When finance directors take over at the top

Success
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Christian Annesley
Staff writer
AccountingWEB
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As a business grows in complexity, it needs an evolved and evolving management approach. What works when a company has 25 staff and operates only in the UK won't be sufficient when it has reached 150 staff and with operations in a dozen countries.

For some businesses, that operational challenge is one that the finance director is well able to step up and lead – either with enhanced FD responsibilities or, when the opportunity presents itself, as chief executive.

It's a natural step for some because every finance director wears many hats and is often performing more roles for the business than other boardroom colleagues. Besides a knack for figures and a grasp of the way the organisation is run, he or she must be a risk manager, a planning expert, an IT thinker, a guardian of corporate governance and a confident end-to-end strategist.

Among corporates, about a fifth of FTSE 100 companies are generally run by FDs-turned-chief execs, and accountancy provides more chief executives than any other single profession, including banking, engineering and law.

But while financial literacy will help for any chief executive, there is also the hard-to-pin-down question of leadership and what it takes. The idea of an FD as mostly a bean-counter may be outdated, but there is still a question of how the strategic and leadership elements of the role marry with the wider demands of being CEO.

“Finance directors are very much the right-hand man or woman,” says Jeremy Walker, regional director of The FD Centre, which provides part-time FDs for organisations and therefore has a particular take on the question.

“He or she is not a jack-of-all-trades but needs an understanding of all areas of business. We have a great many FDs in our portfolio and part of our recruitment process is to find the experienced ones. Very often someone who’s called an FD is really only a financial controller. We only use people who will look strategically at a business – that’s what is missing from most set-ups.”

Financial controllers look at historical accounts and FDs should look at where the company is going”

Emma Warren, founder and managing director of business growth consultancy Portfolio Directors, agrees: “A good FD provides solid commercial thinking backed up by sound financial analysis and awareness. The finance function is one of the few that gets to see all areas of the business. By developing an understanding and empathy for the other functions, good FDs can smooth the running of the business.”

Jerry Davison is chairman of SouthWestfd, a team of individuals who provide financial management for businesses. He reiterates the integral role of the FD: “A real FD talks about the business, not the numbers,” he said.

“They should be looking to the future rather than the past. Financial controllers look at historical accounts and FDs should look at where the company is going. They understand working capital support, raising finance, managing relationships with investors and banks. They act as a sounding board for ideas. An FD is one of the few people a chief executive can talk to confidentially and openly.”

All of which implies, you would think, that the step up to CEO is there for some FDs to make, even if the trajectory of the move and the demands of the top job will vary a lot between organisations.

You need to move on from just managing financial resources to managing new situations outside of your comfort zone.”

One former FD-turned-top-dog, Richard Byarugaba, puts it like this.

"As finance director, you are a substantially a technical numbers person who reports the news. But a chief executive is a leader who needs to understand and manage different stakeholders. So a CEO needs a diverse skill set for leading and managing other non-financial resources like people, shareholders, and any other resources that the business needs to succeed. I think that an FD position provides a great foundation but a chief exec's role is much wider. It means you need to move on from just managing financial resources to managing new situations that are outside of your comfort zone."

So how can an FD develop leadership and management skills?

"A good leader should be inquisitive. Ask lots of questions about how and why things are the way they are. A leader needs to be a forward thinker and I think the best way to do that is by being immensely curious about everything around you. As a leader, you not only need technical knowledge but also passion to build a good all-round understanding of your business.

"And leadership is about influencing people," adds Byarugaba. "You have to be up for the challenge.  You also need to build your marketing and branding chops. Get involved in building your personal brand. Otherwise, someone else will drive your agenda."

Operational excellence

One FD-turned-chief executive who lived the transition and delivered for a large business, before stepping down and handing on the reins last year, is Russell Taylor of the listed trade exhibitions and conferences business ITE Group. And Taylor's journey with the group tells a story.

He originally joined ITE as FD in 2003 and became chief executive five years later. During his tenure as CEO, the business enjoyed substantial revenue, profit and earnings-per-share growth – and Russell was instrumental in developing ITE’s diversification strategy. He established cornerstone businesses in three of the largest emerging markets – China, India and parts of Africa.

Marco Sodi, chairman of ITE, says Russell’s time as CEO was marked by his vision and determination to tackle these and other new markets where there was a clear opportunity for future growth.

“He developed the business from its original Eastern European roots and expanded it into multiple markets.”

Russell himself says he did this principally by being focused on building a new profit stream and management team in Asia.

“I executed a strategy of acquisition-led growth, making over 30 acquisitions and reducing the proportion of profits from Russia-CIS from about 90% in 2007 to less than half in 2015. In parallel to the expansion, I developed an executive management board, established new group policies and set up a group central digital marketing function.”

All of which tells of what many FDs can bring to the role of chief executive – operational excellence, a focus on costs and diversification, an ability to run acquisitions effectively and a preparedness to seek out the talent to plug any gaps.

Russell adds: “I joined ITE as part of a new management team appointed following a failed expansion programme by the previous management team. At that point, I negotiated exits from unsuccessful acquisitions in Egypt, Czech Republic and Slovakia, straightened out the tax structure, and built a strong reputation with City brokers and institutional shareholders. Profits grew from £15m to £30m and, as a result, ITE joined the FTSE 250 index.”

Of course, there is a big difference between leading a group of fairly like-minded people in a smaller business and managing thousands of staff from a variety of backgrounds in a corporate. When you run a FTSE company you get people from all walks of life and they each bring different issues.

And if Taylor’s is one successful example of the journey, not everyone is convinced that the finance director is almost by definition the chief executive-designate. Some argue that the skills that a finance director has – probity, presenting reliable information in a balanced way and responding to people who challenge that, as well as persuading the board to stay in touch with reality – are important skills for a chairman to have, perhaps, rather than a CEO.

 

What are your thoughts about the move from FD to CEO? We’d love to hear. And we will pick up the theme in a follow-up piece shortly.

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