The seven hats of the FD

First, a statement of the obvious: every FD faces a huge variety of issues. In smaller businesses they can be a jack of all trades, managing a range of support services. In quoted companies, they’re spokespeople with the power to move markets. And every FD has fiduciary duties that require much more than accounting skills.

In order to explore the roles these various situations demand, we spoke to seven FDs about different aspects of their work. Each of them fulfils all of the roles in some shape or form. But by interviewing different types of FD – from FTSE CFOs to start-up FDs – we’ve been able to explore some of the nuances of the finance director role in modern business.

1. Storyteller – creator of a clear narrative for internal and external audiences.
2. Co-pilot – partner to the CEO with a complementary skill set.
3. Magistrate – arbiter of disputes and enforcer of the law.
4. Consigliere – trusted counsel offering advice at the highest level.
5. Engineer – master of processes and systems; architect of business models.
6. Muse – promoter of fresh thinking and value-enhancing decisions.
7. Rescue service – identifier of problems and presenter of solutions.

All the FDs agreed that even in the age of the technocratic finance chief, where communication skills and leadership ability are more important than ever, you can’t take a seat at the table without outstanding core finance skills, no matter how well you wear the seven hats we discussed.

That’s as much about credibility as it is duty. ‘You can never stand for your internal customers saying the numbers are wrong,’ says Colin Bramall, CFO at James Hull Associates. ‘They have to be right and the processes behind them must be as good as possible – certainly enough to make an overwhelming case when you’re evaluating people’ s performance.’ That trust others place in the FD is crucial to their ability to play the role of ‘magistrate’ – the arbiter, the evaluator of decisions.

Even the best FD relies on teamwork. The relationships they build with board colleagues and senior managers area platform for real effectiveness. ‘It comes down to being a confidant(e) and an advisor – but also a challenger and someone who can help correct problems wherever they crop up,’ says Stuart Bridges, CFO of FTSE 250 insurance giant Hiscox. ‘You have to be able to tell people when their actions are wrong.’ So the best FDs become the equivalent of a mafia family’s ‘consigliere’, a trusted advisor whose counsel is essential in the face of big decisions.

Perhaps the most important relationship an FD has is with the chief executive. A really effective FD is a natural ‘co-pilot’, sharing all the burdens of steering the business.‘ Most CEOs will have strong commercial instincts, but every other part of an organisation needs to function well, too,’ explains Jim Buckle, CFO-turned-COO of video rental and streaming business LoveFilm. ‘Planning, forecasting and management of processes need to be part of the strategic whole. Otherwise it’s impossible to tell if you’re heading in the right direction, or which levers to pull if you’re not.’

The finance function provides a different kind of platform for the FD. ‘There are very few people in the organisation who can do those finance essentials,’ says Andrew Lewis, CFO at Avon Rubber. ‘You have to have a team that can support you.’ Given Avon’s successful turnaround since he joined (2008 losses of £4.3m becoming a £9.3m profit two years later), Lewis knows that you can’t devote time to the real value-adding parts of the role – like being an organisational ‘rescue service’ – unless you have a great FC keeping the ship steady.

Developing the systems that support great management requires a command of the machinery of business, too. FDs must be ‘engineers’, able to see how the organisation’s cogs fit together. ‘You have to get your head around all the processes that come together to create value,’ says Zoe Tindall, the FD at restaurant chain Pho. ‘And it’s knowing that your back is covered – that all the parts of the machine, your processes, have been done right.’

Strong relationships and a great team are crucial to an FD’s ability to operate internally. But the role requires them to be an outstanding ‘storyteller’, too. ‘Communicating complexity has always been part of the role,’ says Richard Pennycook, FD of supermarket giant Morrisons. ‘You have to be able to explain what’s happening to internal audiences, from the shop floor to the top floor, and then out into the market.

Influence inside the business goes way beyond sharing the numbers. So our final hat, ‘muse’, emphasises the role that FDs have in pushing the business into new areas. ‘There’s a very clear shift from the FD being the score-keeper to scoring the runs,’ says Lewis. ‘It’s no good just analysing everything after the fact – an FD has to influence what’s happening now and next.’

We start our look at these seven hats with the co-pilot and the storyteller – two very different aspects of the FD’s role, but both involving a huge step-up for any ambitious junior finance executive looking for a seat on the board. Next month, we’ll be looking at the engineer and the magistrate – the two hats demanding the most discipline from FDs; and the consigliere, the wise counsel.

Calling an FD the ‘number two’ on the board misses the point. The CEO and CFO must be co-pilots, able to mix-and-match their skills in order to provide consistent strategic guidance, seta strong organisational culture and manage both internal and external expectations.

Each of the seven hats is a metaphor. The term ‘co-pilot’ suggests that the FD not only sits alongside the CEO sharing the key decisions, but that they’re ready to takeover any aspect of that role if the need arises.

On the flight deck, the co-pilot has another important function – providing checks and balances to the captain. ‘Investors want to feel that the FD has a degree of independence from the CEO,’ says Buckle. ‘Of course, they have to be supportive and share a view of the strategic direction. But they have to give their own view on decisions and offer corrections where necessary.’

That demands all the discipline and rigour that training in accountancy and a career in the finance function offers. ‘FDs have an ability to offer opinions based on facts and a robust understanding of the business,’ Buckle explains. ‘There’s no point having a co-pilot who shoots from the hip the whole time. And there’s a world of difference between coming to the board with a set of options and asking for a decision – and presenting a well-worked preference from a set of possible choices.’

Like a co-pilot reviewing a captain’s decisions for the safety of an aircraft, being able to influence a change in those decisions is also vital. ‘The worst outcome is that the organisation runs into trouble and the CFO says, “I knew all along that something was wrong,”’ says Buckle. ‘If they haven’t found a way to express concerns or lay out the rationale for a re-evaluation of a particular direction, that’s a clear failure.’

That means the relationship must be finely balanced. To steward the business successfully, the two leaders should work closely together, even if they don’t need to be bosom buddies. ‘Ideally, you want a balance – so you don’t have two people who are too alike in how they operate,’ he says. Where the CEO is more details-orientated, the CFO might need to deliver the big picture to key stakeholders.

So how has the switch to COO changed Buckle’s view of the CFO role? ‘As CFO, I was responsible for the support functions – legal, finance, HR,’ he explains. ‘That allows you to take a more dispassionate view of the business. As CFO you can be tougher and more critical. As COO, I have ultimate responsibility for both finance and for the commercial side.’ So it’s even more of a co-pilot position – but one that demands still greater self-discipline.

And the fact that he’s made the move – like many CFOs switching to operating and CEO roles – demonstrates that being a co-pilot can solve succession issues.

‘With their broader view of the business, the CFO probably does find it easier to make the transition to CEO,’ Buckle concludes. ‘It’s true that for a CFO, job one is always finance – that’s a given. But even after a relatively short period of time, both personally and in terms of the business, you develop a deeper appreciation for how things work.’

The markets want FDs confident in telling their business’s story –not just in numbers, but in a context for value creation. Private equity owners – and even owner-managers and family firms – also look to them for narratives that underpin strategy. And employees look to the FD for reassurance and guidance.

In the pantheon of clichés about accountants, perhaps the most irksome is that they are quiet, retiring types with their noses buried in ledgers. Morrisons FD, Richard Pennycook (the 2011 FTSE 100 FD of the Year), is under no such illusions. The ability to tell a good story sits at the heart of his role.

‘The way you communicate as finance director has a direct bearing on how your company’s message gets across,’ he says. ‘And that can affect your cost of capital, for example.’

But he’s also keen to stress that this hat can’t be worn in isolation. ‘Spending time inside the business is very important to the storyteller role,’ Pennycook explains. ‘You need to find the right balance between framing and communicating the story and building up your knowledge of it, and creating it, internally.’

Being FD of a FTSE 100 company clearly makes a huge difference to the time spent on creating and relating the narrative. Interacting with shareholders, analysts and the media is central to the job. ‘You have to judge the forum carefully,’ says Pennycook. ‘You need to spend just the right amount of time on different parts of the story – and it must be slick and well-rehearsed. We live in a media-driven world now, especially for brand-name businesses, so the storyteller role must be polished.’

Naturally, the FD isn’t alone in this role. On the big occasions, the chairman and CEO share the burden – and most businesses now retain some kind of investor relations or PR expertise to help with the delivery of their stories.

That’s crucial in the 21st century. ‘The complexity of the environment grows year by year,’ explains Pennycook. ‘Social media is the latest thing – so in results announcements, journalists are not just taking notes to write something up when they’re heard the whole story, they’re tweeting as they go along. It’s real-time.’

An additional challenge for the FD is that their part of the story can be complicated. And while the non-executive directors on the board have a sophisticated understanding of the numbers, some of those nuances may be lost to other audiences.

‘Storytelling is multi-layered, then, but it needs to be consistent, too,’ Pennycook insists. ‘For example, the first audience for our interims is the senior management group – 90 people in a conference call. Then radio coverage kicks in, and we’re telling that story to a public audience. Then you have to cascade the message right through the organisation, tailoring it for each group – while never leaving them feeling they’re getting a different story from the other versions they’ve heard.’

Pennycook also stresses the value of his team in creating the right narratives. ‘Becoming adept at storytelling is part of the training you need to offer future CFOs,’ he adds. ‘It’s certainly valuable experience for my divisional FDs when they’re looking at bigger roles.

‘And the storyteller role has changed,’ Pennycook concludes. ‘The CFO of old would have presented their results and explained what had been and why. Now, you have to talk much more about what the business hopes to deliver in the future and what’s going to happen along the way. It’s much more about creating a shared sense of purpose and helping colleagues buy into it.’

Download PDF version:

• Finance & Management magazine, Issue 194, December 2011 (pp.6-8)

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Further reading on various aspects of the FD role is available through the resources below.