When the going gets tough…

When the going gets tough...

As the pressure from shareholders and regulators mounts, more FTSE100 FDs than ever are quitting their jobs. Is the role losing its gloss?

Glamour may not, admittedly, be an adjective that sits comfortably with the
words ‘finance director’, but with new research suggesting that more FTSE 100
FDs than ever are quitting their jobs, could it be that leading the finance team
at a listed company is losing its appeal?

To suggest the job is at something of a crisis would be a gross
overstatement. Nonetheless, research published last week by consultancy Mercer
and executive search firm Russell Reynolds Associates paints a pretty gloomy
picture of life in the financial hot seat.

The survey of 60 CFOs from some of the largest listed companies in Europe and
North America found that the pressures of the job combined with mounting
external scrutiny from stakeholders ­ boards, regulators and investors ­ are
starting to take their toll.

In particular, corporate governance demands, the introduction of IFRS, and
growing pressure for heads of finance to be more business-focused in their
approach have all resulted in the CFO role, as custodian of a company’s
financial stability, becoming at best more nuanced and complex, and at worst an
overwhelming juggling act.

Not only are the CFOs of listed companies expected to excel at managing the
business and controlling risk, they are also expected to play a central role in
safeguarding the reputation of the enterprise.

In practical terms, they are spending more time explaining corporate strategy
and the company’s business model to investors and analysts. And with 40% of the
largest companies in the UK and US experiencing share price fluctuations of over
75% in 2003 or 2004, they have their work cut out.

Regulatory burden
Research conducted recently by City law firm Eversheds adds clout to
suggestions that changes to the regulatory environment have increased the CFO’s
workload, with a third of respondents citing the time spent managing red tape as
having the most impact on their businesses, and a further 27% mentioning paper
work and general bureaucracy.

But more than eating away at their time on the golf course, the increased
regulatory burden is also damaging corporate profitability and growth. Three
quarters of analysts surveyed by Eversheds and 39% of directors believe
increasing red tape has had a negative impact on bottom line results, with
analysts estimating that UK plcs may have lost as much as 5% to 10% of potential

At the same time, the bulk of CFOs in listed companies report that their
relationship with the board has changed. Audit committee meetings are more
frequent, longer, require more preparation and involve even more scrutiny over
financial statements.

‘A number of boards have upped their quality and are taking a much deeper
interest,’ explains Steve Barnett, director of corporate risk consulting at

‘Now there’s much more preparation and accounting ability involved in being
on the audit committee. The need to explain greater volatility means they can’t
take the surprises they took before.’

So, the job has changed, but does it matter? Barnett admits the plc CFO role
is going through a real sea change. He also admits not everyone is geared up for
the challenges of the new environment. Figures from Boardex, the international
boardroom analyst, highlight FD/CFO changes at 25 FTSE 100 companies since
February 2005, compared with an annual tally that usually struggles to hit
double figures.

Suzzane Wood, head of the CFO practice at headhunter Heidrick and Struggles,
which places some of the most prominent CFOs in the UK, admits the evolution of
the role is a double-edged sword. ‘The CFO has become the CEO’s righthand man
and the logical successor to the chief executive, so they’re being asked to be
more of a business partner but also governance demands have increased.’

At the same time, she says boards’ appetites for more data mean that stronger
management and leadership skills are needed to deal with this. ‘It means that
today’s CFOs are being pulled in a number of directions ­ we’re expecting too
much of them,’ Wood adds.

In most cases she denies the pressure is too much, although she admits it can
take the gloss off the appeal of the CFO role. ‘CFOs are clever enough to deal
with it and they’re certainly not crumbling but Wood warns they need to create
space to think and not focus too much on the detail. ‘Being a technician and a
perfectionist is a cocktail for pressure,’ she says.

The pressure’s on
Wood also warns that the teams supporting the finance chief could be getting
more of a raw deal as the pressure on their boss steps up. Certainly, the need
for both technical excellence and a broader business focus is resulting in a
polarisation of the roles in the tier below the CFO. ‘We’re seeing more emphasis
on specialisation. Departments aren’t necessarily increasing their headcount but
they’re more likely to have a head of audit, a head of tax etc. There’s less
scope for generalists.’

Bearing that in mind, one big question hanging over the profession is whether
the changes to the role are putting aspiring CFOs off a place in the hot seat.
And even if they have their heart set on a head of finance role, with the number
of CFOs moving up through the ranks via internal promotions declining from 82%
in 2000 to 72% last year, how on earth are they supposed to get there?

‘There is a question about where the next generation of CFOs will come from.
On the one hand we need technical skills, and on the other we can’t just have
someone who has come up through the ‘super controller’ route ­ someone who’s
been the accountant’s accountant,’ says Mercer’s Barnett. ‘These days, to fulfil
all aspects of the CFO role, you need technical training but you also need to
spend time in another functional role in the business.’

The Mercer survey found a number of CFO respondents from listed entities who
admitted that if they were starting their career today, they wouldn’t go down
the same route. Barnett is seeing more CFOs considering CEO or audit committee
chairman roles as a next step on the career ladder.

‘We’re also seeing more people holding multiple non executive roles at an
earlier point in their career ­ there are fewer 62 year olds who’ve done 32
years in the same job who take a non-exec role so they can spend more time on
the golf course.’

Fortunately there is a payback to the added pressure; salaries are on the up,
reflecting the added stresses and strains. The CFO role is definitely moving up
the rankings.

The question is whether it’s enough to prevent an ongoing exodus of plc CFOs.
‘The role has more influence and many people enjoy the fact that they spend more
time with investor groups, thinking about business issues and managing a
portfolio of risks across the organisation and providing analysis that makes a
real difference,’ Barnett says.

Norman Green took up the position of COO of law firm Herbert Smith in
November last year, following seven years as vice-president and finance director
in the UK, Ireland and South Africa for Oracle.

‘The best FDs are migrating towards the broader business roles,’ Green
explains. ‘When I was at Oracle, my role had moved to more of a COO role anyway.
I’d evolved from being a beancounter to having a broader business focus. Most
CFOs find the bureaucratic side of the job is mental after a while.’

Changing role

Green admits he’s worried that the calibre of listed CFOs will decline as a
result, but he’s also confident that market forces will force up pay packets to
make the role more attractive. The results of the 2005 FD salary survey from our
sister publication Financial Director add clout to that theory.

The average total pay of a FTSE 100 FD last year increased 11.3% to £769,000,
thanks largely to a 14% hike in bonuses. Meanwhile, the number who earn more
than £1m a year went from nine to 15.

Another CFO-turned-COO, Rob Wallace of Airclaims, is relieved to be
witnessing the ramping up of job pressure from the safe confines of a private
company. ‘The pressures have been multiplying at a fair rate over the last five
to ten years, but the benefits outweigh the costs if a business is well run in
terms of internal controls and disciplines.’

But Wallace has a warning for those companies relying on the CFO to keep them
on the financial straight and narrow. ‘The board of any business has to remember
that the burden of corporate governance is the board’s responsibility, and not
just the CFO’s,’ he says.

Nonetheless, the recipe for being a great CFO hasn’t changed. ‘It’s about
balance and having the right skills to manage departments and knowing how to get
the best out of them,’ says Woods. ‘At the end of the day, nothing will keep a
good person down.’

Finding tomorrow’s FDs

For those companies fretting about the future pipeline of budding CFOs –
the good news. Rather than lose its appeal as a result of corporate scandals,
studies suggests that the accountancy profession has gained the edge over other
traditionally popular career choices such as the BBC and investment banking.

A survey of 16,000 graduates who left UK universities last summer, conducted
by High Fliers Research, asked which employers offered the best opportunities
for leavers. PricewaterhouseCoopers came top, followed by the civil service,
then management consultants Accenture. KPMG and Deloitte also featured in the
top six.
But while accountancy as a career choice may be as hot as ever, as the role of
the CFO evolves, finding the right calibre of staff is an issue that shows no
sign of abating. Although graduate employment vacancies in 2006 are expected to
rise for the third consecutive year, according to the Association of Graduate
Recruiters, companies are concerned that applicants will not have the right
social skills to do the job.

More than half of the 222 companies who took part in the AGR’s latest
recruitment survey published last month said they were not confident they would

be able to fill all their vacancies because university leavers lacked teamwork,

leadership and communication skills.

Accountancy firms, alongside investment banks and law firms, are among the
largest recruiters overall, and paying the highest salaries, but there’s
certainly no room for complacency.

Steve Barnett,director of corporate risk consulting at Mercer, believes that
corporates are doing too little too late to guarantee a strong pipeline of
financial high-flyers and are still too keen to rely on the education systemor
the big
firms to supply ‘oven ready’ accountants.

‘Companies need to domore earlier on to help financial people develop the
skills they need to be the next generation CFOs, rather than assuming that
they’ll pick up skills along the way,’ he says.

‘The challenge is finding people at an early enough point in their career
with both technical and business skills,’ Barnett adds. ‘It’s about identifying
people who are looking at the CFO and saying “I want your job”rather than “I
don’t know how you do it”.’

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