“WE always want to believe the good guys will win, but that’s not always the case.”
So says top CFO recruiter Çagla Bekbölet. But rather than referring to some spaghetti Western, instead she is talking about the vagaries of luck, politics and timing that affect how a finance chief is chosen from the two sets of directors that must become one, when two companies merge.
“Some of these decisions are out of your hands,” she adds.
Recent weeks have seen a spate of mega mergers in the pipeline, with gambling companies in particular taking a punt on new structures. Gala Coral CFO Paul Bowtell will serve in the top finance role when it merges with Ladbrokes, whereas its finance chief Ian Bull will leave. Betfair’s Alex Gersh is set to take the CFO job if its merger with Paddy Power goes through, with Cormac McCarthy missing out.
But is there a way to proactively improve your chances of picking up the top finance job? And if the circumstances or situation don’t suit, does that mean it’s all doom and gloom?
The starting point is most crucial – the deal itself – and that will play a heavy part in influencing how the cards are laid out.
Simon Laffin, the former CFO of Safeway during its FTSE 100 years, has seen most things boardroom-related in his career. According to him, the toughest, most negative situation you can find yourself in is a hostile takeover of your business. This creates the opportunity for the acquirer to ride roughshod over the incoming business’s talent.
Cagla Bekbölet, head of global financial officers’ practice at Egon Zehnder: “You have to find the balance in that top management team … a very politically charged environment.”
Scorched earth policy
For Laffin, this is his take on Morrisons’ takeover of Safeway in 2004. “I failed abysmally to stay in the top job – the only consolation was I didn’t really want to,” he says with typically dry humour.
Morrisons made a number of mistakes with this deal, in terms of both business and people strategy. The northern ‘pile ‘em high’ chain tried to run the same product mix with Safeway, which offered a more expensive and broader product set through its stores in the south.
And, as Laffin describes, a “scorched earth policy” was undertaken on talent, with very few top Safeway staff remaining in the business. Some 1,200 of 1,800 Hayes-based head office staff roles were reportedly culled.
“It was an intensive programme of de-Safeway-isation. A classic example of a failed merger that did all the things wrong. Firing everybody was one of the more stupid things to do in a merger,” Laffin remembers.
Laffin saw “such dominance” in the Morrisons approach that there was “no point trying” to remain in the business.
While instinct would tell you that the acquirer would be in a powerful position in terms of dominating the terms and conditions for the future of an enlarged business, best practice in assessing board and managerial talent would – should – mean choosing the best people for the job.
“You might compromise to provide balance later on, but you should always start with best person for the job. Frankly, if you can’t have a merger as a marriage of the best talents of the two businesses then I can’t see why you’d do it,” adds Laffin.
So, if we’re looking to place the best talent within the business, how does that process work … and is it followed?
The chief financial officer decision shouldn’t be an isolated one, says Bekbölet. It’s taken in consideration with the rest of the new top team. “Best practice would be an independent assessment of talent,” she explains. “This happens more often than you’d think … but not always.”
Politics can play a role. The chairman from one side, the CEO from the other. And in such a scenario the CFO is often chosen from the opposite company to the chief executive.
“There’s a temptation to make each side feel they’ve had an equal say,” Bekbölet explains. “You have to find the balance in that top management team, and that’s sometimes a very politically charged environment.”
Suzzane Wood, head of European financial officers’ practice at Russell Reynolds: “When choosing a chief financial officer, it’s not ‘personal'”
But, all things being equal, what would an independent assessor look for?
Technical skills are almost a given at this level. Instead, leadership expertise is most sought after. In other words, who can bring the two companies together in the most optimal way possible, and drive forward strategy in a synergised entity?
“A merger is a very sensitive period – most mergers fail, so how do you integrate and operationalise what you said you’d do when you put the business case forward for the merger?” asks Bekbölet.
Conversations about people decisions are had from the very start of merger discussions, according to Suzzane Wood, head of the European finance officers practice at Russell Reynolds.
And in big businesses, particularly listed ones, the directors are all likely to know each other anyway, whether it’s through sector-based gatherings or as part of competitor benchmarking.
“Boards commission assessments of top talent, which is where we get involved. It’s not just about putting people in jobs; we assess talent from board to senior leadership and help fill their gaps,” she explains.
“Boards have to reimagine the next ten years: What talent do they need to have? What are the disruptive influences on their business? Do they have skills and experiences in those areas? This happens way before [a deal is completed]; decisions on mergers and takeovers are made by closing gaps and skills.”
In a sense, this is the opposite of politics. One situation – to be kept anonymous – that has crossed Financial Director’s desk describes a merger between a US and European business, where the US CFO was not interested in staying on. The European CFO applied for the role, aware that this would involve hard work to convince the board of the skillset and capabilities for the job ahead. Ultimately, the CFO failed and an outsider was chosen – and neither of the incumbent finance chiefs had the top job.
Simon Laffin, former Safeway group finance director and current multiple chairman: “Make friends with the finance team in the other company”
Not personal, just business
With M&A activity picking up, as can be seen in the Big Four accounting firms’ recent financial performance, does that mean a brave new world full of crestfallen finance directors, weeping into copies of their CV?
Well, frankly, no. Despite Financial Director’s suspicion that in such situations the stiff upper lip would wobble, the most senior recruiters see a merger or acquisition process as a brilliant time for a finance director to shine, whether they end up with the remaining role or not.
However, while it’s difficult to be proactive in terms of forcefully steering yourself into the top job, your CV up to that point will influence the decision-making process.
“Someone not getting a job doesn’t mean they’re not good – there are simply two jobs going into one. When choosing a CFO, it’s not necessarily ‘personal’. If the business is being driven by digital, and one of the FDs has more experience then that helps us a great deal – it doesn’t mean the other person’s no good,” says Wood.
Board members should be focused on creating shareholder value. And in this context that means helping to bring the two companies together in the best way possible. And creating shareholder value will increase FDs’ value as well – whether they are chosen to stay or ‘miss out’ – a point strongly supported by both Wood and Egon Zehnder’s Bekbölet.
“Always assume your company could change shape, and your job as a business leader is to reimagine what could happen to create value, and not be frightened of that, even if a move of which you’re the architect makes your own role disappear – but it does create shareholder value. That will only look good,” Wood says.
“When you deal with big corporates, they’ve invested their equity in the company and will be seen as good leavers. The FD only gets disappointed if they feel someone not very good has got a job – and that reflects badly on them.”
Bekbölet comments: “It’s an opportunity for every finance director to learn and add to their skillset. Even if they don’t end up with the job, it’s a fantastic learning opportunity and a great thing to have on your CV. If handled the right way, you get to learn about different businesses and management styles – the event itself is a fantastic career-learning opportunity. But you have to go into it with that mindset – regardless of the outcome, you’re going to take what it gives and do your best.”
Dr Ruth Bender, reader in corporate financial strategy at Cranfield School of Management: “It’s nice to have a finance director that’s dealt with integration before – if you have that experience, you’re a shoo-in”
People are “getting much better” at career management, while those looking to hire an executive are more appreciative of the fact that losing out in a merger is not a blot on the copybook.
Wood, agreeing with Bekbölet, suggests that putting your all into making the merger happen will be a key part of this process.
It’s a good experience to have gone through a merger, an integration, a transaction or an IPO, Wood explains. It exposes the FD to external stakeholders who will also speak well of how the transaction was handled.
“We listen hard to everyone involved with the individuals,” says Wood. “How they behaved … did they leave the controller to the day-to-day work? Advisers might say, ‘The finance director wasn’t around for the heavy lifting; it seemed to be the number two.’ You can’t afford to leave the detail after a deal is struck. Someone who’s hands-off … it does say a lot about you.”
And what do finance directors do when you’ve effectively worked your way out of a company?
“They take a break if they can,” says Wood. “After a transaction, you’re tired, and the last thing many want to do is jump into a new role. They’re so focused on completing a deal and putting the company first – it means putting the career on the backburner. It wouldn’t look good to have put their company second.”
Laffin says that implementation is “everything” in a merger. “A strategically brilliant acquisition that’s badly implemented: the value runs out the door,” he says.
So what happens during the deal phase when it appears that the top CFO role is going to be yours? How does that affect your decision-making?
Laffin believes that it’s crucial to get close to the key players in the other business, particularly if it is being acquired. This is vital in making sure that the value doesn’t dissipate.
“Other people may hide things,” he explains. “Finance people are bred to look after shareholders; it’s in our DNA. That means not spending all your time fighting the other guy. I would attempt to make friends with the finance team in the other company. Absorb the information … where are the skeletons? Where’s the money? Your best hope of the truth is the finance team in the other business.” ?
In a big merger or acquisition, who would the investors like to see take up the CFO role? For Dr Ruth Bender, who reads corporate financial strategy at Cranfield School of Management, lines of communication are key in a deal as far as investors are concerned.
“Some [finance directors] are a bit mean with their information,” she comments wryly. “As an investor you’d have a preference for someone good at their job, and good at talking to investors, particularly if there’s disruption post-merger. You want to know you’ve got solid information and a line of communication.”
Other desirable traits, skillsets and experience include good cash management and, despite being a bane for many finance chiefs, a penchant for managing IT integration and streamlining the finance function and its accounting.
As covered in Financial Director in recent months, managing morale and culture are also vital – for all board members. “Culture is not just the province of FD, but the province of everybody. It’s sweetness and light at board level, but how the CFO manages morale in the company and gets everybody doing the same thing – it’s probably bigger than IT,” concludes Bender.
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