The choice of person to head up the finance function is crucial to the success of an organisation, so bear in mind the following considerations, advises Len Jones
Many MBA graduates have aspirations to attain the role of CEO, and whether it is in their own business or someone else’s, will have to deal with people in key positions.
You will come to learn (if you haven’t done so already) that you will need an up-close and personal relationship with your head of finance.
Speaking as a chartered accountant and MBA graduate, I sometimes feel bemused by some of the course content on finance modules. The objective of finance modules is not to turn you into accountants, but to give you enough of an idea about the financial landscape to ask the right questions.
The amount of time devoted to finance in a typical MBA curriculum is time well spent, because it provides access to the concepts and frameworks in which finance specialists operate; CEOs should understand that their relationship with their finance chief (whatever his or her title) is a crucial part of what makes the business tick.
A technically proficient finance chief can be brought in from the open market and the first consideration for offering him or her the position should be a technical qualification equivalent to an MBA, in order to set the bar on a technical competency level.
But the underlying approach to the job itself – and business in general – is more important, so interviewing finance directors is a good opportunity to recruit the right person. There are also instances where you may have inherited a finance chief or the finance function may not be as effective as it could be, due either to a breakdown in this relationship or a change in behaviour of one or both parties.
It may well be that the time has come to take stock and possibly consider a different approach to finance – and maybe a different leader.
On the occasion that the decision is made to change the finance leader, what are the key considerations? It is useful to explore quality of experience and ways of approaching the role of finance chief. When the CEO is deluged with a host of impressive CVs, there are some areas which require an answer either through the initial sift of CVs or at interview stage.
What is the applicant’s knowledge of the business and the sector?
At interview, candidate knowledge of business and sector depends on the quality of the job description, emphasis on key duties and potentially any internal documents you may want to share with applicants.
There will be information that is in the public domain (for example Companies House, the corporate website, LinkedIn or other social media) and these should form a starting point for discussion. You should expect the candidate to have undertaken some form of SWOT analysis and it may be helpful if you asked for that in advance. Knowledge of the sector and the opportunities for growth would be a positive conversation to have at this stage.
It is unreasonable to expect the candidate to know the nuts and bolts of your operation, but you would expect some ratio analysis gleaned (at the very least) from published accounts and discussions around margins, fixed costs and gearing, and the discussion should be at a high level; you could also present candidates with hypothetical issues and see what sort of response you get. This will give you an indication of their thoroughness and preparation.
At this stage, the conversation should also be about commercial awareness and emphasis on management as opposed to financial accounting, so business partnering skills should be a topic for debate. Again, sector statistics and possibly market segmentation analysis would also be a useful sign that some homework has been done.
The qualitative and technical elements the candidate can bring to the role
Qualitative and technical elements that you’ll want to investigate are best split into a discussion about qualifications, how up to date the candidate is, and how they plan to keep themselves up to date.
You should also be looking at their networks and how they add value to the greater network and knowledge base in the finance community. Attendance at events, networking and discussion groups, and magazine contributions should always be mentioned here. If a candidate has more than one qualification, that should be discussed for relevance to the role.
Considering qualitative issues is more about experience and approach. There is no one particular ‘type of personality’ required to be an excellent finance leader and there can be equally good introvert and extrovert accountants. In saying that, you may want to gain an understanding of how the candidate delivers the emotional, social and political intelligences they possess, and closely observe the way they communicate and act.
If candidates have additional skills outside of finance (for example IT, HR or negotiation experience) they could be discussed at this stage because these will bring additional qualities to the role over and above the expected technical detail discussed earlier.
The personal aspirations to make the role work for the employer and employee
Talking to candidates about their personal aspirations is a chance to differentiate one applicant from the rest of the pack. Stronger candidates will want to show how their knowledge and experience is just what you are looking for and what they bring to the finance function. They’ll want to demonstrate how the finance function can add value to the organisation, so you should expect to hear the words ‘stability, integrity and accessabity’ as well as provision of relevant, timely and accurate information upon which to base rational decisions and eliminate bias.
It would be a bonus if the candidate mentioned improvements in cultural awareness about financial training, literacy and the role of finance in business, as well as reiteration about sustainability and ethics in your decision-making at every level, based on hard facts and defined plans.
If the candidate talks about curating the existing business model and devising areas of further improvement for revenue earnings, innovation and cost leadership (including minimisation of bad debt) then that also would be a good time to discuss this further.
Take the opportunity to examine what the candidate will get out of this role and how communicative, caring and empathic they are. Find out if, for example, they want to mentor, train and refresh minds (including their own), pass on and add to skills in developing people.
Find out how they plan to improve their knowledge of the firm and behaviour and keep striving for perfection in finance and this particular sector. And ask how they intend to contemporise their business thinking and exciting ideas within the digital spaces being created by the fourth industrial revolution.
Fundamentally ask yourself whether this candidate going to make a difference.
Ask for an outline of what can be achieved in the first month and quarter
The final question is perhaps a tricky one and it assumes a level of financial literacy on the part of the CEO. In some ways, it is trying to agree a measure of success or benchmarks in order to assess the candidates’ abilities and whether you have actually achieved a line of best fit.
This is also a good opportunity to understand the technical expertise and candidates’ understanding of due diligence.
If a candidate is asked to produce a plan of what will be achieved in their first month or first quarter, there is no one correct answer because it depends on the current stage of the finance function and the drivers that influence its makeup and composition; however, there are some things that should be made clear.
First month
Overall, the approach should be resource-based view of operations and finance function, in the form of an inventory approach to profit. The candidate should examine current methodology and understand finance and behavioural effect on business.
More specifically:
- Review the timetable for production of key information – board packs and key performance indicators; monthly cut-offs and deadlines.
- Reinforce reporting cultures including compliance reporting accuracy; in other words, who wants what, where and when?
- Understand current methodology for production of accounting information including IT capabilities and software with emphasis on balance sheet carrying values. This is because the balance sheet is where unresolved issues are parked and it is easier to spot anomalies and poor accounting processes if trial balances are not regularly reconciled
Reconciliation of all trial balance and key control accounts should be specific and business linked to wider organisational anomalies, so in the first month a new finance leader should dig deep into:
- the business’s bank, including proper allocation, posting and coding
- assets and/debtors for correct identification and valuation
- stakeholder funds reconciliations
- all trial balances to ensure they have supporting analysis and correct ageing
- business drivers for understanding how they feed into the finance function
- working capital and cash flows.
Months two and three
In the second and third successive months, a new finance leader would build on what they’ve discovered in month one, repeat the process and then get to grips with other areas of responsibility. This would comprise the following:
- positive reinforcement of progress in month one
- instilling the value of timeliness, accuracy and monthly cultures into KPIs
- improving budgetary controls, key stakeholder information requirements and reporting cycles
- understanding current revenue drivers and new client business acquisition processes (in other words ‘how do we sell?’)
- improving accuracy and timeliness of data provision with executives and recording management meetings
- monitoring and controlling cash flows and payment and receipts cycles with daily bank reconciliations and notices of unpaid items
- ensuring people are paid on a correct basis (including payroll)
- one-month, three-month and six-month forecasting.
- understanding HR policies around expenses, contract authority and sign-off levels and general behaviour (including job descriptions and contracts of employment)
- assessing, developing and improving risk registers and mitigation strategies
- meeting key budget holders and commencing the budget planning cycle
- promoting forward thinking and introduce business partnering
- assessing and improving corporate culture and role of finance in thebusiness
- understanding operational requirements of senior personnel which includes communication by a variety of methods with key staff
- reviewing physical locations of finance staff.
Specifically this would comprise:
- weekly/periodic reporting to the senior management team about progress, ideas and initiatives and direction of travel and general organisational feedback about performance to date and change/transformation management
- the building up of profit and loss account disclosures to compare with budgets as a sanity check only at this stage.
These are not prescriptive and they depend on the state of the current finance function, but they are a useful checklist and may help devise some milestones to ensure that the best candidate gets the job.
The issue, however, when faced with this plan is the fine balance between observing and improving, and the pressure to stamp a different style on the finance function at the expense of upsetting the mainstream and established organisational culture. The trade off and the pressure to act is a difficult one and the overarching principle must be to have regular dialogue with the CEO and senior executive team to understand the implications of change, so classic change management techniques come into play.
Conclusion
As with most relationships, the early stage is crucial and this article only scratches the surface of selection processes and conversations that may be both difficult and necessary at the outset. The choice of person to head up the finance function is crucial to the success of the organisation as it is a high-profile appointment.
The appointment of the right person may not be achieved via a tick-box methodology and it should be a more of a conversational approach at interview. However, finance personnel tend to enjoy structure in their life (and everyone loves certainty) so these areas may help you elicit and find the best candidate for the job.
Even if you are not looking for a new head of finance, take time to talk about these questions with the current incumbent. Who knows, it might be a refreshing conversation.
Len Jones is the Former Chairman of AMBA’s International Development Board
