CFOs to the core: How unique is the CFO role at a company like Apple?

APPLE’S $1m (£670,000) chief financial officer, Luca Maestri, looks set to sit astride a $1trn (£670bn) business empire. That’s the view of analysts at investment bank Cantor Fitzgerald, as the world’s biggest company by market capitalisation prepares to unleash its latest offering on its adoring public.

The Wall Street bank predicted that the Californian design and technology house is on the cusp of becoming the world’s first company to power through the $1trn milestone, propelled by stratospheric sales expectations of its new timepiece – the Apple Watch – and equally epic growth trajectories in China.

Cantor analysts Brian White and Isabel Zhu said that Apple’s first new product category in five years should shift about 21 million units in the first year and that Apple could expect to seduce between 15-20% of mobile phone users in China, netting up to $178bn in sales.

The duo subsequently increased their price target for Apple shares by $20 to $180, valuing the company at $1.05trn, dramatically up on its current market value of $750bn. But Apple’s stock will have had to appreciate by nearly 38% to hit that valuation and that’s some going, even for Apple.

Investors will no doubt relish such a prospect coming good. Cantor also predicts that Apple will launch a television and/or new online streaming service, and if industry rumours that it is creating a car prove credible, such a move would generate more than $500bn in the US alone, say the analysts.

Aside from the potential for new milestones, just how different – or similar – is Maestri’s role to that of a CFO at a mid-cap outfit or even a $10m company?
Chris Kinsella is well placed to impart insight into both worlds. At the bigger end of the scale, he was CFO of TI Automotive – a $2bn-turnover company with 25,000 employees across 28 countries – as well as CFO at the £900m British Council which operates across 110 countries with 10,000 staff.

He also spent time at Dyson – a small-cap £90m-turnover manufacturer, where he was brought in as a trouble-shooting non-exec director and chairman of its audit committee.

He’s quick to point out that most CFOs will probably never be in the position where they are sitting astride a $150bn cash pile. Such a scenario, though, comes with tremendous responsibility, he posits.

“In Apple’s case, the kind of cash you’re talking about is so significant that it affects the wider economy. As an individual organisation, there is a clear responsibility to behave ethically, and to spend it wisely – and people will have an opinion on that,” he says. “We’re talking about an organisation that is sitting on cash reserves that are a significant proportion of the banking sector and has the ability therefore to significantly move the market – so the boot is well and truly on the other foot.”

Rock-star CFO

Alex Gersh, CFO of FTSE 250 internet bookmaker Betfair, says having such a cash pile, and being CFO of an iconic company like Apple, is unique.

“You’re almost a celebrity in everything you do – you’ll have highly vocal, large shareholders who are putting a huge demand on this money. It’s the most valuable company in the world and therefore you have the pressure of being a rock-star CFO in a company that is already a rock-star company, and everything that you do is played out very publicly. Everything you do is big news,” he says.

Gersh had a similar, albeit smaller issue – namely £300m in cash sitting on the balance sheet and a number of shareholders demanding a special dividend. The key, he stresses, is “always the same – it is about having a good relationship with your investors. And the key to that is to be trusted.”

And how you do that?

“By doing what you say you will do,” explains Gersh. “We said we’d take time and take a look at what the company’s investment needs were and after that we’d make a determination as to what we’d do. A number of months after that, we returned £200m as a special dividend. Since I joined (in November 2012), our share price is up almost 300%. I think that’s because we have built trust with investors – we said what we were going to do and we did it. There’s no game playing.

“People expect the truth and when they invest money in a company, they demand the truth. And they are entitled to the truth and are to be communicated with by management in a clear and concise way.

“We’re in the FTSE 250 – so obviously we’re not Apple, but it is about trust. As long as you lay out your plan and update the investor community on how you’re performing, it doesn’t matter whether you have 500 people in the room listening to your conference call or 50,000 people – or, if you’re an AIM company, three people. It really doesn’t matter.”

The essential skill for any CFO, irrespective of business size, believes Gersh, is to understand his business and “through the numbers understand the direction it’s going, in addition to understanding where the pitfalls are, and then effectively allocate resources in the right areas and track whether that investment is ultimately paying off”.

Another synergistic trait for CFOs – no matter what the scale of their organisation – is ensuring the excellence of the people they have working for them.

Mark FitzPatrick, Deloitte’s vice chairman and leader of its CFO programme, says the most common element is the need to have great teams and great people they can work with. If they do not, “they’ll spend all their time on the minutiae of numbers and the finance function and not really play an active role in terms of strategy and shaping business”.

And while large companies may have a more generous cheque book to entice people in and perhaps, in the very biggest global finance giants, some 8-9,000 people involved in the finance function, small-cap CFOs may have to roll up their sleeves and do it themselves if it involves something new and innovative, he says.

Cheque book seduction

Perhaps unsurprisingly, the size of the cheque book rears its ugly, but utterly seductive head once again when it comes to finding a successor. For very large companies, it should be easy, but if someone’s not been on a big plc or inc. board before, it’s a big step up, explains the Big Four man.

He cites the big global oil companies, which – when changing their CFOs – more often than not have deputies in place, who have been given a lot of executive exposure to ease them into taking up the fiscal crown. And while the succession gap may be less marked with smaller companies, they may not have the financial clout and scale to have a successor waiting in the wings while the CFO remains in his or her job.
Effective communication is critical for all CFOs, but for those at the helm of the biggest companies, simplicity and repetition is the mantra du jour.

FitzPatrick says such CFOs need to keep it simple and repeat the same message “hundreds and sometime thousands of times because it’s got to work its way all the way down to the accounts payable clerk in Adelaide or Johannesburg or São Paulo. That’s very different from getting ten to 15 finance people around a table and having a chat with them in a smaller organisation.

“So the speed of communication, the ability and the agility can be greater than in a bigger one, but a larger company needs to be more constant in its comms or it very quickly can cause complete confusion and chaos.”

FitzPatrick also points to the “massive governance overheads” in terms of board time taken up with committees and subsidiary audit committees that afflict the bigger company CFOs.

He’s often heard such CFOs say their role is at risk of being overtaken by governance issues. And many of them only have ten days to make an impact on the business in any given quarter – the rest disappears into the black hole of investor presentations, speaking to bankers, their own teams and board committees.

Inverse pyramid of authority

Such a scenario – the inverse pyramid of authority – was enough to motivate Financial Director’s very own Secret FD columnist to pen an angst-driven piece on the time pressures that can make a finance exec’s head metaphorically explode.

Meanwhile, Paul Dennis, a senior director at CEB, says that is just one of the reasons why large company CFOs actually act as mini CEOs and why possessing an ability to intelligently delegate is “a high-quality trait that enables those around them to make better financial decisions, enabling through influence, rather than authority”.

Not only will the need to assign decisions to trusted lieutenants be key, but financially savvy businesses will need future-gazing skills “to be thinking ten years ahead as their needs will be different from today”, underscoring the need for “someone with the vision to arrange it before it is needed, so it is ready when it is”.

The final few words on what it takes to be a good CFO, no matter what your market capitalisation, go to Betfair’s Gersh. “You just have to be a little bit paranoid. Have a look at what could possibly go wrong and protect the company’s position from that,” he says.

“No one ever cut themselves to prosperity. While being efficient is important, it’s really only through growth and significant investment that companies ever become like the likes of Apple.

“If Apple didn’t invest in the iPad or the iPhone, we wouldn’t be talking about them today. They make huge investments. If you want growth, you must make investments, and as CFO you have your part to play in where those investments are made. And then track them to make sure they’re happening – and if they’re not, reacting to make sure they do.” ?