IT’S TOUGH being a finance director. When things are going well, FDs’ contributions are often understated; when things are going badly, their contributions are often overstated. There was a story doing the rounds in a business where I worked for many years. The firm was out of favour with the market and the CEO was talking to his FD about this issue. The short but to-the-point conversation apparently went along these lines:
CEO: “The shareholders aren’t happy, the market is smelling blood and one of us is going to have to go. And it isn’t going to be me.”
And therein lies the fate of many a finance director.
Corporate failure is often attributed to factors under the control of a finance director – for example cost management, internal controls, information flow and stakeholder relations. However, when all these things are done very well, they are rarely cited as contributing to corporate success. It’s far more likely that corporate success is put down to the CEO’s vision and leadership, the innovative qualities of the company’s product (whatever it might be) or ‘our people’, who always get a mention in the chairman or CEO’s statement in the Annual Report, albeit usually at the end.
Perhaps the finance director’s role is just taken too much for granted – like a lot of things in everyday life, most don’t give a second thought to the FD function until it stops working. But in fact, the partnership between CEOs and their finance directors is a critical one and has to be managed well by both parties. On the part of FDs. this is because CEOs will want to have the utmost trust in their ability to sound the alert if things go off course and to have initiated remedial action already; and on the part of CEOs, it is because, if nothing else, they could be working with the person who is looking to succeed them. Often, the main reason for an FD’s unexpected or unplanned departure from a business is a loss of this trust leading to an irretrievable breakdown of the partnership.
I have worked, for example, with the CEO of a £250m turnover manufacturing business who was beginning to have doubts about the ability of his FD – after many years’ loyal and satisfactory service – to manage the finance function through a particularly challenging period. I prepared a typical job description to highlight what he was entitled to expect from an FD. His response was just four words: “He doesn’t do that”. And for the most part, the things the FD didn’t do were all about challenging the status quo, keeping people informed and making the sort of broad contribution that merited a place at the top table.
The navigator – bring in the interim
A business’s fundamental purpose – what it’s in the market to do – rarely changes. But whereas the destination for most businesses is pretty much fixed, at least in the medium term, the navigation course is something that can and indeed might have to change quite frequently. Arguably, it is primarily the CEO who sets the destination, but it is often the FD who is left to make sure that the business steers the safest course. This may present the FD with the task of having to influence changes of attitude and behaviour in board colleagues and external stakeholders, and also having to demand these things from the team.
When a business has to react quickly to threats (or indeed opportunities) that it did not plan for, a question that should be asked is whether sufficient capability exists within the business to respond. Or, to continue the maritime analogy, is it time to bring some pilots on board who can lead or support part of the change process that is going to be necessary?
Interim managers are much more agents of change than they are absence fillers, which may have been how they were originally perceived. One of their key selling points is that they are ‘bigger’ than the task they are hired to take on, which enables them to help management teams deal quickly and effectively with the unplanned, the unexpected and the unwelcome. Their independence and objectivity (which can also be described as ‘lack of baggage’), coupled with their strong delivery focus, enables them to get to the heart of an issue quickly. And what they deliver, they deliver through people in the business. Unlike a firm of management consultants, which brings a whole team with it to advise or to learn – but often no one with a brief to implement – an interim manager is either alone in the business, or one of a small number of hires who together take responsibility for delivering a change programme. The benefits to the business can be measured not just in terms of cost of delivery, but also by the immediate knowledge transfer that takes place to ensure that any crucial information gaps are closed before the interim team exits the business.
Between 2008 and 2010, finance interims were in demand to manage large-scale cost-down programmes. They had the experience that told them that too aggressive an approach could carry serious value destruction risks and leave businesses poorly placed for any upturn. From 2010 onwards, the flavour changed; a trend emerged of finance-led, re-engineering programmes that had demonstrable long-term benefits. Large-scale outsourcing and shared service centre programmes were but two examples where organisations adopted an interim-led approach to implement change. And as economic conditions gradually improve, there are some industry sectors once again facing the challenge of managing growth rather than decline. Businesses that are positioned best to benefit, for example, from the convergence across telecommunications and financial services, can be young organisations that will have to address rapid growth. They will need to ensure that they have a robust finance function fit for purpose for today and the future, delivering the right sort of operating model quickly and always recognising that there is a business to be run day-to-day at the same time.
John Bloor is director, financial services and finance practice, at Alium Partners