Link: Talking points
Normally Phil Bentley would be gliding down a ski slope with his family at this time of year – but this half term he’s had to forego his annual trip. ‘It coincided with Centrica’s financial results. It’s not a great time,’ Bentley explains.
As group finance director of Centrica – the business that includes British Gas and the AA – 45-year old Bentley is no stranger to slippery slopes.
He has endured his fair share of dramas across a career that has so far spanned three years in the financial hot seat with the FTSE100 group, a stint at Guinness at the time of its merger with Grand Met and more than 15 years with oil giant BP.
Even as Centrica’s financial results hit the street last week, chief executive Sir Roy Gardner continued to face rumblings of discontent among Centrica shareholders, concerned that his embroilment in a dispute at Manchester United with two of the club’s largest investors is forcing him to quite literally take his eye off the ball.
Bentley is keen to play down the criticism of his boss. ‘There’s a bit of a game going on with Manchester United, but it’s absolutely nothing to do with Centrica. Roy’s just in the crossfire. I can understand why people put two and two together and make 10. It makes a story – that’s the way the UK press works I am afraid.’
As non-executive director and chairman of the audit committee at Kingfisher plc, the retail group that includes Woolworths, Superdrug and B&Q, Bentley is aware of the pressures such a role demands.
‘I have to be honest with you, it has taken a lot more time than I expected it to – probably on average around a day and a half a month. You wouldn’t do it for the remuneration. I employ consultants who earn five times what I do on the audit committee.’
Bentley’s involvement with Kingfisher goes beyond a ‘turn up and pass the biscuits’ kind of job, and he’s convinced that exposure to another industry helps make him a better finance director and enables him to apply lessons learned from the retail industry to Centrica.
‘You do it because we need non-execs on our board and there has to be a bit of give and take, but it’s also great experience to see another business. That said, I don’t think it’s healthy to do more than one.’
But while he welcomes ‘in principle’ the focus that Higgs and Smith have taken, he remains unconvinced that regulation is the answer to improved corporate governance. ‘I think that you can get to the same result with probably less red tape and procedure.’
He speaks with some authority on the issue. Enron was one of Centrica’s main counterparts, and two other major energy suppliers TXU and Dynegy, suffered financial disasters, placing Centrica in the firing line for speculation about its own accounting and performance.
‘The rumours were rife about how we’d had all these contracts and they’d all gone bust so we must be in the same boat. There is nothing you can do – you just have to report the numbers and be transparent, which is why I favour international accounting standards. I have no sympathy with accountants that have misled shareholders.’
Bentley’s career path to finance head of the utilities giant followed a rather unorthodox route. He switched degree courses at Oxford from medicine to agriculture and economics and joined the graduate-training programme at BP, which put him through his CIMA qualification. Bentley claims he harboured no long-term ambitions to become FD.
‘I didn’t actually see myself as a full-time accountant. I just thought it would be good training and I’d get an extra qualification. In those days you got paid more for joining industry than you did in profession.’
The job allowed him to travel the world, including stints in China, Houston and three years in Egypt. ‘We were accounting for a joint venture that spent over £400m, all on double entry bookkeeping with handwritten ledgers.
That was a quite a good experience, that was real accounting.’
Even at that early stage, Bentley stresses the importance of a broader view, helped in part by an MBA from Paris-based business school Insead.
‘I used to think I understood finance and corporate finance, but it’s only when I did an MBA that I realised I had a lot to learn.’
Despite being advised to broaden his horizons from pure financials, Bentley went for all the very narrow electives, including derivatives, advance corporate finance and restructuring. ‘I learnt a lot about real finance, as opposed to accounting.’
It was a move that paid off, landing Bentley a role in treasury as head of capital markets at BP, from which he’s never looked back. ‘I’ve come across a lot of finance people who have never worked in operational treasury and it is a dangerous business if you don’t know what you’re doing.’
But when in 1995 the headhunters called with a proposition at drinks conglomerate Grand Met, it was too good to resist. ‘It had a reputation of being fairly fast and loose doing corporate finance transactions that other companies would find quite aggressive.’
Bentley moved from treasury to be finance director of UDV, the spirits division, which boasted brands including Johnny Walker and Smirnoff in its portfolio. He also worked on Grand Met’s merger with Guinness to form Diageo, forcing Bentley to go head-to-head with Guinness’s treasurer for the job in the newly formed company. Bentley believes that it was the broad spectrum of his experiences that ultimately gave him the upper hand.
‘I have not spent a career in treasury – I have done a lot of other things and I have worked overseas. By then I had done an MBA and I’d done treasury exams. I suppose they thought I was a bit more rounded.’
Before he’d had a chance to settle in, the headhunters were on the phone again, this time with the job that would take Bentley back to his oil and gas routes. Despite lacking the sex appeal of the drinks industry, to Bentley there were obvious synergies between the two.
‘Centrica’s future is in understanding who our customers are and adding value to them.’ Similarly, he believes the future of finance lies in the ability to see beyond the numbers – a skill, Bentley believes, that too few FDs have succeeded in mastering.
Bentley spent the first 12 months of his job at Centrica replacing 12 out of 13 of his direct reports. It was, he says, a necessary change to upgrade finance from being more than being just the people that kept the score.
‘Once you start generating cash, you need to focus increasingly on strategy.
People think as long as the earnings are going up and customer numbers are going up you’re doing fine, but the question is are you creating value?
‘We know a proportion of our customer base today loses us money because they are low consumers, with a high propensity to switch, and a high cost to serve. If we could stop having those as customers we would create more value. That is a completely different mind set to “we’ve got to sell more to get the customers in”.’
It is a shift in attitude that has resulted in much closer working with the marketing director, and allowed Bentley to put some of the marketing theory he learned at Insead into practice. And as the IT representative on Centrica’s board, the importance of customer segmentation is also the driving force behind a £400m IT project at British Gas to consolidate back office systems and provide a single view of the customer across products.
The company is two thirds through the project, and Bentley already predicts it will slash between 10 and 15% from British Gas’s cost base of £1.1bn, ‘and frankly I think we can take out more when we get there’.
Bentley’s also behind a project to re-engineer shared service processes across the group and ‘e-enable’ finance over the next 18 months. Once efficient processes are in place, Bentley says, he will definitely consider outsourcing.
One.Tel – Centrica’s telecoms outfit – last month said it was moving more than 200 call-centre jobs to Indian. He admits it is a politically sensitive issue, but has not ruled out the possibility of emulating that model in other parts of the business. But he is also keen to stress that there are currently no plans to do so.
‘One.Tel is a small business where the customer contact is fairly straightforward.
But getting an appointment time for a gas engineer is a different quality of dialogue. Or if you break down, you don’t want that call to be taken in Bangalore. You have got to understand the content of the dialogue.’
Slashing between two thirds and three quarters of the cost of its domestic call centre equivalent may be attractive, but Bentley is adamant it’s about business survival. ‘In the telecoms industry, our competitors have all moved offshore. If we don’t do that, then we haven’t got a business proposition that is attractive to customers.’
This CIMA-qualified, Oxford graduate may claim to recruit in his own image – but delve a little deeper and the core attributes on his ‘must have list’ are short and sweet.
‘Essentially I’m looking for intellect and personality, and I reckon the rest they can make up as they go along. The first guy that I took on to be financial controller when I joined Centrica is outstanding and isn’t even a qualified accountant.’
On why having an MBA makes you a better FD
Because you are broader, you know enough to be dangerous, in terms of asking the right questions, whether it’s marketing, segmentation analysis, consumer insights, production operation or process engineering.
On what he looks for in his team members
It’s more what people have done – if they have worked in good organisations and they have broad experience.
I am biased. I tend to recruit a lot of people from Oxford and Cambridge, which people pull my leg about. But they haven’t let me down. If they’ve worked for very small companies I’d explore whether they have the real rigour and quality that big companies bring. We are all a product of our backgrounds.
On Sarbanes Oxley
There’s a fine balance between process and doing the right thing. The US tends to be much more rules-led than the UK. The UK has always been much more about judgement and substance over form. There’s a danger that we’ve gone from not having enough governance and being overlaid with accounting scandals to almost going too far the other way. We probably need to pull it back a bit once it beds down to take all the sensible suggestions without the process.
On international accounting standards
In principle it is a good thing to do. In Europe, everyone has their own rule. It’s very difficult as companies become more international – where they’re domiciled shouldn’t drive how their accounts are reported.
International accounting standards are adopting a similar approach to pensions accounting, which effectively means you’re having to value your assets at today’s market price. With the old UK standards you took the long view. With the new accounting standards you have got this massive volatility.
On the key to success as as FD
The traditional financial director a few years ago would come up through the industry and would probably have been a financial controller, strong on accounting. Today you have to be stronger on commercial issues and understanding risk.