THE SUCCESS of businesses coming out of recession is almost entirely attributable to the management and leadership of the individuals at the top. The rules of doing business in a post-recession world have fundamentally changed and all managers – financial directors in particular – need to think differently about they work.
Financial directors have had to become much more familiar with tight budgets, restructuring and an increased level of financial scrutiny than they were three years ago. Taking this into account, what lessons can be learnt and what are the key things that you should know about operating in a post recession world?
There are three key areas that I see those working in the finance function struggling with the most; a lack of planning for unexpected threats, the need to protect against risk whilst encouraging innovation and creativity, and increasing public scrutiny which demands a new higher level of transparency and accountability.
Taking steps to address these issues, you can go a long way to future proofing your organisation. Earlier this year, millions of Sony PlayStation accounts were hacked into, leading to the entire PlayStation network being taken off line. It is too early to determine the effect on Sony’s bottom line but there is no doubt that a large proportion of Sony’s 70 million account holders have lost trust in the safety of the organisation.
Cyber security threats are on the rise with 62% of businesses reporting them as major concerns. Last year businesses were rocked by unforeseen events like the volcanic ash crisis and the effect of Japan’s tsunami is still being felt, yet only 49% of private sector organisations have any kind of plan in place to prepare for disruptions to their day-to-day running.
Planning for unexpected business disruptions can be as simple as identifying alternative suppliers, ensuring that all systems are backed up and that IT security is regularly tested and up to date. A prepared media response is also essential as 61% of managers believe that reputation damage is now a more significant threat to their business than financial loss.
Somehow we have got into a mindset where risk management is about compliance and about spotting and fixing problems. Managers haven’t fully woken up to the fact that, applied effectively, a comprehensive risk strategy is a key business tool that can actually help organisations improve performance and identify and exploit new opportunities.
It can sometimes be hard to find an appropriate balance between capitalising on the opportunities taking risks provides and becoming too risk averse, which tends to stifle creativity and innovation. There is no doubt that managers have become more risk adverse since the recession. The days of an embedded risk-happy culture, as typified by the Royal Bank of Scotland pre-recession, have gone.
Businesses feel they simply can’t afford to get it wrong. Despite the numerous scare stories from the past years, finance directors should not be held back by fear – a certain amount of calculated risk is essential to innovating and branching out into new markets.
Think about your stakeholders when formulating strategies and making decisions. What appetite do they have for risk? How will you explain the rationale behind your decisions to them? The phenomenon of Wikileaks and the publication of all MPs expenses following the parliamentary scandal have helped to usher in this new era where shareholders and customers are demanding and expecting more information and access than ever.
It is therefore essential to ensure that funds are spent and invested in line with the company’s values and ethics. BP, for example, claims to be progressive, responsible, innovative and performance driven, although many would argue that the second of these didn’t seem to be much in evidence during the Deepwater Horizon disaster.
The company values should form the basis of all business decisions and two key areas of this where FDs can make a big impact are remuneration and equality. Staff bonuses, where they can be given, need to be justifiable and there should be nothing that you would not be prepared to share the details of if need be. Again, think about those groups that have a stake in your business and its operations. What are their attitudes to rewards?
There’s no doubt that organisations that successfully exploit the diverse talents of their workforce are always going to be ahead of the game and better placed to capture new markets and compete on a global stage. Currently women make up 46% of the UK’s workforce, but only 5.5% of FTSE 100 executive directors were women. Working with the HR function, FDs need to think smartly about salary offers, promotions and accommodating the flexible working desires of their managers.
Women are still paid less than their male counterparts in most sectors and you risk losing talented female employees if measures are not put in place to reward male and female staff equally. Businesses are currently facing an unprecedented period of change. To thrive in this new world, financial directors need to work on risk strategies and have contingency plans in place. However, business cannot survive without risk although any bold steps taken must be aligned to overall company values and ethics. By taking these vital steps your actions and choices will be both accountable, transparent and ultimately successful.
Ruth Spellman, OBE, is chief executive of the Chartered Management Institute. Her first book ‘Managers and Leaders Who Can: How You Survive and Succeed in the New Economy’, is out now published by Wiley. Follow Ruth on Twitter at @cmi_ceo
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