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Robert Bruce
Gemma Townley

YOU are a financial genius. You have come top in every examination, from maths A-level through to your MBA and the CIMA finals. You know your accounting standards (both local and international) by heart and you have been heavily involved in the debate on regulation. Think you're ideal for the role of chief financial officer (CFO) in a large company? Think again.

A command of the numbers is a pre-requisite, of course, but today the job also requires business knowledge, market awareness, the ability to negotiate and great communication skills. The CFO of Dutch electronics giant Philips, Mr Jan Hommen, believes that commercial knowhow will soon be as important as financial acumen, if not more so. "The CFO in the year 2010 will be a person who has been in a number of roles, both financial and business," he says. "They will be people who understand the finance function, but can also run a company."

Interpersonal skills are now essential for the job, according to Mr John Schmoll, CFO of Coles Myer, Australia's best- known department store. "We will be looking for people who are happy not to work in the back room — people who enjoy communicating and working in teams," he says.

Mr Norman Lyle, group finance director of Jardine Matheson in Hong Kong, agrees that softer skills are coming to the fore. "The best way I find of ensuring that our internal controls are working is talking to people and looking them in the eye. If someone doesn't like meeting people and doesn't enjoy the cut and thrust of business, they are unlikely to become a CFO. Historically, if you were a good numbers person and sat in the back office you could be a good CFO. Not any more."

Ms Angela Holtham, senior vice-president and CFO of Nabisco in CAnada until recently, says: "The role is changing from being the guardian of the books — doing all those things that don't add value but need to be done. The role is moving to the business side and away from the transaction side." Although soft skills are taking on new prominence, a hard understanding of capital investment must underpin them all. "It is a question of trying to run the company at the lowest cost of capital but at an acceptable level of risk, trying to get an appropriate risk profile and to keep the cost of debt and equity as low as possible," Mr Schmoll says.

Mr Lyle, who was CIMA's president in 1998, believes the banks' approach will be critical in this area. "They are being driven towards fee-earning rather than lending as their main activity," he explains. "They will be keener on bond issues, for example, so they can get the fees without long-term risk."

And the Basel accord on capital ratios will only heighten this trend, according to Mr Lyle. "The banks will be pushed towards fee-driven income to drive up their return on equity. So margins on lending will increase. The CFO will have to understand where you can get access to capital, particularly in growth businesses," he says.

He or she must be able to negotiate effectively with investment banks and venture capitalists. This will mean more emphasis on treasury skills, which in turn will mean more dependence on management accounting.

Mr Heinz-Joachim Neuburger, head of corporate finance at Siemens, thinks treasury will grow in importance over the next few years, largely because of today's economic turbulence. "Accounting is relevant, but to keep a company afloat in difficult times treasury and cash are the important things, not book profit," he agrees. "The importance of treasury grows in a more difficult macro-economic environment. The most crucial job for a CFO is to ensure that the company can meet its obligations at any time."

Global accounting standards are unlikely to be helpful for CFOs in multinationals, according to Mr Hommen. "The US and the international accounting orgaanisations are getting into a big conflict," he says. "Companies will have to maintain different sets of books at great expense to satisfy the regulators. Big multinationals will become more feisty, because they will have to produce several sets of accounts."

The prospects of a simple solution are not good, Mr Hommen suggests, "I'm afraid that the harmonisation of standards will not happen. It will be an opportunity lost. The accounting professions want to have as many opinions as possible, and national governments find it hard to allow someone else to set their standards, so I don't expect much more clarity. I hope I am wrong, because it would be a big benefit if we could get harmonisation."

Mr Iain Lumsden, finance director of Standard Life in the UK, is worried that over-regulation will reduce the efficiency of his organisation. He says it has suffered at the hands of the Financial Services Authority, which is becoming far more interventionist and has not helped much in crises such as the Equitable Life debacle. He believes that a similar approach in accountancy regulation could be disastrous. "Regulators insist that you set up risk-management bodies, but they also prescribe the ways of reporting risk and the organisational structure required. Incompetence stems from regulatory pressure."

Corporate governance is another area that is climbing the agenda of the CFO, who "has to be there to watch, should the chief executive start going astray," says Ms Angela Holtham. "The CFO's viewpoint is so broad — they get to see everything. The other functions within the organisation don't."

This could mean clashing with the chief executive, she warns. "If the CFO disagrees on strategy or on the impact of some action, they have to learn to work it all through with the chief executive without damaging their important relationship. It is never easy, but you have got to do it."

While investor relations and corporate governance are now within the domain of the CFO, share-price management needs to be approached more cautiously, Mr John Schmoll argues. "It's not our job to manage the share price; that's for the market. You run the risk of giving the market only the good news and not the bad news — and bad news does have to be passed on," he says.

"There's a trend towards getting your shareholders far more involved in decision-making," Mr Hommen says. "They will become much more powerful in deciding governance elements such as salary levels, bonuses, stock options and other types of special decisions. This means that the board of directors will become highly professional outsiders, and this in turn means that getting good board members will become harder."

With this new emphasis comes the need for better information and a sharper focus on investor relations, he argues. "It will be so important to make sense out of the information and to explain the business model."

Mr Tony Isaac, chief executive of the BOC Group in the UK, agrees. "Anyone who becomes a CFO has not had experience of investor relations before and it's pretty steep learning curve," he says. "Companies will go to many different marketplaces for equity or debt. More and more UK firms have American listings and are also trying to grow a set of relationships with French, German and Dutch shareholders, for example. This trend will accelerate."

Mr John Connors, CFO of Microsoft in the US, believes that globalisation is also likely to have a big effect on investor relations. "There will be a need to manage the investment community globally," he says. "You will no longer be simply talking to a handful of analysts."

But Mr Norman Lyle sees risk management as the biggest issue facing CFOs over the next few years. "The CFO will be the person to identify the key risks that could cause major movements in share price," he argues.There is a tendency for chief executives to never think of control as being part of a CFO's role until things go wrong, according to Ms Holtham — and then they see it as central to the CFO's role. "The CFO is going to have to be good at ensuring that accidents never happen," she says, which means seeing all the warning signs early and spotting when things are heading in the wrong direction.

But this does not mean taking on strategy, Mr Connors stresses. "When I hear that a strategic plan has come out of a company's finance function, I know that it's a stock to avoid," he says. "The finance function should be the ballast — product people will always want more resources and salespeople will always be overly optimistic. The role of finance is to validate and challenge their assumptions."

One area of risk that is likely to require close attention is pensions. For Neuburger, it is an issue that cannot be ignored. "The whole question of pension commitments will create a drain on cash and consequences for the profit and loss account. I am not sure it has been suitably addressed. It all needs to be re-evaluated and when that happens the whole question of the allocation of investment between stocks, bonds and real estate will surface," he says.

Ultimately, the key to success is to deliver on your promises. But a great CFO cannot succeed if their chief executive is not strong enough. As Mr Connors point out, "the chief executive needs a strong team and the CFO has to be part of that. But people need to know where the buck stops. And that has to be the chief executive."

(Edited extracts from Financial Management, a journal of CIMA, London. www.cimaglobal.com)

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