Developing CFO Talent and Grooming Successors

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2 As the role of the CFO has grown exponentially more complex, so has the challenge of developing a steady supply of talent and an eventual successor. To find out how outstanding CFOs meet those challenges, we interviewed almost 20 exceptional CFOs on four continents and reviewed the CVs of another 20 in order to determine what contributed to their ability to get to the top. What we found and what they told us provides a clear guide for preparing CFOs for the increasing complexities of the role. We would like to thank the following individuals who participated in the survey: Andrew Bonfield CFO, Bristol-Myers Squibb Enrico Cavatorta CFO, Luxottica Group Gary Crittenden CFO, Citigroup Peter Diesch CFO, Karstadtquelle AG Bernhard Duttman CFO, Beiersdorf AG Rahul Gupta CFO, Shinsei Bank, Ltd Andy Halford CFO, Vodafone Group Plc John C.R. Hele CFO, ING Group Jean-Marc Huet CFO, Royal Numico N.V. Mike Ihlein CFO (now CEO), Brambles Limited Lincoln Leong Finance Director, Mass Transit Railway Corporation Limited Ranieri de Marchis CFO, Unicredit Group Peter Marriott CFO, ANZ Richard Meddings Group Finance Director Standard Chartered Plc Mark Rigolle CFO, SES Global David Sidwell CFO (now retired), Morgan Stanley Richard Simonson CFO, Nokia Pierre-Jean Sivignon CFO, Royal Philips Electronics John Stanhope CFO, Telstra Corporation Limited

3 CFOs at the top of their game know that developing talent and grooming a successor rank as top priorities. They know that two of the highest compliments they can be paid are our CFO created a great team and if our CFO suddenly disappeared, we have someone who could step smoothly into the role right away. However, based on many years of experience assessing CFOs and the people who report to them, we have found that many CFOs have not focused sharply on developing the full potential of the talent they oversee or on actively grooming their successors. Meanwhile, the CFO s responsibilities have grown exponentially more complex. Going back to the 1980s, for example, a typical job description for the top finance position would have emphasized cash management and included such responsibilities as profit improvement and control of inventories and capital expenditure. A successful candidate for the position would also have been expected to introduce professional financial management planning to cover banking relationships and insurance. And the position was often called Group Financial Controller or General Manager, Finance and Administration. Today, however, the position is called Chief Financial Officer or Finance Director, titles commensurate with vastly increased responsibilities. The contemporary job description includes the ability to act as a strategic partner to the CEO, serve on the board, lead the finance function, and play a crucial role in presenting the public face of the company to investors, regulators, and policy makers. The CFO is also expected to change business processes to deliver improvements in performance, to be able to delegate appropriately, and to empower direct reports to perform at a higher level. In addition, more sophisticated financial markets, vastly increased organizational size and complexity brought on by globalization, sweeping changes in technology, and greater focus on governance, risk, and compliance present CFOs with unprecedented challenges. Ensuring a steady supply of top talent and an eventual CFO successor to fill this demanding new role has also become more complex. To better understand how outstanding CFOs, in the face of these new responsibilities and challenges, develop key people, we interviewed almost 20 exceptional CFOs on four continents. We explored their backgrounds and reviewed the CVs of another 20 CFOs to determine what contributed to their ability to get to the top. As this research and our interviews confirm, we believe that top CFOs can be developed and we provide here the insights of our interviewees about how such development can prepare CFOs for the increasing complexities of the role. 1 Egon Zehnder International

4 The CFO Journey The journey toward becoming an outstanding CFO (Figure 1) can start in many ways. A typical step is into the detailed world of technical accounting. This can come through any number of roles in finance, control, or reporting. A background in banking is also not an unusual foundation. But what is critical is to provide development opportunities that add to the basics. In the intermediate stages of a career, the budding CFO benefits from a diversity of experience. This diversity encompasses projects such as IPO or M&A experiences, or strategy, or even a stint in a line role. The expansion in scope is all about maturing as an executive. At this stage, budding CFOs are learning to step out of their comfort zones, take risks, and in doing so expand their intellectual, as well as relationship-building capabilities as an executive. As these CFOs suggest, there is no single career track that fits all, just the track of diversity itself, encompassing diversity of countries, of finance functions, and of jobs outside the finance function. Says Pierre-Jean Sivignon, CFO of Philips, I think it s a combination of three things the right locations, by which I mean international experience; the right companies, by which I mean companies that will take risks to grow you and develop you; and the right jobs, which means the right challenges. Ranieri De Marchis, CFO of the Unicredit Group, agrees. The potential CFO should be enabled, he says, to go outside, see the world, and live different experiences and challenges. It could even mean moving them to Sales, says Philips Sivignon. So when they re sitting in that chair addressing a particular customer and dealing with the question of how to convince that customer to place an order with the company, that is when they realize a totally different perspective. A key follow-on aspect of development is their level of impact and influence and the deepening of judgment beyond the professional to the broader business and commercial aspects. A period of consolidation of the earlier expansive experience is necessary for growth. This period enables the talent to bring together his or her knowledge and life experiences to contribute and connect at the most senior levels. Here, the soon-tobe CFO builds credibility with the board and with external stakeholders, as their views on business issues, over and above technical issues, become valued. As these CFOs suggest, there is no single career track that fits all, just the track of diversity itself, encompassing diversity of countries, of finance functions, and of jobs outside the finance function. Having had jobs with P&L responsibility, a role in running one of the company s businesses, and perhaps a posting to another country, these high-potential finance executives grasp the full complexity of the business, know how to lead and sustain change, and understand markets and customers. It is when the executive, says Rahul Gupta, CFO of Shinsei Bank, could move into a business partnering role and add value to the business. 2 Egon Zehnder International

5 Overcoming the Attitudes that Inhibit Talent Development It takes two to make this approach to people development work. First, it requires people with a real willingness to expand themselves and to work hard on things that aren t in their natural comfort zone. Second, the CFO must be willing to give talented people opportunities to stretch themselves in unfamiliar contexts. Most CFOs do a good job at developing the technical skills of their people in areas like tax, treasury, and control. Far fewer, however, are willing to send a team member to a run a division, take responsibility for a P&L, or to present to the board. In our experience, CFOs hesitate for a number of closely interrelated reasons: Risk-aversion: They fear that the executive will perform poorly in an unfamiliar role, potentially harming the business and reflecting badly on the CFO. The competency trap: Much of the aversion to risk stems from the fact that finance executives are often hired for their ability in a narrow specialty and CFOs simply assume that such executives are unsuited for a role outside of that area, even within the finance function. Figure 1 The CFO Value Chain Technical Depth Growing Relationship Result Accounting & Reporting Financial Planning & Control Financing Develop breadth (projects, line management, work offshore, strategy & M&A, IPO) Take risks step out of comfort zone Grow in strategic thinking and commerciality Learn to influence Lead people Build and connect: Business leads Boards External & internal stakeholders Begin to impact: Speak up Have sound opinions and business judgment A Top CFO Invest in people Establish and maintain strong mentoring relationships Set big challenges for talented executives Provide diversity of experiences Tie experiences to the CFO Value Chain Emphasize development of communication, relationship-building, and influencing skills at every stage 3 Egon Zehnder International

6 ... technical competencies are commodities easily purchased, but genuine leadership is much harder to acquire. To ensure a steady supply, it is far wiser to develop it in house. Short-term focus: In the interest of immediate, short-term returns, the CFO keeps people doing what they seem to do best in order not to disrupt the efficiency of the finance operation. Desire to keep the stars : It s entirely natural for CFOs to want to keep their most talented people close at hand. Paradoxically, however, to keep talented people it is often necessary to let them go to other divisions, other departments, other countries to develop their full potential and their long-term allegiance to the company. The reluctance to give people the opportunity to grow is misguided. Leaders, including group CFOs who aspire to be CEOs, are expected to have a reasonable appetite for risk. Given proven techniques for management assessment, the risk in pushing people into unfamiliar roles need not be great anyway. Further, technical competencies are commodities easily purchased, but genuine leadership is much harder to acquire. To ensure a steady supply, it is far wiser to develop it in house. And the CFO, by helping develop future leaders, including a successor, creates long-term value for the company that far outstrips whatever short-term gains accrue from keeping people in their places. Most tellingly, even a cursory glance at the résumés of our panel of CFOs shows a remarkable diversity of experience. A large number have spent significant portions of their careers working internationally, 11 of them in three or more countries. All of them have held the usual array of finance positions, but many have also headed a division, headed business development, served as COO, country manager, operations manager, or filled other roles outside the finance function. CFOs who are reluctant to provide such diverse opportunities to their people can overcome their inhibitions by recognizing that, in the long run, those attitudes are counter-productive. CFOs can then begin building leaders rather than technicians. Making It Work Although there is no single, universal career path on which a CFO can set high-potential executives, there are a number of practical principles that can be applied to help ensure that the company is developing not just talented finance people, but talented leaders: Establish mentoring relationships. A strong mentor can be invaluable in helping a high-potential executive learn the ropes more quickly, make wise career decisions, and build relationships. The importance of building relationships can never be underestimated, says Vodafone CFO Andrew Halford. Promising executives should be encouraged to seek out a mentor early on, and potential mentors should understand that they are expected to serve in that role. A good mentor can provide sound tactical advice on day-to-day issues as well as wise career advice. Mentors should also encourage their protégés to be open to new experiences and to have the confidence to move and try unfamiliar roles. 4 Egon Zehnder International

7 Providing diverse experiences doesn t mean random experiences... the more tailored development plans are towards leadership competencies, the more effective they are. Set big challenges for talented executives. A good leader is a person who has completed a large, challenging project successfully, says Shinsei s Rahul Gupta. Talented people grow quickly when confronted with stretch goals. Further, successfully meeting a difficult challenge has a positive impact on the personality. After such successes, people aim higher with more self-confidence. They also gain valuable exposure within the company, which can help them advance their careers and be entrusted with greater responsibility sooner. Provide diversity of experiences. Promising talents should be lifted out of their specialization. Within the finance function, talented people should be rotated into diverse roles that will require them to develop the requisite technical depth across the board in accounting and reporting, financial planning and control. Outside the function, they should develop breadth of experience through special projects, line management, work offshore, strategy & M&A work, and stints in different lines of business. This extends to activities beyond the organization. Mike Ihlein, the previous CFO of Brambles who has become the CEO, says, Up and coming CFOs (should) get involved in organizations outside their company. I would certainly encourage people to either get involved in other advisory bodies or other academic organizations or whatever just to get a different perspective. Emphasize development of communication, relationship-building, and influencing skills at every stage. These skills which become increasingly important to finance executives success as they move up the CFO Value Chain cannot be emphasized enough. As you move to a large public company, says Unicredit CFO Ranieri De Marchis, the amount of time you spend internally diminishes radically. Communication skills then become critical for dealing effectively with analysts, investors, and the board. Meanwhile, inside the company, relationship and influencing skills are especially important for acting as a strategic partner to the CEO and for maintaining credibility throughout the organization when tough decisions about allocation of resources, investor management, and the like have to be made. Develop an individually tailored plan: In a world where the technological and geographical playing fields are level, talent will increasingly become the critical competitive differentiator for successful companies. The development of top financial talent requires a willingness to invest time, resources, and management attention. Such investments need not be expensive executive management courses, although they have their place, but it could range from providing coaching opportunities to industry involvement externally. More importantly, they should be tailored to the individual. Providing diverse experiences doesn t mean random experiences. Although the sequence and nature of the experiences provided to high-potential talent will vary from individual to individual, the more tailored development plans are towards 5 Egon Zehnder International

8 leadership competencies, the more effective they are. A development plan needs to take into account the person s competency fit and gaps, match them against the requirements of their next role, and provide practical steps that would help develop the requisite competencies. Executives must also take ownership for their own development, and the challenge is for the CFO to imbue the team with that ethos. The Long-Term Return on Investment Careful development of talent is a long-term investment that pays steadily growing dividends both in terms of the CFO s company and in terms of the CFO s career as executives grow their competencies, create more value, and blossom into genuine leaders. For the company, superior talent development inevitably means improved operational performance and, often, business performance. Further, ambitious, talented people who see opportunities for their development are less likely to leave for other companies. The benefits are equally great for the CFO s career. Outstanding performance by the finance function or a number of its executives reflects positively on the CFO, not just for good judgment in hiring and promoting but, more importantly, for the foresight to pay attention to people development. Such foresight is likely to be seen as an essential ingredient in leadership, especially for a CFO who aspires to be a CEO. Even more specifically, the outstanding CFO can avoid getting stuck in the role because the board, in undertaking CEO succession planning, is reluctant to elevate the CFO to CEO and have to take a chance on an unknown quantity in the critically important CFO role as well. As one of the members of our CFO panel says, the CEO position is there to be grabbed. But only by those CFOs who have fulfilled two of the most important responsibilities for any leader getting the most out of people and grooming a worthy successor. Amsterdam Athens Atlanta Barcelona Beijing Berlin Bogota Boston Brussels Budapest Buenos Aires Calgary Chicago Copenhagen Dallas Dubai Dusseldorf Frankfurt Geneva Hamburg Helsinki Hong Kong Houston Istanbul Jakarta Jeddah Kuala Lumpur Lisbon London Los Angeles Luxembourg Lyon Madrid Melbourne Mexico Miami Milan Montreal Moscow Mumbai Munich New Delhi New York Palo Alto Paris Prague Rio de Janeiro Rome San Francisco Santiago Sao Paulo Seoul Shanghai Singapore Stuttgart Sydney Tel Aviv Tokyo Toronto Vienna Warsaw Zurich 6 Egon Zehnder International 2008