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Executive Outlook: Finance Director/CFO Spotlight

Executive Outlook: Finance Director/CFO Spotlight

Filter tag: Change Management and Executive Outplacement, Leadership Capability

As mentioned in our recent blog post, purpose is what gives a business a soul. However, it is its financial function that is its heart, responsible for keeping the business alive and ensuring everything continues to run.

The financial function facilitates every other activity within the business and is often integral to future strategy and growth. However, by the end of this decade, the finance function will look very different from what it is today. As businesses evolve and plot their growth, this function of the business must continue to evolve its focus from number crunching to future-ready transformation. As activities like month end reporting become real time and ad hoc, finance teams will be under pressure to collaborate, form partnerships, and offer insights beyond the bottom line.

Driving all of this will be the Finance Director (FD), who will need to master disciplines

outside the finance domain in order to effectively navigate the organisation through an evolving investor and stakeholder environment. They will act as an internal consultant to business unit heads, set the tone for collaboration across the organisation, maintain a bird’s eye view of the business, possess a keen ability to see when the assumptions underlying the business’s plans have changed, and be able to support the modelling of new scenarios in order to change the financial priorities as a result. The most successful are those who can work out how to lead business change and support growth without interrupting business or affecting the ability of the company to execute strategy, which will in turn require leadership capabilities and character traits that surpass what has been expected from their predecessors.

In this edition of our Executive Outlooks series, we are shining the spotlight on the role of the Finance Director and CFO to better understand these new expectations and how current and aspiring finance leaders can best deliver in their roles.

 

Finance Director Snapshot

It should be noted that depending on the organisation’s structure, the Finance Director title can be used interchangeably with the Chief Financial Officer title in order to indicate the senior-most person in the finance function. Though more rare, there are also organisations where both a CFO role and FD role are present. In these cases, the CFO typically has a broader remit and would be concerned with things such as investor relations and private equity while the FD would be focused more on internal operations and business strategy. While there may be slight organisational differences between the two, we will use the terms FD and CFO interchangeably in this article as many of the same principles, responsibilities, outlooks, and skills apply to those with either title.

According to a US report that examined 674 Fortune 500 and S&P 500 companies, more than 60% of finance heads were younger than 50 when they were hired, and more than 85% of sitting CFOs are under 60. The average tenure of finance chiefs increases with age, with those in their mid-50s or older tending to stay longer in their roles. In the UK, FDs have an average age of 49, which is younger than the CEO average of 55. Diversity is lacking in these positions within the UK, as only 3.4% of total chair/CFO/CEO positions at FTSE-100 companies are held by ethnic minorities and for the first time since 2014, none of these individuals are Black.

Due to the level of responsibility and the deep financial knowledge needed in these senior positions, FDs will often ascend to the role as qualified accountants (ACA, ACCA, CIMA) with several years’ experience in a managerial position within the finance function. The previously mentioned report found that within the Fortune 500 and S&P 500, about three in eight CFOs have public accounting experience while approximately 13% have experience in investment banking. In the UK, Eton Bridge Partners’ CFO Pathways Report 2021 found that that traditional ACA qualifications remain the most likely route to gaining a CFO appointment. Out of 513 CFOs who disclosed their education in the survey, 7% were CIMA qualified and 3% were ACCA qualified.

The hiring potential for this role is promising, as those with financial expertise are needed by organisations in every industry and sector. The transferrable analytical, functional, and leadership skills of the role make it easy to change industry, and approximately 70% of all new CFOs or FDs will have a background in a different sector. It is significantly easier to move from private equity to a public limited company, as only 27% of CFOs appointed to private equity businesses did not have previous experience in this space.

However, it is interesting to note that internal promotion is the least likely path to this executive role, as 80.5% of CFOs are external hires according to Eton Bridge’s report. 69.9% of newly-hired CFOs came from a previous CFO or FD role.

Salaries will vary based on experience, organisation type, and geography. The average UK salary for an FD ranges from £95,000 – £120,000. The earning potential is highest in London, where the average FD salary is approximately £125,063. Those in Scotland as well as the Midlands, east, and southwest regions of the country can expect to earn an average salary near the lower end of the spectrum in the neighbourhood of £107,000 per year, while those in Wales should expect offers of around £101,000.

 

Top Market Challenges Impacting Finance Directors

We asked our consultants, some of whom have FD or CFO experience themselves, what challenges current and aspiring finance heads should be most concerned with. Based on their feedback and our own assessment of the marketplace, we recommend focusing on the following areas:

  • The Demand for Data and Business Insight: The size, complexity, and importance of data is growing at a record pace, with the total amount of data in the world anticipated to reach 175 zettabytes (175 billion terabytes) by 2025. That constitutes an annual growth rate of approximately 66% over 2018 levels. As a result, FDs and CFOs are receiving more requests for data and analytics from across their organisations. As well as Board management packs, there’s an ever-growing need for more risk and compliance data, CSR reporting, omni-channel sales, marketing and operational reports, and macro-economic data. It is easy for finance heads to fall into a trap of delivering the board and investors short-term performance demands, but the real challenge lies in the FD or CFO’s ability to take even more responsibility in defining and telling the story of how value will be created in the organisation long term. Those CFOs and Finance Directors who can tell that story and provide proof points along the way are the ones who will be the most successful.
  • Automation and Digitisation: Technology is one of the main culprits driving this increase in data demand, but also one of the best solutions for delivering that higher level of reporting as well as digital-driven business results. Following the pandemic, the way we do business and conduct our daily lives is more digital than ever before. Customers are more regularly engaging in e-commerce activities. Supply chain and operations deals are often conducted electronically without any paper exchanged. Therefore, there is much to consider in terms of how practices and processes may change or should be approached under the influence of technology. Successful heads of finance understand that the processes and practices they have in place now may not work in two years, and play a critical role in deciding where to go next and how to get there. Cloud computing, big data, and financial automation have made much of the day-to-day jobs of the finance team easier, yet a consequence of that is that FDs and CFOs must be far more tech-savvy than ever before and be comfortable making tough tech investment decisions. The FD of the future will play a critical role in sponsoring technology innovation, overseeing investment decisions, helping define what success will look like, understanding what technology can do and the benefits it brings. CFOs will be working closely with the chief technology/information officer to ensure that these new capabilities are fully embraced across the organisation.
  • ESG Initiatives: Environmental, social and governance (ESG) issues continue to dominate the strategic agenda for many organisations, especially sustainability. A growing number of investors and customers are taking an intense interest in how companies are dealing with the medium- to long-term risks posed by climate change and environmental degradation throughout the value chain. CFOs need to thoughtfully examine and carefully consider how each ESG component informs the organisation’s overall strategy, operations, reporting, and beyond in order to deliver both resilency and results. The CFO serves as a member of the C-suite, and therefore plays a critical role in helping senior management build sustainability into the business’s strategy and in driving integration across all functions. This is not a change in the finance function, but rather an expansion of its scope. The remit of the CFO or FD may soon include activities such as sourcing funding options for green initiatives, evaluating business cases that include nonfinancial social value, exerting financial discipline around the costs of transitioning to a more sustainable enterprise, as well as setting and reporting on ESG-based metrics and KPIs. There is much that businesses can gain from switching to a more sustainable business model, and a successful finance head will be able to understand this and pivot towards it.
  • Risk, Compliance and Regulation: With ongoing compliance and the increased exposure to risk, this too is presenting another challenge for leaders in finance. Board members today require directors to have access to risk and compliance data, but to capture this in real-time across an entire company is a challenge whether it is through financial management systems or multi-dimensional analysis. The implications of the pandemic, the Ukraine war, Brexit, higher costs of living, and other global economic challenges are all are examples of external factors reverberating through business. These challenges put financial directors under a lot more pressure to be accountable and aware of any potential external risks or compliance issues. And just as the world at large changes swiftly and often, so does the world of accounting. There are often new regulations, standards, and best practices to be aware of. It is critical that the finance head stay up to date with any changes not just impacting their country or industry, but also those that impact any other geographies the business operates in or industries where they might have supplier relationships.

 

Top Priorities

Given these challenges, current and aspiring Finance Directors should focus their attention on these key areas:

  • Achieve a Holistic and Global Outlook: Next to the CEO, the head of the financial function is the person in the organisation with the most oversight of the entire business. CFOs and FDs must work collaboratively with every department and function to understand what is happening across the business. It is critical for the FD to have a deep knowledge of what the business does and how it operates in order to assess and make financial decisions. If coming into the role or business fresh instead of being promoted internally, the challenge is getting up to speed quickly and with enough depth to be effective. Be critical, be observant, and be open to learning.

Good CFOs and FDs are true experts in their business, but great CFOs and FDs are those who spend as much time looking outwardly as they do looking inwardly. Success will come from taking the time to stay up to date with the happenings in the world around you. What regulatory changes are coming down the pipeline, and how can you begin to prep the organisation now? How might a global event impact your supply chain, and what can you do to mitigate it? How are your customers receiving you, and what are they saying? When it comes to the finances of a business, the external has just as much importance as the internal and should not be ignored.

Part of that outward examination will involve developing a global perspective and setting one’s sights on multiple geographies at once. CFOs are the head of the financial function at the board level, and FDs are typically appointed at the group level. Therefore, both titles include some element of geography spanning. How do you deliver value and drive results across every arm of the business worldwide? How do you navigate the evolving needs and demands of customers and stakeholders when those expectations may vary from region to region? The financial head needs to be tuned in and constantly evolving in order to continue drive the business forward in every area it operates.

  • Develop Strong Soft Skills: To gain that insight into the business, the FD/CFO will have to collaborate with many different parties. The activities of these executives are directly tied to every other department in the business, and therefore there is a lot of relationship building and management that goes into the role. Gone are the days of the FD being viewed as the ‘chief police officer.’ An important part of the role is building internal bridges and executing on agreed strategies. It is not simply a matter of being socially talented, but rather seeing diplomatic communication as a strategic necessity. The best finance director understands the required finesse when it comes to communicating with other departments versus communicating with the board or your own staff. Poor communication can result in the most failures to deliver results. This has always been true, but we are simply hearing more about it as competition continues to increase and companies analyse any potential weaknesses.
  • Don’t Ignore Tech: Technological disruption should be front of mind for every leader in finance. With the changes in customer habits and the way we do business, it is critical for the FD to know and understand the role technology can, does, or will play in that process. The FD will be critical in determining which tools will be adopted and for presenting the business case for digital transformation. Being in tune with the digital world is absolutely imperative at this stage.

 

Personal Development and Career Progression

As mentioned, most FD and CFO appointments are external hires rather than internal promotions. Therefore, you can move companies or even switch industry for a stretch or new challenge. Because the FD is a functional expert, it is easier to jump from one industry to another than it might be for other executives. Your skills and knowledge are highly transferable, yet you may find that the challenge you are looking for lies in a new area. Each industry has its own guiding principles and financial regulations, so you could end up learning an entirely new system to what you are used to. Even if your title has not changed, this new challenge may be enough to make your career feel fresh by helping to broaden your horizons and test your skills.

Many FDs also choose to switch gears to a role in Operations as a COO or the Head of Operations for specific divisions or geographies. This transition often feels like a natural fit due to the finance head’s deep understanding of the business and their ability to think critically about both practice efficiencies and business impact. Also due to their holistic oversight and understanding of the business, FDs often make a natural fit for CEO roles. In fact, many CEOs ascended to where they are via the FD route. The financial sector has the greatest percentage of CEOs who were CFOs at 33%. So while the CFO or FD may be the top of the finance function, there are other relevant pathways within the business to try out in order to keep progressing.

That said, our experts advise any current CFO or FD looking to progress or anyone aspiring to this executive role to take a high level of personal responsibility. You cannot sit back and rely on someone else to recognise that you are good at what you do and provide you with that opportunity. If you know that the FD/CFO, COO, or CEO role is what you want next, then you need to actively strive to get there. You will need to be proactive about getting that holistic experience in sales, marketing, operations, supply chain, and so on in order to build your capabilities and prove you have what it takes to do the job successfully. Take direct responsibility for yourself and your own career progression. Regularly ask yourself “Who do I need to influence? What skills gaps do I need to fill?” Benchmark and be critical, and most importantly be proactive.

Of course, if taking your career to the next level is of interest to you, you do not have to go it alone. The Rialto Consultancy have successfully helped over 6,000 senior executives globally to take that next step and further their career. Learn more here.

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