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What does a finance director do? 10 May 2011
It's hard for anyone in any business - let alone tech - not to be interested in how Apple operates. It's innovative, very profitable and highly disciplined. So the Fortune magazine review of Apple's management (Kindle users can click here) makes fascinating reading. The Guardian previewed it, and included this nugget:
"Only the chief financial officer is responsible for costs and expenses that translate into profit and loss; Jobs reckons that Sony, for example, has too many divisions to create a viable iPod, iPad or iPhone competitor - a view paraphrased as "it's not synergy that makes [Apple] work, it's that we're a unified team"."
Of course, that's far from being the same thing as "the CFO is only responsible for costs and expenses". (Although a finance function's ability to impose creativity-inducing discipline on a business is highly prized, of course). And it's fair to say that today no finance exec can make it to the board just on discipline and technical excellence. But one attraction of the role is that it's at the centre of things - you can be a focal point for every business unit, every level and every decision.
Still, finance must work hard to use that power for good. For example, a recent piece of research in the US suggested only a third of CFOs feel they act as “chief performance officers” for their companies. If you're in any business - especially one backed by private equity, which wants to see those assets sweat - and performance management isn't on the perpetual to-do list, maybe something's wrong.
The other point for the PE guys is that they need a finance exec who'll give it to them straight. (Troubleshooter Eric Tracey told me recently that's the bit about being a turnaround FD he likes most: telling board colleagues just how much doo-doo they're in.) It's a fine line between (to press on with the American nomenclature) "chief reporting officer" and "chief grass" – but it's one most FDs have to tread. That takes us back to all the "soft skills" we're so fond of discussing: diplomacy, leadership, communication, influencing and so on.
Point being: the role of the FD is not something you can generalise. For each situation - PE-backed, family firm, quoted; different company sizes, stages and sectors - there's a different FD or FC role required. What everyone can agree on is that finance execs need to work on their development like never before. "Leading companies think ahead by nurturing their CFO talent with structured internal development," as Les Clifford, chair of E&Y's CFO Program said earlier this year.
So if you're looking for ways to broaden your horizons and undertake some development of your own, get chatting (see below for a continuation of our series on information feeds for FDs) and think creatively.
Deals of the day
A couple of noteworthy deals this month. I love to see PE buying into industries that are being written off. So Oakley Capital's purchase of Time Out New York - to complement the acquisition of London's original Time Out last year - is a welcome fillip to the publishing industry. PE has form here, of course, but while PE ownership failed at Readers' Digest, it looks like PE ownership (under the ultra pragmatic Jon Moulton) has saved it again. The Oakley deal clearly has operational potential - so fingers crossed it's Moutlon-like and focused on growth.
Another great rescue story last month was HIG's investment in Silentnight- a strong brand and decent business laid low by a pension fund deficit. These deals can be spun negatively - the Pension Protection Fund doesn't want to be seen as a dumping ground for dodgy balance sheets using pre-packs or selective buy-outs. But the world is better served by saving companies that are burdened with historical problems - and PE, alongside smart financial management, can ensure that happens.
Musings on PE...
It's great to stay in touch with sentiment in the private equity world - not least because how those guys operate will have a direct bearing on their approach to your business. So two quick links. First, check out The Epicurean Dealmaker's (TED) blog on PE compensation and systemic risk. It's ostensibly about attempts to regulate general partner and firm pay-outs. But I think his points about the way PE operates - and particularly about how it treats portfolio risk - are worth reading.
And second, the FT has flagged up the fact that leverage is creeping up again in PE deals. Actually, this oughtn't be a problem, especially if your own business's debt package is carefully negotiated (see TED's post...) and exploits current low rates. And I like the fact that for LPs, there's a "flight to quality" in funds - just as funds are focused on quality in their own investments. We want to avoid another bubble. But we want activity in the markets and the opportunity to grow businesses, too.
Feeds please
Last month, we looked at twitter and RSS feeds as a way of staying in touch. But that's not the only way you can get a broader view of the market and your role in it. First, try LinkedIn groups. They're gaining in popularity and although some of the finance exec-specific discussions can tend to the mundane, it's a decent way to stay in touch with your peer group.
Second, we're seeing a lot more "meat-space" (as opposed to cyber-space) networking groups spring up. For instance, the FDs' Academy is working hard to get off the ground, and the ICAEW launched the Blue Chip Finance Leaders' Programme earlier this year. It pays to seek out industry specific groups or local networks via your institute.
And finally, a bit of informal chat with peers - such as the FDs of supplier or customer business - and mentoring (for a more formal arrangement between finance strata) are becoming indispensable. I was impressed to see candidates at the judging day for the FDs Excellence Awards swapping business cards earlier in the year. I hope the FDs found excuses to use them!
If the FD role is both sprawling and ill-defined, it's amazingly useful to find examples of other FDs tackling it in interesting ways - and solving problems you might encounter.