When companies disappoint the City, finance directors can find themselves in the firing line. With 2008 expected to be a tricky year economically, FDs need to know how to protect themselves.

Recent research from benchmarking consultancy Hackett found that two out of three companies are unable to forecast earnings accurately for the next quarter.
Apart from share price slippage, repeated disappointing results can ultimately cost the FD his or her job. So can one-off disasters.

Karim Naffah tendered his resignation from Mitchells & Butlers this January after the pub operator revealed a £274m post-tax loss on hedging investments made in connection with an aborted property joint venture.

Although the company blamed the credit crunch, Naffah took the fall for management’s damaged credibility.

FDs don’t always leave without a fight though. Bob Mellors, finance director of sports chain Sports Direct, is hanging on in despite being on the receiving end of persistent City criticism about failures to explain the company’s performance clearly.

Another, perhaps extreme, example of FD tenacity comes in the form of John Williamson, CFO of AIM-listed Irish e-payments firm Payzone. This January Williamson and Payzone CEO John Nagle fought back against efforts to oust them, winning an interim high court injunction reinstating them in their roles and forcing the company to call an extraordinary general meeting. They are believed to have suffered for raising concerns internally about the performance of part of Payzone’s business.

The answer to the ‘will he stay or will he go’ dilemma usually depends on the reason for the problem. ‘If a business is in the wrong space or if a market is trending down, there’s not a lot you can do and there’s no point changing management every six months,’ says Mark Freebairn, head of the financial management practice at Odgers Ray & Berndtson.

One door closes...

If the FD is given the push, however,this isn’t necessarily a career-terminating event.
‘There is a generally held view that an FD can be in the wrong place at the wrong time,’ Freebairn says. ‘If your business is performing badly and you are let go because the board wants to inject new blood, that shouldn’t be held against you.

‘Market sentiment will turn against you a bit, but it won’t be as bad as if you have
done something that seriously questions your credibility.’

If an FD does depart under a potential cloud, what happens next is all about their credibility. Alison Reed had bumpy rides as FD of Marks & Spencer and subsequently Standard Life, despite leading the latter through a successful flotation. She remains a NED of British Airways, a position she took up in December 2003.

Although there was much press speculation about problems with Reed’s management style, her continued NED presence suggests her credibility remains strong.

FDs who have been associated with a troubled company may need a little patience before finding a new role. Appointing boards are cautious. ‘Non-executives don’t want to take the risk of there being even a slight question mark over an FD’s credibility,’ says Suzzane Wood, head of the financial officers practice at Heidrick & Struggles.

... another one opens

But there is a bright side for FDs who have experienced tough times.

‘As headhunters we would rather have someone with battle scars than someone who has only experienced successes,’ Wood says. ‘If they have integrity, we will push that hard as a virtue. What I want to know is how they reacted. Did they learn lessons?’
Michael Moran, CEO of career and talent management consultancy Fairplace, says that FDs need to ensure they don’t make the same mistakes twice.

‘Your job after a failure is absolutely critical,’ he says. ‘In your next job you have to be absolutely certain that you don’t go through the same scenario.’

For one thing, this means doing due diligence on a new employer to avoid joining a company with skeletons in the cupboard.

Moran says to allow for a job search to take six to 12 months. FDs also need to put in legwork. According to Moran, 80% of jobs are found through some networking contact. Work colleagues, clients, suppliers and professional peers are all valid sources of information.

‘For a successful job search, you probably need 100 to 200 people in that network,’ Moran says. ‘You talk to that network and explain what you are looking for. They become your eyes and ears in terms of what’s available in the marketplace.’

Defend your position, continue your career

If your company has dropped a nasty surprise on the City, you need to bring out your highest quality communication skills. If your business is the victim of a general downward market trend, make that point clear. If there a company-specific factors at play, explain to shareholders and analysts what you are doing to deal with the problem. Instilling confidence that management is in control of the situation is essential. Work hard to protect your own reputation as sound steward of the company's financial future.

What if you are made a scapegoat - fired or required to fall on your sword? You may be advised against speaking out publicly to defend your reputation, because FDs are expected to respect confidentiality and not to seek the limelight. Only in extreme cases, where you feel your reputation is being seriously and unfairly trashed in the press, should you consider appointing professional PR expertise to help get your own side across.

The recommended advice for most ex-FDs is to keep a low profile and take a breather before seeking another executive role. Talk to headhunters about your options, but be prepared to convince them why you can still inspire trust in shareholders and appointing boards. Make clear you have learnt from your experiences.

Seek references from former board colleagues who you know respect your abilities. Make the most of your networks and contacts. Be prepared to switch sectors, downsize to a smaller company or even go private to prove your credibility.

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