FD of the Future - Making tracks

Accountants starting out in business have always had their eye on thewn. Phillip Inman reports. top job in the finance department. Even when their ambitions extend to sitting behind the chief executive’s desk, they nearly always take in the finance director post on their way up.

According to the latest surveys from major recruitment consultancies, accountants have strengthened their stranglehold on the FD post since the recession, when they were drafted in by the thousand to rescue companies with declining cashflows and increasing costs.

Yet the demands from boardrooms for the bookkeeping fraternity to take on a more entrepreneurial spirit could give rise to a new breed of FD – one with a mission to review and re-engineer, rather than spend their days hacking away at the cost base.

Today’s business community is raising the question as to whether current training schemes for accountants are up to the job of producing tomorrow’s corporate heroes.

The English ICA, in particular, is wrestling with a new education scheme that it hopes answers the critics. Over at the management accountants’ association, CIMA, there is a continual battle against the perception that its young recruits fail to match the high-flying standards of the graduates taken on by their chartered counterparts.

In the meantime, as the FD’s job expands there is a threat that boards will look elsewhere for the innovative individuals they need.

From Liverpool to Lille

One of the biggest ‘entrepreneurial’ projects put forward in the last few months is the audacious plan by Central Railways to build a brand new railway link from Liverpool through Manchester, Sheffield, Leicester and the Channel tunnel at Folkestone to Lille in France.

Leading the organisation from the front is FD Alan Stevens. Stevens spends his days dealing with press enquiries and potential investors as much as he spends crunching his Excel spreadsheets into shape. Yet he is not an accountant. Instead, he is an MBA graduate from Paris-based business school INSEAD.

He could be the shape of things to come. After business school he went to work for ICI, then he spent three years at KPMG in the firm’s management consulting arm. The latter part of his career has been spent as a venture capitalist working on major projects. Before joining Central Railways he put together several projects for Schroders.

His financial management training stems from his time in the early 1980s at ICI.

‘Having done the MBA, I spent two years with a determined CIMA cost accountant where I learned how to do discounted cashflows.’

Stevens says he had only gained theoretical knowledge of the subject at business school because he was in one of the last years to study without the aid of computers. But at ICI he was handed an IBM PC/AT with 256 kilobytes of memory and told to get on with it.

‘It was during this period that I really learned how to use spreadsheets properly.’

He says he pondered whether to call himself an FD. ‘I think there is a lack of clarity around the FD role. There is a narrow view that they are systems managers. That is how FDs are seen in the City. The market expects FDs to come along and run existing systems,’ says Stevens.

‘But when you are talking about new ventures, the FD is responsible for new money coming into the company. Then it is sometimes assumed he will be number two to the person filling the chief executive or chairman slot.

‘When I started out I made an assumption that the FD was working out what sort of resources were going to be generated and consumed by the proposed business.’

Stevens uses the word ‘proposed’ because Central Railways is a virtual company waiting to happen. He inhabits a small set of offices overlooking London’s Trafalgar Square. Most of his effort this year has been spent generating the #1.5m he needs to put together a bid for ministers to approve.

It has already failed to get off the starting blocks once, when the previous Tory government backed away from supporting a radical project in the middle of rail privatisation. Then it was a more modest scheme running from Leicester.

In the coming months, Stevens will be putting forward the revised plan to John Prescott’s super-Transport ministry for approval. After that, he will turn his attention to raising the #3bn from the major capital markets he needs to build the railway.

‘Thankfully, it’s not too difficult to make changes. Twenty years ago, every change to the financial model would have been a nightmare – more staff, more time. You wouldn’t have the operational flexibility needed to carry through a project like this. Now the whole thing is one big spreadsheet.’

Despite the untypical nature of his business, Stevens believes it points FDs in the right direction. ‘It’s true there are no revenues in this business until something happens, and therefore my role is strategic. But other FDs are likely to work in this kind of environment in the future – in smaller businesses that need to be entrepreneurial, are listed on the stock exchange, and with the need to understand the flows of money on the capital markets,’ he says.

‘That involves a different set of questions about what you are doing with your money, how you are deploying the assets, what your excuse is for wanting any of it, what the return is and how are you managing it – which is far removed from ensuring the accounts are audited properly and people are paid on time,’ he adds.

Stevens has seen a kind of linear thinking from FDs in the past that confirms the ‘one-foot-in-the-past’ view of FDs.

‘Several years ago, I did a buyout in Sheffield of a subsidiary of British Steel. The FD came up to me, perfectly normally, and said: “I’ve only got #20,000 and the buyout is around #2m, so do I only get 1% of the company?”

‘Well, in a buyout you’re looking to motivate the board to flog its guts and make the assets sweat. So you are not going to give them 1%. But this is a common question. In his case, the FD did get a bigger stake and must now have made more than #1m,’ Stevens says.

Stevens thinks he would never have been able to take charge of the multibillion pound project without the commercial emphasis provided by his MBA and his grounding in cashflow management at ICI. ‘I’ve had a hybrid training which has been an advantage,’ he explains.

For the time being Stevens is pessimistic that many of his ilk will follow him into the FD’s chair. ‘The accountants don’t seem to have been displaced at all. If anything, they are getting a stronger hold on the position. The MBAs are quite common now, but nevertheless accountants are generally sought for FD roles,’ he says.

‘The accountancy profession is therefore determining what the FD role is, almost by virtue of how it trains people.’

But over time, there could be changes. ‘It could be that the CIMAs will take a bigger role if the ACAs are falling between two stools – not giving enough emphasis to financial accounting or commercial considerations,’ Stevens concludes.

CENTRAL RAILWAYS – A 400-MILE VENTURE

The idea of laying 400 miles of new tracks from Liverpool across the heart of England to the Channel tunnel and through to Lille in France came out of a think-tank discussion paper, when rail privatisation was little more than a twinkle in Cecil Parkinson’s eye. Andrew Gritten, a consultant engineer, gave birth to the plan. He argued the case for bringing the continental gauge railway system into the UK, creating a new line alongside existing railway corridors.

The main aim was to reduce planning and construction costs and smooth a path for freight from the continent without changing trains. But there was another issue to overcome. To maximise revenue, trains would need to carry increased freight loads.

The easiest way to achieve this is not to make the trains infinitely long, but to make them higher and wide enough to cope with lorries.

A kind of roll-on, roll-off scheme for lorries would make it cheap and easy to attract them off the roads and on to rail.

In the way, though, are hundreds of Victorian bridges and tunnels that would cost millions of pounds to rebuild.

Changing tack: lowering the track would allow taller trains

Instead of knocking them down and starting again, Gritten, who is now chairman of the company, proposed to lower the track to accommodate his stack-’em-high container freight trains. Alan Stevens, then a project financier at Schroders working on schemes like the second Severn Bridge, liked the idea. ‘It was ahead of its time. Basically, all the railways in the UK were built by private-sector companies in the early to mid-19th century,’ he says. ‘We haven’t updated our system like the French have with the TGV. This legacy means we are unable to cope with modern developments.

Our trains can’t take a lorry on a wagon and are unable to accommodate European trains which are all very slightly wider. So even with the Channel tunnel, we are still effectively cut off.’

Now Stevens believes the entrepreneurial spirit that built the railways in the first place is needed to take them a stage further. ‘The money will come from the financial markets,’ he says, ‘but not necessarily via an initial public offer. The larger investment banks are raising money directly all the time.’ It could take 30 million tonnes of freight within two years of opening and cut out two million journeys by lorries each year.