AdSlot 1 (Leaderboard)

Don’t expect FDs to conform to stereotypes

Robert Bruce is a leading commentator on accountancy issuesFinance directors come in all shapes and sizes. They can be tall, or short. Overweight, or super-fit. They might wear pinstripe suits, or high heels – or both. They are generally sticklers for routine. Many like a broad-brush approach. They are, in short, not easy to categorise.

But alone among members of a corporate board, there is often a temptation to categorise them and pin down the ideal, identikit, cardboard cutout of what an FD should be.

People will argue about what skills and qualities a chief executive (CEO) should have, and they do the same for other members of a board. But no one else is expected to identify so specifically with what they should be like than finance directors.

This is the curse of the accountancy profession that has been laid upon them. Raymond Chandler, writer of hard-boiled detective fiction and himself a former accountant, portrayed accountants as mild-mannered people in a difficult world, invariably with a row of pens and the odd pencil protruding from their top pocket. In his portrayals, accountants had been trampled on by the rough old world of gangsters, but he also described them as having dogged and tenacious integrity.

It is these two extreme views which finance directors need to sort out for themselves. They have to be the conscience of the board of directors. They have to produce financial data that is reliable and understandable. But they also need to take a line on the choices available when strategic options for the future are being discussed. And they need to take the difficult line. They need to take the line that asks where the funding will come from, which ensures that corporate governance issues and anything the audit committee will be worried about are considered and the implications understood.

Corporate governance is the pivotal point between the two extremes. They and their team can produce the financial data, but they also have to deal with the reputational risk of what is done off the back of that financial data. And the pressures on them are increasing all the time. Life has become too short.

 

Over the past 40 years, for example, the average length of time that investors in the US have held on to shares has plummeted from seven years to seven months. It is no wonder that the finance directors who are fastest on their feet will also be the ones accused of short-term tactics. They may despair at the usefulness of the auditors, but they will roar into action if there is any suggestion of something appearing in the audit report that may, even temporarily, damage the share price.

The corporate governance elements of this come into focus when you move on to the biggest reason why finance directors tend to be typecast. Their role is often assumed to be a stepping-off point for the role of chief executive. The argument is simple: the FD is the only other member of the board who, on a day-to-day basis, deals with everything that affects the company. It is only natural, the traditional argument goes, that such a person is the most obvious candidate to step into a departing CEO’s shoes, and recent research from recruiters Robert Half bears this out. There has been a steep rise, post-financial crisis, in the number of FDs becoming CEOs. The number of FTSE-100 CEOs with a financial background is rising fast, and it is argued that financial skills are the key to making the step across.

But this raises its own problems. There are good reasons why large organisations should turn to a finance person to guide them through the post-financial crisis, but those reasons will tend to revolve more around safety than mere positive strategy. And this really is the dilemma of trying to straddle the FD/CEO divide.

FDs are strategically aware and very visible on the board, but they come from a typically process-driven background. And this is why people should try to shed as much of the typecasting that clouds their thinking.

Robert Bruce is a leading commentator on accountancy issues

Related reading

/IMG/387/220387/business-handshake
/IMG/895/121895/rolls-royce-logo
/IMG/589/211589/mining-law2
/IMG/369/214369/tesco669