the biggest challenge is balancing the time between the regulatory needs and helping the boardroom add value. Finding the right balance is the immediate challenge.”
Extracts from the ICAEW report, ‘The Future of Finance’
“I don’t think shareholders who invest in companies want to reduce the commercial risk they are taking. They do, though, want to understand the nature of the risk they are taking.” Michael Queen, 3i
“Accounting standards and reporting obligations are now so complex they become a time-consuming distraction. The accountant is freed from doing the calculations but he spends a lot of time ensuring that these new rules are complied with properly.” Jim Pettigrew, ICAP
“You have to be a good communicator to do this job. You have to deal with analysts and the press, as well as quarterly reporting to the City.
Getting the message over to government is also very important as there is always the possibility of legislation in a highly regulated area like pharmaceuticals.” John Coombe, GlaxoSmithKline
“A poorly performing finance function means an underperforming business.” PricewaterhouseCoopers.