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FTSE 100 FDs riding out the storm

NEARLY HALF of finance directors working in the FTSE 100 were appointed pre-recession and show no signs of letting go of the reins.

But are they worth their weight in gold with their ability to steer through the tough times, or should they give way to new talent?

In a Financial Director survey of FTSE 100 finance directors, it found that 43 had joined pre-recession in 2007 or earlier. However, according to a summary of pre- recession FDs, it seems that share price was largely unaffected by whether the FD was appointed pre- or post-recession.

Of the 43 FDs appointed in 2007 or earlier, the majority (60.32%) saw a decline in their company’s share price in the past 12 months. Meanwhile, FDs appointed post- recession fared no better as 60.52% also experienced a decline in the same period.

However, there was a also healthy mix of pre-recession FDs from various companies and industries that produced an increase in share price. These included two energy companies, SSE and International Power, water business Severn Trent, Next, Imperial Tobacco, WPP and financial services company Aberdeen Asset Management, to name a few.

The industry with the most finance directors appointed pre-recession was mining (Rio Tinto, Xtrata, Anglo American, Glencore, Rangold, and Kazakhmys), with the majority having an accountancy qualification – except Rio Tinto and Anglo American. However, all but one of these six FDs saw a double-digit decline in share price in the past 12 months, though Rangold had a 4.61% increase.

Some 33 of the FDs in the top 100 have been promoted to their position. The majority of promotions took place before 2007, and saw 21 of the 33 FDs promoted, including those of Next, Capita, Sage, G4S, Vodafone, Pearson, GlaxoSmithKline and Carnival. Of those promotions, 33% saw a share price increase in the past 12 months.

Imperial Tobacco’s Robert Dyrbus is the longest-serving FD in the FTSE 100. He joined Hanson – which later became Imperial Tobacco – in 1989, taking the CFO role in 1996. He stayed and in the past year the company has increased its share price by 12.56%. In 2006, it was also estimated that under Drybus’ tenure the company delivered 750% in shareholder returns since it floated on the FTSE ALL Share.

Second to Dyrbus is Next’s David Keens, who joined the company in 1986, stepping into the FD role in 1991. In the past 52 weeks, the share price has increased a double-digit busting 31.1% (at the time of going to press), according to London Stock Exchange information.

Long-term value
Advertising and marketing services company WPP’s Paul Richardson also climbed the ranks, having joined the business in 1979, although there is little information about his roles at the company before his FD appointment.

He believes that finance directors will often find themselves in an industry, enjoy the job and be reluctant to leave.

There is also a benefit to having experts who have climbed through the ranks, and have worked through previous recessions, to offer their service.

“There is value in longevity in an industry, because you’ve seen it all before. Also, loyalty does work and is rewarded,” says Richardson.

He explains the value comes when the FD has already steered a business through one recession to come out the other side. However, this recession is a tornado, engulfing all industries and countries around the world.

“The other recent recession was the dot.com in 2000 – that market just blew up,” he explains.

“But the business [WPP] did OK although the dot.com industry vanished. However, this recent recession is a total all- encompassing hit. It has and will challenge companies in ways they have never been challenged before.”

Richardson also points out it could take incoming FDs time to get up to speed – although they may be entirely competent and very qualified – if they are new to an industry or a company that works very differently to what they are used to.

FTSE 100 companies, or any large business, have complex local and international business models, and regulatory regimes to which to adhere. Can the company afford to recruit a new finance director in a financial crisis and allow time to get a firm footing?

Either way, it seems that, for many of the FDs who were hired in pre-recession times, the companies are happy with the way they are running the show. For many chief executives, this is not their first recession and they understand the struggles FDs are facing. In fact, according to research conducted by financial recruiters Robert Half, more than half the FTSE 100 CEOs have come from a financial background, with this figure increasing from 31 in 2008 to 52 in 2012. As FDs and CEOs work closer together in hard times, the pair could be thinking that, if the relationship is not broke, don’t fix it.

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