FDs welcomed aboard

‘Wanted. Non-executive director for successful listed company. Must have deep knowledge of accountancy, be diligent and inquisitive – must also have strong track record as an FD.’

OK, this is not a real advertisement, but it has been written to make a point. In future, when companies begin the search for non executives it’s that last phrase – must have been an FD – that will be new and matter most.

This increasing trend for companies to seek out finance chiefs to fill their non-executive shoes could be the latest fad to follow the scandals of 2002 and the resulting new focus on corporate governance.

FDs are therefore becoming flavour of the month. Just as before it was important to have a ‘lord on the board’, companies now want other people’s finance chiefs to oversee their operations, particularly on the audit committee. In the last six months, more than two dozen companies have appointed FDs as non-executives.

For instance in July, Marshalls announced the appointment of Andrew Allner. In his past career, the chartered accountant had held three FD positions. Arriva told its investors that Simon Batey, FD of United Utilities, had accepted their invitation to join the board. Other FDs-turned-non-executives in the last six months include WHSmith group FD John Warren, COEs Colin Glass and Paul Spencer former finance chief of Royal & Sun Alliance.

Jeremy Rickman, executive director at recruitment company Russell Reynolds Associates, says his company has been flooded with demands for FDs and chief financial officers. ‘In the last two years, there has been more emphasis on financial experts to fill non-executive roles and the demand is growing. We have probably placed between 20 and 30 people,’ he says.

The current demands of corporate governance mean Rickman is always under pressure to find talent willing to take on the role. ‘People are paying us to work the network and to find non-executives who are suitable and have not done this previously.’

Paradoxically, though, the environment currently creating the demand is also responsible for a shrinking supply. ‘At the moment, there is a risk-averse environment and the spotlight is on non-executives, so people are very careful when they take up this position. There is a very high demand, but a very low supply.’ Another reason for the shortage is that, following the Higgs report, many execs are reluctant to take on more than one job.

According to executive recruitment specialists, having an accountant as head of the audit committee has become almost a prerequisite. Samuel Johar, chairman of Buchanan Harvey, says following the Enron scandal, boards are upgrading their audit committees and finding qualified accountants to lead them. He adds that FDs are the preferred choice because they are seen as more thorough.

And that is exactly what task management services group Serco did. In June, it appointed Whitbread FD David Richardson to its board. He will take over as chairman of the audit committee when Rhidian Jones retires in April 2004.

Arriva chief executive Bob Davies – himself a CIMA-qualified accountant – says his preference is acting FDs because they have hands-on knowledge of governance.

‘They talk to investors of their own company so they understand what the City wants,’ he says.

Jeremy Rickman says a finance director typically has the inquisitiveness and diligence required for someone heading an audit committee.

‘A finance director knows the true issues surrounding audit. He knows the right questions to ask the auditors and how to challenge the finance team,’ he says.

Another crucial factor in the choices made by boards for their audit committee, explains Rickman, is the advent of international accounting standards, which companies have to adhere to by 2005. ‘An FD would be able to make sure the company is ready to react and have the correct standards in place. It is one of the key points on the agenda.’

Although it is not a prerequisite for a candidate for a non-executive post to be an acting FD, it is necessary for the individual to be up-to-date with ever-changing accounting issues.

Chartered accountants are also being sought and tend to be ‘people who want a portfolio’ and who have decided they don’t want to be executive directors. One example of this is Richard Scholes. The ICAEW member was also recently appointed at Marshalls and is a non-executive director at four other listed companies, Bodycote International, Crest Nicholson, Chaucer Holdings and Keller.

Advice to FDs who want to become non-executives is mixed. Although they are encouraged to come forward because ‘there are a lot of opportunities out there,’ headhunters warn FDs to tread carefully.

‘Be careful about the posts you accept and do not take on more than one post,’ advises Rickman. But he adds that it is a good career move. ‘It’s great fun to do and it broadens your experience and knowledge, but it’s not something to be taken on lightly.’

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