The importance of financial acumen in staff

One of the things that I believe so strongly, down to my deepest parts of my heart, is you have to create financial acumen throughout your company. I don't care if you're in finance, marketing, or human resources - you have to understand what makes money for the company.

I became a chief financial officer in 1995 for a sleepy Maine supermarket retailer. We were known to be very progressive with our people, and we'd let people try different things, and that was good. But one of the things that I discovered in my first couple of months there was that the head of real estate was the person who also did all the analysis justifying the purchases of the different real estate locations.

I thought to myself, 'Well that's interesting. It's good that he's doing that because he understands how to make money for the company, but what's finance and accounting's role?' I found out they didn't have one, so I talked to the chief executive officer (CEO). I said, 'This is a little bit like letting the fox into the henhouse. You've got your real estate guy not only finding the sites, but justifying them and really, telling the world, this is what I think is going to make money for the company, and in eight years you might find out if it's true or not.'

So within a few months, my finance people started analysing the real estate investments. (And we would spend about $500m a year on real estate investments. This was not trivial.) The first thing we found out is that the real estate folks didn't have it right. They were combining the justification of purchasing the land with the financing decision, and anybody in finance will be the first to tell you, you have to separate those decisions. It was a good thing that we had become involved with the investment and financing decisions, because we also found a second problem.

What was being said in the assumptions and told to the board of directors was one number; what was put in the annual budget was a much lower number. We were using sales figures to justify our investments and profit figures, and yet that's not what our budget showed, and our bonus was paid on our budget. This didn't make sense to me. If you're going to say one thing to one group, the board, it should be consistent, and you should hang your hat on your numbers. You don't just try and dress it up, put lipstick on a pig to make it look better. You have to take your investment, believe it, and then deliver. Results are important.

That was an important lesson in financial acuity, that the real estate folks learned, and the operations folks learned - because they were the ones running the supermarket, they had to make the sales and profit figures that were in our investment analysis - and all of us, at the headquarters, had to learn.

We learned that the assumptions in the model that was used for our investment decisions were not correct, but I knew the hearts of those involved were in the right place. So I went to my business school, Kellogg, and I had an investment finance professor come out. I hired him for two days, to train 150 people how to make investment decisions. It's not something you are just born with: these are skills that you can learn. By having this professor come and teach us capital investment theory, and walk us through a couple of cases, people started to learn - 'Oh, that's how depreciation hits my P&L', or 'So that's the kind of decision or assumption I have to make. I've been just giving any number because I thought that's what you wanted to hear...'

So we had much more integrity in our numbers, as a result of this training. We made better decisions, and another key lesson is, the more you can train people with financial acuity, the more you have ambassadors throughout your company. It's marvellous to be able to talk to a real estate person or a technology person - somebody who says, 'I know what you're talking about - Net Present Value. Okay, I even understand the concept. Now I know why you want me be so specific in my assumptions.'

It's so empowering to talk the same language, and finance is the language of business. I don't care what role you play in your company, your job is to help the company make money, and finance is the language that helps you communicate how you're going to make money for the company.

• For a company to be successful, every employee must understand what makes money for the company.
• When employees are not trained in financial acuity, poor business decisions are made.
• Financial acumen is a skill that can be learned and provides integrity in the numbers because everyone is using the same measuring stick.
• A company's financial message must be consistent among investors, management, and staff.
• Finance is the language of the business, and it enables people to communicate how they will make money for their business.

• Set up a day-long training session for all department heads. Bring in a trainer to discuss finance basics. At the end of each day, ask each department head to turn in a list of areas in which they have not been speaking the same financial language.
• After the training session, assign each department head the task of speaking with employees in their departments about financial acumen. Encourage them to use simpler language, for those employees who lack a background in finance.
• Assess current investments and profit figures against the current budget. Are the numbers the same? If not, what is the cause of the discrepancy? Initiate a plan to reconcile the numbers by the end of the next quarter.
• As a business manager, evaluate the financial reporting structure used by each department. If not consistent, assemble a team to identify which items need to be consistently reported, and then create and distribute templates so that during the next reporting period the financial results are accurate.
• For one month, send staff members a weekly electronic newsletter of tips to improve financial acumen. Include key terms and definitions, answers to frequently asked questions, and examples from real-world scenarios.

Blythe J. McGarvie is a qualified certified public accountant with an MBA from Kellogg Graduate School of Management at Northwestern University. In 1992 she received the latter's Shaffner award - an honour given to alumni who are pre-eminent in their fields.

From 1994 to 1999 she was senior vice-president and CFO of Hannaford Bros Co, the $3bn supermarket retailer subsequently bought by DelHaize Group. From 1999-2002 McGarvie was executive vice-president and CFO for the French group BIC, traded on the Paris Bourse.

In 2003 she founded Leadership for International Finance, a consulting firm which focuses on improving its clients' financial positions.

She has served on the boards of Accenture Ltd, The Pepsi Bottling Group, St Paul Travelers Insurance and Lafarge North America. 

Recently McGarvie has shared her insights into the CFO role in her book 'Fit in, stand out', mastering the FISO factor for success in business and life, published by McGraw-Hill in 2005.

She was recently appointed senior fellow for Northwestern University's Kellogg Innovation Network.

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