MECA Conf - CFO Strategic Partner - summary slides

SC email: [email protected] Dubai: +971 50 331 4583 Skype: SomersConsult

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©Fintan Somers 2015

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executing transactions

Improving Profitability

Transforming Finance

Functions

Trouble-shooting

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Presenta)on to MECA CFO Alliance Conference

Dubai, 19 August 2015

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Transforming Finance Functions

©Fintan Somers 2015 2

This presenta5on is a combined summary of the text and slides presented at the MECA CFO Alliance Conference, Dubai, 19th August 2015.

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SC email.: [email protected] Dubai: +971 50 331 4583 Skype: SomersConsult ©Fintan Somers 2015

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SC!email.: [email protected] Dubai: +971 50 331 4583 Skype: SomersConsult

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The CFO as a Strategic Partner

Good morning everybody. And welcome to the session en)tled “The CFO as Strategic Partner” My name is Fintan Somers and I specialize in suppor)ng businesses to deliver business performance improvement.

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The$context$

“How do we respond to a slow-‐burn loss of market-‐share or profitability? Or,

“Help! The business is in crisis or underperforming. What are the prac5cal op5ons for fixing this or, at least, limi5ng the damage?”

Some)mes the business requires an answer to a posi)ve ques)on: “How can we make more money, sustainably?” or

“How do we execute the changes required to achieve the strategy or business plan we have agreed?”

….But, unfortunately…

...oOen, I have had to deal with a very nega)ve set of circumstances: For example,

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The purpose of this session is to share with you my experience of being a Strategic Partner, as CFO, to the businesses I’ve served over the past 20 years, providing solu5ons in both posi5ve and nega5ve circumstances.

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Bad!Business!

Bad!Finance!Func,on!

Bad!Business!


Let’s start with a ques)on: “Does a Bad Business make a Bad Finance Func5on…

…or…

…does a Bad Finance Func5on make for…

…a Bad Business?”

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SC!email: [email protected] Dubai: +971 50 331 4583 Skype: SomersConsult


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Interna'onal*Assignments*completed*

I have served in a variety of interna)onal CFO roles with •  Standard Chartered Bank

•  Lloyds Bank

and, most recently,

•  Commercial Bank of Qatar

All of my assignments have involved improving business profitability and many have necessitated transforming finance func)ons into a more effec)ve support tool for the business.

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Strategy!Execu-on!

Debt!&!Equity!Financing!

Acquisi-ons!&!Disposals!

Business!Reposi-oning!

Finance'Func)on'Transforma)on'

I have been very fortunate as CFO to have had leadership roles in business projects involving: •  Strategy Execu)on

•  Business Reposi)oning

•  Debt and Equity Financing,

•  Acquisi)ons and Disposals…

…and, of course, Finance Func:on Transforma:on has featured prominently.

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Having developed and executed several finance func)on transforma)ons across a range of businesses and interna)onal loca)ons, I have been struck by the similarity of the challenges faced by under-‐performing finance func)ons and, for that maZer, under-‐performing businesses.

I have also found that the opera)ng model for an effec)ve finance func)on is pre=y standard. I have transformed several finance func)ons using a fairly simple opera)ng model.

Whenever I join the execu)ve team of a business as CFO, whether it is a high performing business or not, I am very aware that I have a brief honeymoon period during which I need to evaluate where my func)on can add most value and develop a compelling program that makes a posi)ve difference to the business. Then the pressure is on to deliver.

Some)mes the agenda is thrust upon you -‐ for example, a local, regional or global economic crisis, or stress, has put profitability or growth under pressure or crisis.

Whether based in the Middle East, the UK, the US, La)n America or Europe, I have found that under-‐performers share many of the same or similar characteris7cs.

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A good example of this was when, as CFO, I supported Lloyds Bank in limi:ng the impact of the Argen)na debt crisis…

…Financial markets forced an 80% devalua)on of Argen)na’s 1 to 1 exchange rate with the USD… …Argen)na defaulted on its foreign USD-‐denominated debt.

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80%$devalua+on$of$Peso$

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40%!loss!of!Peso!deposits!from!Banking!system!before!withdrawal!restric;ons!imposed!!

Argen)na’s dual-‐currency banking system went into melt-‐down…

Lloyds Banking Group had a full-‐service retail and commercial bank in the country.

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It is a good example of what might have been in store for Greece had it exited the Euro…

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…bank runs…

…civil unrest…

…extreme financial vola)lity…

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…appalling financial losses for savers, investors and businesses…

…and a very large propor)on of the popula)on reduced to poverty. Nearly 15 years aOer the event Argen)na is s)ll pre=y-‐well excluded from borrowing interna)onally.

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50%$increase$in$$

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Developing strategic op)ons in the midst of this carnage was difficult. But having stabilised the business, in this case, the strategic op)ons we developed were: Invest, Close or Sell.

But we managed to execute a sale and transfer to a local bank cleanly and successfully.

Gebng buy-‐in to execu)ng the “Sell” op:on was not an easy task: the situa)on was, understandably, extremely emo:ve, and many of the staff faced bleak futures, in an economy that was likely to be extremely compromised.

The challenge as CFO was to develop the financials around the three scenarios, get the local management team and the Group acquainted with the cost/benefit associated with the various op)ons…

…so they could understand and support the best op)on for the Group…

…which was to Sell (something that would have been difficult to do without the support of the local management team and staff).

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Another couple of examples are the work I performed as CFO in suppor)ng the resolu)on of Standard Chartered’s problems with a UK recession (the business was running losses of over £100 million while I was CFO)…

…and in containing the impact of the Asian economic crisis on its business in La)n America.

I guess one lesson I have learned is that the dynamics of the external environment need to be a big focus for the CFO and I’m not talking about the immediate market:

the World is now very interconnected.

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Whatever the business or environment you are dealing with, it is the responsibility of the CFO to shine a light on and put measurement around the material opportuni)es, risks, weaknesses or strengths that the management team should be focused on…

So, Crisis Management is one circumstance that the Strategic CFO has to deal with.

…No business is ever “just fine” and this is proved when you look at the lack of robustness of some businesses that look great in the good )mes, but struggle in bad )mes.

But some)mes the agenda for the CFO is less obvious, for example, when the business appears to be doing well but it is losing rela)ve profitability, posi)on or compe))veness. OOen this situa)on coincides with many on the management team thinking that things are “just fine”.

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For example, when I supported the reposi)oning of an Interna)onal Private Banking business…

To be fair, this was true for much of the industry.

If a business is weak in the good 5mes, it makes surviving the bad 5mes very problema5c. In this instance, business volumes contracted substan)ally globally, as did margins, and in a sub-‐scale business with a high fixed cost base this was a lethal combina)on.

The number of foreign-‐owned banks in Switzerland peaked at 169 in 2009, but had fallen to 122 by 2015

…it was very apparent that the nega)ve impact on the business of the 2008 Global Economic crisis was considerably amplified by the fact that the business had had indifferent performance in the good )mes.

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Businesses need to an)cipate and have the flexibility to react to sudden-‐shock or slow-‐burn changes: the businesses that lose out are oOen the ones that can’t or won’t develop an opera:ng model that supports this goal.

Of course, on a more posi:ve note, some)mes the CFO’s challenge may be suppor)ng a business with a material invest-‐to-‐grow program. In some respects this can be more challenging than a business-‐as-‐usual business. The CFO needs to be ever-‐vigilant in avoiding “Group-‐Think”, maintaining a construc)ve challenge on the assump)ons and opera)ng models suppor)ng the investment cases and developing MI to assure that plans are tracking to the investment case, the financing plan and the strategy.

And of course, if the external World changes, then it can be challenging to get the team to pull back on an investment program. In addi)on to dealing with a management team that is very emo:onally engaged in comple)ng what they started, you also have to deal with the possibility of accoun:ng or actual losses if you cancel or cut back.

Even if the Present Values work the accoun)ng losses s)ll s)ng and can be difficult to communicate. This can par)cularly be the case when nego)a)ng an acquisi)on: it can very hard to walk away!

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The need for an effective Enterprise Financial

Management Culture

So what has my experience taught me? What goes wrong? What do we need to do to get it right?

The crea:on of an Enterprise Financial Management Culture needs business ownership and leadership. Of course the CFO can facilitate and support its development.

In my experience, poorly performing businesses and management teams do not support and are not supported by an effec)ve Enterprise Financial Management Culture.

But unless the leaders in the business really get behind it and push for it to happen, it won’t happen.

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Owns!Executes!

An-cipates!

Manages!

Influences!

Performs!

Effec-ve!financial!management!culture!You can recognise an effec)ve Enterprise Financial Management Culture when everybody from top-‐to-‐boZom of the organisa)on:

•  is focused on influencing and communica)ng key performance indicators that demonstrate trac)on on the things that maZer

•  understands the linkage between financial performance and pay (and this linkage must be effec:ve)

•  understands and owns the overall financial targets and their role in reaching those targets

•  understands and executes the things that

need to happen to reach the targets •  is looking forward, an)cipa)ng problems

and opportuni)es that might affect financial performance, taking ac:on to fix or mi)gate problems and exploit opportuni)es

•  communicates and manages problems

and issues before they hit the reported results and opportuni)es before they are missed

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Owns!Executes!

An-cipates!

Manages!

Influences!

Performs!

Effec-ve!financial!management!culture!

I can preZy well guarantee that if you see a poorly performing business, one or more of these factors needs improvement.

If they fail on, or de-‐emphasise, one or more of these factors then it is likely that this fail or de-‐emphasis replicates all the way down the organisa)on.

And, of course, it starts with the leadership team.

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The leadership challenge of crea)ng an effec)ve Enterprise Financial Management Culture is a journey rather than a des:na:on. One reason for this is that it has human complexity.

Irrespec)ve of the tools you introduce, the human dimension of developing and maintaining a strong Enterprise Financial Management Culture can be the most challenging

Many of the problem or under-‐performing businesses that I have been involved in have had weak financial management cultures characterised by lack of proper KPIs, very basic financial modelling, limited compe:tor analysis, confused execu:ve accountability and weak business-‐performance-‐review disciplines.

How many )mes have I been in the situa)on where target sebng is unrealis:c, performance metrics don’t add up, performance management is anecdotal rather than factual…

And, of course, I have oOen found that management informa)on does not align very well with the strategy of the business.

-‐ not least, the risk that a lack of transparency about financial performance and accountability suits some people very nicely (and this can include some preZy senior people!).

Suits&some&people&

…the en)re focus is backward looking, with poor understanding in the Execu)ve Team of why the numbers are the way they are?

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In many businesses, par)cularly the ones that •  think that they are doing well •  where life is good and •  genera)ng profits appears to be easy …you find that focus on compara)ve performance and compe)tor benchmarking is de-‐emphasised as is performance analy)cs. AOer all, what’s the point of analysing performance if you are doing so well?

It came as a big surprise to the leadership team of one problem business, which I joined as CFO, when I compared the business to a strong compe5tor and discovered that: •  Our current staff produc7vity

was around half the compe5tor’s;

•  Our penetra7on of a key product in our product mix was around half of the compe5tor’s;

•  Our staff were being paid only 10% less than the compe5tor despite our much poorer profitability and produc5vity: either the compe5tor was paying their staff poorly for good performance, or we were paying our staff well for poor performance!

•  Our mul7-‐site opera7ng model was expensive and complex for our current and projected business volume. Even if we doubled volume we would s5ll be behind the compe5tor’s volume per manufacturing centre;

Suits&some&people&

None of this was new. Sure, some of the metrics were made worse as a result of the 2008 crisis. But the fact of the maèr was that the crisis just magnified pre-‐exis7ng performance issues. Unfortunately, the business was beyond saving at a cost and 5mescale that was acceptable to the owner. So it was sold.

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A second reason for a weak financial management culture is that it depends on the level of maturity you start from. A business that has been managed for years with a weak culture is unlikely to mature to be best-‐in-‐class any )me soon.

And it can be a challenge to convince the incumbent management that significant change is required. This is oOen the case where the growth of the business has not been matched by growth in the quality of financial management.

Maturity(

One business where I was CFO actually had Board and Exco members who were hos5le to any changes in the formats of the Board reports on the basis that “this company has been managed for years with the old formats. Why change?”… … which, of course, ignored the fact that the business was much bigger, more complex and there had been several changes in the market and regulatory environment that needed to be incorporated into Board briefings. It wasn’t a maèr of format, it was substance they were missing.

As another example, I joined a Chief Execu5ve who had been appointed to turn around a poorly performing business as his new CFO and he said, in frustra5on at the lack of forward looking informa5on: “It’s like driving a car whilst looking in the rear-‐view mirror!” Needless to men5on, that set my immediate objec5ves right there! But the serious point he was making is that you cannot run a business using historical financial statements.

You need to have a clear model of the drivers of financial outcomes, a clear understanding of what needs to happen in the future for the financial outcomes you require and the means to an7cipate and manage these future condi5ons.

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One business where I implemented a Finance Func5on Transforma5on found it extremely difficult to adjust to the new level of transparency in planning and performance metrics. It was not so much the existence of the new informa5on that was a challenge for them. In fact most people bought into it, agreed it and even appreciated it.

Maturity(

I have also observed that businesses with deficient Enterprise Financial Management Culture can oOen make a lot of noise about the inadequacies of the Finance Func)on, the IT Func)on, the HR Func)on, indeed every func)on except the parts of the business responsible for making money. Some)mes this is jus:fied, but, more oOen than not, you can find that the people making the most noise are the people most unwilling to accept their leadership responsibility to create the culture and that to be successful you need to invest in those func)ons.

The problem was that for the organisa5on to perform consistently, and sustainably, under the new transparency in business planning and management informa5on, changes in management style, opera7ng model and human resources were required that many people were unwilling or unable to accept or to implement. It became clear that many members of the senior leadership team wanted to go back to the old days and were unwilling to make the changes required to introduce a first class Financial Management Culture. So, there can be a high poli5cal quo5ent associated with the CFO job. Change is not easy.

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…and the noisiest businesses are oOen the ones where leadership alignment needs work. Good team members don’t make noise about one another. Great teams are not noisy…

Leadership*

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1.!Goals:!what!we!should!do!or!need!to!do!

2.!Roles:!how!we!organise!ourselves!to!do!it!

3.!Processes:!how!we!achieve!our!goals!and!how!we!ensure!that!if!the!plan!isn’t!working!we!change-the-plan-

4.!Rela?onships:!the!behaviours-and-values-that!keep!us!together!and!focused!

Team!effec?veness!

Goals!

Roles!

Rela?onC!ships!Processes!

To assess whether the leadership team of a business is performing well or not, I ask four ques)ons: 1.  Are we clear on the financial outcomes we

are to deliver? And are these appropriate?

2.  Are we clear on the accountability for the various components and prerequisites for delivering the financial outcomes?

3.  Do we all understand what needs to happen for the financial outcomes to be achieved? And I’m not talking about “move this number by 10%”, or whatever. The ques)on is “what drivers of performance need to move for this 10%”, or whatever, “to happen?”

4.  Finally: What are the rela:onships like in the top team? I know one thing for certain: unless the top team acts effec)vely as a team we will not deliver top-‐class financial performance.

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Several )mes in my career I have joined management teams where you could not unequivocally answer, “Yes” to the four ques)ons around quality of

•  Goal defini)on •  Role defini)on •  Process design •  Rela:onships

But, “Aaah”, I hear some of you say…

“…surely it is the job of the CEO rather than the CFO to enter into this par5cular minefield?” To which I reply… A cri5cal part of the CFO’s role is to advise and support the CEO on the maèr of securing financial outcomes so that CEO and the team’s performance is acceptable to key stakeholders. To do this effec5vely you need to walk in the CEO’s shoes and, as one of the very few members of the leadership team with the breadth of view of the CEO we are ocen the best-‐placed resource to suggest improvements to leadership team alignment where financial outcomes are concerned.

Leadership*

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But even if you get the top team aligned, Communica)on, par)cularly in larger organisa)ons, poses one of the biggest challenges in ensuring that the vast majority of people in the organisa)on understand the part they play in financial outcomes.

Recently I was speaking to a Chief Execu5ve in the Oil & Gas services industry. With the fall in oil prices many parts of this industry have got surplus capacity and this is likely to be the case for the foreseeable future. Rather than reappraising the medium term plans and op5ons available, he sees many businesses in the industry chasing ever-‐diminishing pricing into ever-‐riskier markets and clients. Clearly not everyone in the industry who does this can win and many of these businesses should, perhaps, consider taking a hit now to avoid even bigger losses in the future. But nobody likes taking the hits now, do they?

.

I have been surprised by how oOen I have come across people, and even quite senior people, who have worked for years for a business who have liZle knowledge about how the business actually makes money!

Commun&'ica+on'

Here’s the thing: in the absence of informa)on about the overview of how the business or their sec:on of the business makes money, most people working in the business will say, “I’ll s5ck to what I’m being paid to do.” Even if what they have been “paid to do” is unprofitable and needs re-‐appraisal and adjustment for some reason.

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I believe that Finance has the responsibility to share insight with the business on how we make money, how we can make more money and how we can avoid future losses by taking ac)on now. And this is not just restricted to the leadership team. Finance needs to work with the business to ensure that the financial outcomes expected of the Chief Execu)ve and the leadership team are translated into goals, roles, processes and rela:onships right down through the organisa)on so you get the bigger team alignment and delivery.

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Bad!Business!


Bad!Business!


So, back to our ques)on: “Does a Bad Business make a Bad Finance Func5on…

…or…

…does a Bad Finance Func5on make for…


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Well what is absolutely certain is that…

I have seen, many :mes, how under-‐investment in or poor leadership of the Finance Func)on and other support func)ons has been a big contributor to poor business performance.

…you cannot create an effec)ve Enterprise Financial Management Culture if you do not have an effec)ve Finance Team and other support func)ons.

Failure(to(invest(

Failure(to(implement(

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Suits!some!people!

Maturity!

Leadership!Commun5!ica7on!

Failure!to!invest!

Failure!to!implement!

Weak!financial!management!culture!So, let’s summarise some of the reasons for Weak Financial Management Culture: 1.  Some)mes, it suits people, par)cularly poorly

performing individuals or teams, to have a lack of transparency on financial performance.

2.  Some)mes, it is the level of maturity of the business… for example growing businesses whose financial management culture does not evolve as they grow – very dangerous.

3.  Some)mes you can have an absence of leadership team alignment about what is needed and who is responsible, etc. I have seen how difficult it can be for Chief Execu)ves to get alignment of the team: powerful people some)mes have powerful opinions.

4.  OOen, it is compromised by poor communica)on down through the organisa)on.

5.  And a big contributor can be failure by the business to invest: you get what you pay for. I think many of you will recognise the situa)on where Finance and other func)ons are cri)cised about inefficiency, lack of management informa)on, etc., but no money is made available to fix anything un)l a crisis happens and then, of course, it can be too late.

6.  Worse s)ll, I have seen cases where money has been made available to transform the Finance Func)on but despite considerable investment the transforma)on has not happened. On more than one occasion I have inherited the situa)on where the CEO and business leadership has lost complete faith in the Finance Func)on because of this. Big spend has happened, generally on IT, with li=le or no improvement.

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The star)ng point for developing an effec)ve Finance Func)on is to look at objec)ves: I can’t over-‐emphasise the importance of this step.

All leaders, including CFO’s, need to spend a lot of :me on developing objec)ves, communica)ng these to the team and gebng buy-‐in from the team. If you don’t tell the team what they need to achieve or if they don’t agree to do it, then don’t be surprised if you don’t achieve it.

And the problem, of course, is that it is not simply a ques)on of communica)ng the overall objec)ve and expec)ng the team to get on with it.

To be successful in the overall objec)ve, you need to translate it into a range of sub-‐objec)ves, organisa)on, processes and behaviours so that you, as the leader, and the team, have a reasonable probability of success.

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1.!Goals:!what!we!should!do!or!need!to!do!

2.!Roles:!how!we!organise!ourselves!to!do!it!

3.!Processes:!how!we!achieve!our!goals!and!how!we!ensure!that!if!the!plan!isn’t!working!we!change-the-plan-

4.!Rela?onships:!the!behaviours-and-values-that!keep!us!together!and!focused!

Team!effec?veness!

Goals!

Roles!

Rela?onC!ships!Processes!

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Being a CFO: Core Objec)ves…

The first step in developing an effec)ve Finance Func)on is to get back to first principles: what is the point of it all? What are the objec:ves of the CFO? Clearly communicated, these objec)ves will form the basis for much of what the

finance team does. They also, to some extent, dictate the personality of the team (and the business for that maZer… remember our earlier examina)on of Financial Management Culture).

The objec)ve I use is:

This statement emphasises three important levels of focus for the CFO and the team:

1.  We are in the rela)onships business, suppor)ng the senior management team.

2.  We are in the building profitability business: we are not just scorekeepers, we influence outcomes.

3.  We are in the line-‐of-‐defense business against unsustainable or non-‐compliant plans or ac)ons. Again, we influence outcomes.

Support'the'CEO'and'the'Execu2ve'Team…''''''''''''''

…in'building'a'sustainable'and'

profitable'business…'

…in'a'manner'compliant'with'the'policies'and'interests'

of'the'business.''

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Let me expand a liZle on the core objec)ve:

Partnership implies some form of equality in terms of genera)ng outcomes. I have been on the receiving end of enough abuse from poorly performing business heads to understand the difference between our respec)ve roles. The Business is the Business; Finance is Finance; they deliver; we support. It is important to be clear on this dis)nc)on.

Clearly the Finance Staff that conspire to overstate profits in the seemingly never-‐ending string of reported accoun)ng frauds took their “Business Partnering” jobs a li=le too seriously (as did, some)mes, their regulators and the partners in their audit firms).

However Strategic Partnering is a different maZer: here the CFO works with the leadership team to contextualise performance given the market and compe))on; to define the financial models and the drivers of financial performance; and to work closely with the business to constantly improve insight, resource alloca)on and decision-‐making to op)mise financial outcomes.

Support'the'CEO'and'the'Execu2ve'Team…''''''''''''''

“Support”9'careful'with'“Partnership”'

Note that my objec)ve says that the Finance Func)on supports the CEO and Execu)ve Team. Now you will hear the expression “Business Partnering” used a lot as a target objec)ve for the CFO and Finance Func)on. In my opinion we need to be very careful in the use of this term.

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Building(a(sustainable(and(

profitable(business…(

Sustainable(=((Shareholder(value(

My objec)ve also states that it is not good enough to develop a Profitable Business. The profitability needs to be sustainable:

Many business leaders, including some of the most successful, effec:ve and ethical leaders I have worked with, have been prepared or tempted to cash in some future profit to look good in the present. This is a par)cular tempta)on when financial performance is under pressure.

This is not an easy task; life and business decisions and outcomes are not always a simple maZer of “Yes” or “No”. Business, like life, is a nego)a)on. But it’s a difficult nego)a)on. And some)mes Finance makes the wrong call…

And it is also an unfortunate consequence of quarterly repor)ng by Public Companies: the market seems to expect a smooth quarterly growth path and gets spooked if this doesn’t happen.

And this despite the fact that most sensible people know that quarterly earnings generally involve a bit of a random walk and if you do have a consistently smooth paZern, something is wrong.

The CFO and the Finance team have a clear responsibility to set the “moral tone” surrounding the sebng and achievement of financial outcomes so that profitability is sustainable.

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I nego5ated one of the last sub-‐prime asset sales to Lehman Brothers before they crashed in 2008.

Building(a(sustainable(and(

profitable(business…(

Sustainable(=((Shareholder(value(

“Investment banker magic” so-‐to-‐speak.

When I analysed the sale for the Board report, I could not understand why Lehman had paid so much for the porholio. Because even though I made a book loss on the sale, the through-‐the-‐cycle loss from the porholio was several 5mes the book loss.

I concluded at the 5me that Lehman must have had the means for elimina5ng this risk from their balance sheet. Acer all, no sensible person, holding the porholio to maturity, would have paid what they had paid.

Where was their finance and risk direc5on while all this was happening?

Of course there was no magic.

It subsequently transpired that Lehman had been accumula5ng illiquid and over-‐valued assets on its Balance Sheet for years (including my li`le porholio) and that it was a Ponzi scheme of sorts, supported by poor accoun5ng standards and poor regula5on.

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…in$a$manner$compliant$with$the$policies$and$interests$

of$the$business.$$

Use$common$sense;$avoid$group:think$

I’m also saying that the CFO has a responsibility to assure that the way that the business makes money is compliant with the policies and interests of the business:

I have seen Finance people back away from engaging with and influencing policy decisions in the business -‐ on the basis that no laws were being broken -‐ but which decisions were clearly worthy of debate.

This is not just about legal and regulatory compliance; it is also about the spirit of what is right for the shareholder.

For example: what were some Bri5sh banks thinking when they made the policy decision to go big on Payment Protec7on Insurance? Any right-‐thinking person could have seen that this was a disastrous course to take.

For example, this decision has cost Lloyds Bank over £13 billion in financial recompense and penal5es, and an incalculable amount of lost shareholder value in the form of destruc5on of customer trust, brand, and regulator and government rela5onships.

To put the £13 billion in perspec5ve: in 2006 before the crisis hit, the Retail Division of Lloyds generated a profit contribu5on of just £1.5 billion and the overall profit of the Group was £4.2 billion.

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So, in summary, the top-‐level objec)ve of the strategic CFO means that he or she is: •  in the rela)onship management business,

•  in the building profits business and

•  is a key line of defence for shareholders to ensure that the future is not cashed in to make the present look good.

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Being&a&CFO:&Core&Objec1ves…&

Support!the!CEO!and!the!Execu2ve!Team…!!!!!!!!!!!!!!

…in!building!a!sustainable!and!

profitable!business…!

…in!a!manner!compliant!with!the!policies!and!interests!

of!the!business.!!

“Support”B!careful!with!“Partnership”!

Sustainable!=!!Shareholder!value!

Use!common!sense;!avoid!groupBthink!

Unfortunately, as recent history has shown, many CFOs either do not engage in, or lose, the sustainability debate with their CEO and leadership team colleagues.

For shareholder value is about sustainability not the quick buck.

All of which illustrates just how difficult the job is!

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8

Bad!Business!


Bad!Business!


So, back to our ques)on: “Does a Bad Business make a Bad Finance Func5on…

…or… …does a Bad Finance Func5on make for…


OK: •  I do not believe that all businesses that run

into trouble have had bad Finance Func5ons. Just as…

•  …I do believe that if you do not have an effec5ve Finance Func5on, you do have a much higher risk of running into difficul5es,

par5cularly if the World changes (which it does all the 5me).

•  …I do not believe that all businesses that are doing well have excellent Finance Func5ons. But…

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If I had one message from my experience it is this:

Only the paranoid survive and a big part of the job is to be paranoid (within reason).

Success&breeds&complacency&

Complacency&breeds&failure&

Only&the&paranoid&survive&

Andrew'Grove'(Intel'CEO)'

Documents

MECA Conf - CFO Strategic Partner - summary slides