FDs are not oracles

LAST MONTH was exceptionally heavy for the Secret Finance Director, with many external issues with which to contend; both to consider their implications, and to discuss with the management
team and the board.

Aside from specific market issues, some examples include the $2bn (£1.3bn) surprise loss at JPMorgan; the flopped Facebook IPO [see page 26]; the latest Greek dramas; a 17% reduction in new debt issuance in Europe; economic contraction in France, Germany, Italy and Spain; further reduction in oil prices; and the Leveson inquiry with its implication for the Bribery Act.

My own management team and board have increasingly adopted the stance of expecting me – and I am an FD, not an oracle – to be the focus for interpreting, predicting and advising on these and a wide variety of other external issues, and to put them into context for our business. This must also be the case for countless other FDs whose roles have steadily evolved beyond financial control towards broad strategic expert, and executional leadership.

FDs face more pressure not only in the form of rapid changes in the external environment but also from management teams demanding broader, better and earlier support information. This pressure is exacerbated by the necessity to run lean organisations with fewer staff, but the temptation to improve the short term – by not doing the analysis of economics and markets – would put the longer-term business at risk.

A recent excellent article by Aubery Joachim, a CIMA past president, argues that finance professionals are changing from score keepers to value-adding business partners, and the FD role is to drive and influence organisational strategy for value and growth. FDs are also the keepers of the business model and must be proactive executors in addition to being strategists with excellent influencing skills.

In an international business with subsidiaries across the world, there are certain cultural differences which differentiate local FDs who rise enthusiastically to this evolving challenge from the others who perform less well. Local management teams also differ from each other in their demands and expectations of the local FDs. My stance is to encourage the maximum use of the FD’s talents and knowledge so as to add value to the business at all levels, and for all FDs to share openly their views on external strategic, economic, legal and market matters. In operational reviews, I demand thorough briefings on all such relevant external matters from the local FDs, and I find this to be both informative for me, and testing for the management teams.

My mantra for local FDs, and one I have always adopted myself, is that the FD is equally responsible with the rest of the management team for the performance of the business. To be effective, the FD must develop the role to include a focus on strategic business leadership, and supplement the CEO at every level.

In my view, the FD’s role in the team has evolved from that of the goalkeeper towards the strategic, all-seeing midfielder who influences the whole game across the entire pitch – constantly balancing, planning and executing. Possibly, the FD is evolving into the captain, while the CEO is the manager. To this day, the example of Bobby Moore’s success as England captain under Sir Alf Ramsey as manager illustrates the FD’s relationship with the CEO as key to the success of the whole team.

Thankfully, some evidence of the recognition of the evolving role of FDs is contained in a recent salary survey by Income Data Services which revealed that the average FD in the FTSE 100 enjoyed a 15% increase in annual cash earnings. Although footballers can earn much more than FDs, these are encouraging positive trends for all of us.

Last month, The Secret FD was a guest at the Chelsea Flower Show, and the Jubilee concert in the Mall. He also spoke at a conference in Berlin on a future topic for this column