The debate over whether chief executives require their finance directors to be beancounters or business partners is surprisingly persistent. Many FDs would like to be seen in a partnership role - and have positioned themselves and developed their functions accordingly. But is this what CEOs really want?

Compliance and regulatory burdens on companies have increased. Accordingly, so has the need for FDs to provide their boardroom colleagues with reassurance that controls and processes are sufficient to avoid nasty surprises and avoid the wrath of City discontent. But competitive pressures from private equity-backed businesses have also highlighted the need for FDs to help chief execs drive sustained growth and enhanced shareholder value. So which way is the pendulum swinging now in terms of the demands made on FDs?

Our four recruitment experts suggest that CEOs want it all ­ they like their FDs to fulfil both the compliance and the partnering role. FDs are also required ­ both by CEOs and non-executives ­ to provide a robust challenge during the development of strategy and general business decision making.

In fulfilling all these demands, some FDs have evolved into financial superheroes ­ demi-gods, even ­ those are the words of headhunters themselves. But this is itself creating new organisational challenges. Have some FDs become too powerful a force behind the CEO’s throne? If they are seen as a threat, they may find themselves replaced by a new FD whose remit is pruned back.

So it seems the FDs role is destined to be in constant flux.

Mark Freebairn
Head of the financial management practice
Odgers Ray & Berndtson
“If I ask chief executives what they want from their FD, the first phrase they use is a ‘business partner’,” Freebairn says. However, they also want “someone who gives them complete confidence that the numbers are right and that they will be on time”.

The specific requirements will reflect the nature of the company, whether public, private or private equity-backed. A public company FD, for example, needs to inspire City trust. “In a public company FD, the CEO wants the combination of business partner, sound technical finance experience, external communications and the ability to play a sober numbers-orientated head as the yin to the yang of the outgoing, punchy, optimistic chief executive,” Freebairn says.

This sounds like chief executives want it all. Do they? “Yes, absolutely,” says Freebairn. Is that realistic? “Yes, as long as the FD is able to recruit a complementary team that allows the FDs to do what they want to do.”

The plc FD role has changed a lot over the last decade. Freebairn says: “Ten years ago the FD would spend a day a week on the City, a day on the compliance and governance and three days running the business. Now he spends up to two days on the City, up to two on governance… Where are the three days for running the business?” Freebairn asks. “FDs either have to get a group of people round them to help, or give up their weekend and lose their marriage. So the number two role is increasingly important.”

Though Freebairn accepts that the image of FD as beancounter will take a long time to disappear, it annoys him. He says: “The collective term for FDs now should be ‘sounding board’, rather than beancounter. Ask most chief execs who their right hand person is, who they would not cope without, and the first role they come up with is the FD.”

While chairmen typically want the same qualities in the FD as the CEO, the audit committee chair may place utmost emphasis on compliance ability. “The audit committee chairman wants someone who allows them to sleep easily at night ­ someone with a controls and processes mindset,” Freebairn says. “That’s no different to the chief executive, but it’s higher up the wish list. The audit committee chairman also wants someone who can take the fight to the chief executive.” FDs who do so give reassurance that sound decisions are being made.

If a new CEO is appointed, should the incumbent FD start packing? “Not necessarily,” Freebairn says. Things should be fine as long as they agree on strategy. But he warns: “On the basis that the chief executive sets strategy and the FD supports and delivers it, if there is a fundamental disagreement one of them has got to go ­ and the chief executive will always win.”

Suzzane Wood
Head of the financial officers practice
Heidrick & Struggles
Wood suggests that what CEOs say they want and what they actually need isn’t always the same. They may say they want a business partner, but they also need someone with a grip on compliance and governance as well. “Chief execs definitely want to own the strategy,” Wood says. “They can get a bit concerned if the FD wants to have corporate strategy, planning and development under their belt. Superhero FDs who have ended up with risk, investor relations, corporate strategy and business development under their remit are starting to encroach on the CEO’s territory. There’s a potential conflict there. They are almost overstepping the mark. Some CEOs, when replacing them, recognise they need to prune the business. They prune the bush to make it stronger, but also as a signal.” They may want a structure that recognises the board sets the strategy, with finance supporting it, and possibly a separate individual responsible for corporate development.

Wood says CEOs want the FD to be their corporate eyes and ears. “They see the FD as CCTV roving round the business, reporting back. Rather than being joined at the hip, visiting the same sites together, they [CEO and FD] can be two halves of the same coin and get more done by splitting in two,” she says.

The requirements of the FD have shifted more in the past year, Wood says. Until recently the priority had been to find a safe pair of hands to drive the growth agenda ­ adding value in recognition of the threat from private equity. This moved the emphasis away from regulation and governance, to growth. However, there have been a reasonable number of boardroom changes, with new CEOs coming in. “This creates the opportunity for CEOs to reshape how they lead the business,” says Wood.

Could incumbent FDs with a large remit be vulnerable if a new CEO is appointed? “The FD should expect to have a conversation about the business agenda, whether their skills are complementary or clash. You can’t take it [your position] for granted,” Wood says. If the FD leaves, this isn’t a reflection of their ability, but of the new regime.

If the FD does depart, their number two might like a shot at the top finance job, but getting appointed isn’t easy. Wood says: “The step up to number one is the biggest issue in the finance world at the moment. Group controllers feel they are not getting that opportunity and they are losing out to people in operating or non-financial roles. This is because, as group financial controller, they have been saddled with the governance role and seen as the non-commercial number two. Their contact with the board has been around the audit committee or regulation, so reinforcing the perception of [the finance function] as the techies. They are not out and about in the business.” Gaining operational exposure, as well as experience at the organisational centre, remains essential for aspiring FDs.

Sarah Hunt
MD and founder
EquityFD and EquityFC
Hunt has particular expertise in recruiting FDs for private equity-backed businesses. She has found that what CEOs want will often depend on their own experience in a private equity-backed environment.

Those who are first-time CEOs, perhaps following the buy-out of a business division, may “refer back to what they have seen before”, she says. “They may have been in a larger business with finance providing technical support.” They may, therefore, be more focused on hiring a beancounter, rather than a strategic partner. However, Hunt will seek candidates who can tick both boxes. “We want someone who will be responsible for the figures, but they also have to be able to show that the numbers mean something, and are able to be a partner with the chief executive,” she says.

CEOs who have been FDs themselves tend to have a clearer idea of what they want in their own FD. “They will instinctively know whether someone is a good finance person, so they tend to focus on that person’s ability to partner them,” says Hunt. “A lot of it is about the personal chemistry. Some of it is about prior experience, but more often it’s about whether there is a click there. Someone who is complementary is good.” It shouldn’t be about whether the CEO feels they will enjoy going down the pub with their FD, Hunt stresses. “It’s more, can we have a good row and then be friends again in the morning?” The CEO needs to be able to tell the FD their ideas and expect an opinion based on business understanding, not just on cost control.

Is it important for an FD in a private equity-backed business to have been there before? “It’s quite an important piece of the jigsaw,” says Hunt, “particularly if you are getting close to the exit. It’s about being able to deal with that timetable, the leverage situation.”

Relevant sector experience can be desired by CEOs ­ for example, those in the financial services sector. The same often goes for chief execs in services businesses that are dependent on long-term contracts, because understanding how to value such businesses is important. “But if you are in a sector such as manufacturing, then, on the whole, sector experience is less important. You can overburden a business with too much sector experience at board level. The chief exec will be steeped in it, so a different angle from the FD can be helpful.”

There is some evidence that the FD is the most vulnerable senior executive in the period after a private equity deal. “That’s not necessarily the fault of the FD,” Hunt says. “If your division has completed a buy-out, suddenly you are the standalone FD. You have a leveraged situation ­ overdrafts ­ you may have never handled that before. It does feel very different. Cash is king.

You live and die on the numbers. It’s a fairly vulnerable position and the FDs are changed quite often.”

Ben Jones
Head of the CFO practice
Whitehead Mann
“The overriding feeling now is that the finance director is required not only to be strong in the numbers, compliance and corporate governance, but to play a role in the strategic direction of the business as well,” says Jones. He has, however, seen a subtle shift in the relative emphasis placed on those requirements.

Over the past four years, CEOs have been asking for FDs who can fill the role of business partner ­ someone who will “drive the performance of the business”, he says. “Now we are seeing a slight correction ­ in terms of chief executives and chairmen wanting the CFO to have a very strong handle on the numbers. We have come off the back of a four-year bull market, but now we are going into a fairly uncertain 2008, which is redressing the balance between the requirement for a business partner and someone with really strong accounting skills and a genuine handle on corporate governance.”

This doesn’t mean FDs will necessarily be expected to step back from strategic issues. Boards do look for CFOs to be involved in strategy and “provide a challenge” to the CEO and chairman. “Challenge based on analysis is hard to refute,” says Jones.

In essence, CEOs, chairmen and company investors are looking for CFOs who are genuine all-rounders. Jones calls such an FD “the demi-god”. “This is someone who is not only strong technically, and who has a good handle on corporate governance, but who can also help drive business performance. The role of the CFO is broad and deep and is really critical to the success of any business ­ more than it ever has been,” he says.

Jones suggests one possible driver behind the broadening of the CFO role. “The role of the COO [chief operating officer] seems to have diminished and in some cases to have disappeared altogether,” he says. “The traditional COO responsibilities are being shared between the CEO, CIO [chief information officer] and CFO.”

Some might question whether it is realistic to expect one person to tick all the boxes specified for the modern FD. Has Jones any advice for FDs being asked to meet the requirements of a demi-god? “It starts with the CFO creating a relationship with the rest of the business and creating a finance function that is seen as a peer rather than a functional tool within the business,” he says. “It becomes more realistic if you staff up your finance function with A++ people.”

In terms of qualifications, though an ACA is still prized by many CEOs, Jones doesn’t consider this essential. “Clients often ask for people with an ACA or accountancy-biased MBA,” he says. “I don’t think it [an ACA] matters particularly, depending on the ability of the individual ­ where they came from and what they have done. But people feel more confident in [a person with] good academics, a Big Four training, followed by the traditional finance route.”

Beans, bells and whistles
CFOs want to do more for their firms than number crunching, but a recent study finds CEOs aren't as keen on the value-added finance director.

In 1984, the year Financial Director magazine was launched - ­ back in the salad days when men were men, women were women, and accountants were paid to just prepare accounts - Kingfisher’s then chief executive Geoff Mulcahy said that FDS were in “an almost unique position, apart from the MD, of being involved in all aspects of the business”.

But according to new research from McKinsey on how CFOs spend their first 100 days in the job, FDs are still struggling to achieve that evolution from beancounter to strategy architect and business partner with their chief exec.

According to McKinsey’s Quarterly research journal, which last November questioned 164 current or former CFOs from around the world, CFOs might not be spending their time where it is best used. Finance heads spend most of their first 100 days on budgeting, management reporting and financial reporting, typically at the direction of their chief exec ­ from whom most FDs received “explicit guidance” on what to do with this crucial period.

Meanwhile, CFOs believe they should be spending that time on understanding what drives the business, providing their personal input into corporate strategy and building their finance team.

The survey also found that more than half of CFOs believe their CEO “expects them to challenge the company’s strategy”. But McKinsey found that, in reality, CEOs “see other activities as more important”. Surely that doesn’t mean that CFOs should stick to counting the pennies and let their CEOs stick to ruling the known universe.

Strategy partners
While this split in opinion isn’t new, the business case for FDs being reborn as strategy architect partners, not just abacus-botherers, is still just an idea for many companies. CFOs believe that it’s logical for the person holding the purse strings to be in on what makes the company tick before being well-informed enough to make sound financial decisions. That’s not surprising, nor unreasonable, given that an FD can’t otherwise hope to know the true state of a company’s finances and how they’ve been affected by corporate strategy, until they’re knee deep in trouble.

Conversely, CEOs could find that a more involved CFO would make for a more instinctive and effective response from their FDs when seeking solutions, not to mention the fact that a better informed CFO can help CEOs see the state of their business from the roots up and spot problems before they’re beating on the door.

But this is a fairly new way to operate for FDs, and for CEOs, requiring a more collaborative mindset between the two, bringing the former out of the dark and into play in the wider scheme of things. For the latter, it means power sharing.

That’s not to say that CFOs don’t have to make some changes, too. McKinsey’s findings also illustrate that tired old, shoe-gazing element of the finance function, the one that says “we are the only ones who understand how important the numbers are, but no one understand us”.

This is a typical feature of any technically-minded job, which can propagate an us-and-them relationship with those in more lateral-minded functions, and is holding back CFOs from collaboration at a time when it is ever more important for businesses to survive.

FDs are not only in conflict with their bosses. They are contending with uncommunicative and needy finance teams too. Staff inside the finance function were much less likely to give explicit advice to their new boss about the department’s expectations and needs within the first 100 days, but when they did, their expectations were “strikingly different” to those of the chief exec.

Finance staff are less likely than their chief exec to view their CFO as an active member of the company’s management team, contributing to the performance of the company or challenging its strategy ­ which stands to reason if CEOs don’t see their finance heads as having the right, or the reason, to do anything more than their traditional number-crunching.

Traditional role
Finally, CFOs report that their staff are most likely to expect their boss to play a more traditional role and stick to ensuring the efficiency of the finance function, which in turn can only inform the way the CFO's people look at their own roles ­ meaning the bean-counter concept is propagated among would-be CFOs, not unlike the passing on of an undesirable gene.

It isn’t all bad news, though. McKinsey’s research found some CEOs will push for a wider FD remit. The survey revealed that nearly 90% of CEOs had encouraged their CFOs to be an active member of the senior management team.

What’s needed now is good communication from CEOs to their CFOs and, in turn, from the CFO to their teams ­ – here comes the slightly difficult bit for the suits on both sides ­ – because a good working relationship between all three is the foundation for FDs to evolve.