This article was first published in the January 2013 China edition of Accounting and Business magazine.
CFOs occupy a middle ground that requires them, in order to be effective, to be well versed on micro issues while keeping a firm eye on the big picture. It can be a difficult balancing act, but one that is necessary for CFOs to take on critical leadership roles within large companies, working in partnership with the CEO to guide an enterprise forward, all the while acting as a useful adviser to the board, said participants at ACCA roundtables, The Value of the Modern CFO, held in Beijing, Shanghai and Shenzhen last September and October.
CFOs are key to the growth both of business and economies, said David Wooton, the then mayor of the City of London, who opened the Shanghai event. All told, said Wooton, a full third of board members of FTSE 100 companies on the London Stock Exchange are accountants.
In London, for example, CFOs are a ‘key part’ of the city’s offer as the ‘only truly global’ financial centre. And, as they are in London, high-calibre CFOs are also key to the evolution of Shanghai as a financial hub.
Not all accountants are CFOs and, practically speaking, not all CFOs are accountants. But accountancy credentials can help finance professionals grasp the fundamental aspects of credits and debits that are so important to the understanding of a business, panellists said.
A CFO’s job is to transmit the numbers to the board and key executives, said Johnny Lau, CFO, Spring Group, which includes low-cost carrier Spring Airlines.
‘[They have to] focus on the profitability, focus on the financial health of the entire company,’ said Lau, adding that in China, ‘Why?’ and ‘How much?’ are always the two missing questions.
At the end of the day, the CFO is the link between business and an often complicated regulatory environment. This is particularly true in the evolving China market where laws are almost always in constant evolution, regulations not always clear and companies may have to successfully navigate grey areas. An effective CFO would, in this case, be the navigator. More than that, however, he or she needs to be eloquent in this – not only guiding a company through difficult waters but convincing everyone why certain moves are necessary.
‘My key role is as a bridge,’ said James Pan, FD for Greater China at Minor Food Group, a Thai conglomerate. ‘Sometimes I feel that my bosses in America or Thailand don’t understand the China environment.’
That means that local knowledge can be a plus. Such knowledge can help a CFO and those above them understand the nuances of local laws, regulations and compliance requirements. In so doing, CFOs can add a certain amount of value to a company, particularly a listed one.
‘If the economy is not good, the CFO can give a pre-warning to fund managers so that they are psychologically prepared for bad results,’ said Gao Yunfeng, president, Han’s Group, speaking at the roundtable in Shenzhen. ‘The CFO can create value for a firm, just like those of business departments.’ The secret, said Gao, is for the CFO to help the company review the past, manage the present and plan for the future.
Foreign vs local
In addition, international companies may also need someone who can move comfortably through the distant halls of multinational head offices. CFOs should be able to communicate those on-the-ground financial realities to regional or global head offices who are less concerned about the regulatory hurdles that may impede the implementation of a particular strategy and more focused on how to navigate those challenges.
‘You really have to look at the individual,’ said Martijn Vankan, FD, Shell China, speaking at the Beijing event. ‘Somebody who can relate to the local culture is very valuable, but somebody who knows head office and has spent some time in China is also valuable.’
In many ways, cultural differences can have a very real impact on job performance. ‘Asian culture is to be humble, not to have confrontation or conflicts with others,’ said Li Xia, vice president of financial service, at Volvo Car China, speaking in Shanghai. ‘When you take a very senior position in an organisation you might have a psychological consideration in saying “no” to your boss.’
This is less of a problem among the younger and more educated professionals who are now entering the profession or starting to move up the ranks of middle management. Nevertheless, it remains a concern for directors – particularly foreign ones – while remaining a barrier for local professionals. On the other hand, it is a barrier that the best professionals are truly aware of.
Ultimately, said Lau, the CFO has to keep in mind that he or she works for multiple stakeholders, even if the idea of the lao ban or ‘big boss’ that rules over an organisation remains very much in play, particularly in the larger state-owned organisations in China.
‘Who is the boss of the CFO? Is it the CEO? Is it the board? Is it the whole company?’ asked Lau.
Taking the top job
The picture of the ideal CFO that emerged from the discussions sets the bar high, particularly for finance professionals looking to shift into business leadership roles – to change the ‘F’ to an ‘E’ – as Li hopes to do. For these ambitious CFOs, the role is much more than just numbers, she said.
‘If you always stay with the numbers, even though you understand the business model perfectly, you may not understand the market,’ she added. Li believes, however, that the CFO is not a natural CEO. ‘It is much easier to do backseat driving than drive the car yourself,’ she said.
CEOs who participated in the events put forth a similar view. A gatekeeper CFO certainly has a role to play but it is not always the one that top company executives are looking for. Cheng Hei-Ming, director and chief executive at KaiLongRei Investment in Hong Kong, said that CFOs should look after the figures but that is only the first part of their job. A truly effective CFO should also be a partner to the CEO and other business heads. They should be open minded and willing to find ways to solve problems, rather than just throwing up the regulatory roadblocks they encounter. ‘CFOs often say, “you cannot do this, you cannot do that”. But a CEO’s job is to make decisions,’ he said.
There is a tendency among Chinese CEOs to overlook their CFOs. Changing this requires constant work on the part of the CFO to educate the CEO. ‘Once he understands you, he will include you in his team,’ said Gao. ‘If the CFOs can implement their leader’s ideologies they will increase the trust headquarters has on them. Your boss will value you more and more and your position will become higher and higher.’
The search for talent
For corporations, finding and nurturing this ideal CFO can be as challenging in China as anywhere else. Although there are plenty of talented people, only a small portion have a significant amount of experience working for large or multinational corporations, and fewer still have the type of built-in, wide-angle lens that companies need.
At the same time, there is still a penchant for constant job hopping that makes retaining top talent difficult. The idea of building a career with a single multinational takes a back seat when a 40% salary jump is on offer. As a result, companies like GE Healthcare China put a lot of emphasis on nurturing their talent and keeping it, explained Roberto Mello, the company’s CFO.
Whereas a young Chinese professional may have several jobs on their resumé, it is not uncommon to find foreign professionals who spend their entire careers working for a single company. Mello, for example, has worked his entire career for GE. Another speaker at Beijing, Annie Sun, CFO at EMC Computer Systems (China), was a visible counterpoint. Since 1993 she has worked for China Construction Bank, Motorola and Hewlett-Packard.
Another factor at play is that smaller companies may not have the scope of work for a true CFO. In addition, asserted Tian Maoyong, publisher of CFO World and moderator of the Shenzhen event, most Chinese CFOs still see their role as an accountancy one.‘You cannot learn from the accounting subjects how to do strategic management and investor communication,’ said Tian. ‘If your knowledge is outdated, it is very difficult to become a value-adding CFO.’
Another issue is communication. An effective CFO should strike the right balance between communication and tact, particularly with the board. There are times when the local penchant is to keep quiet, despite the importance of speaking out on an issue. ‘The purpose of communication is to create an atmosphere of trust,’ said Sun.
It is difficult to understate the importance of communication, said Lau – almost as difficult as it is to master this seemingly simple skill. Furthermore, it is not only about imparting information and advice to bosses who need to have a strong grasp of the business but also being able to elicit important information from them. ‘Communication is a very difficult thing, but it is very important,’ Lau said. ‘You need a lot of communication.’
Speaking in Shenzhen, CFO and vice president of Yulong Computer Telecommunications, Joanson Jiang, pointed out that it is up to the CFO to implement a company’s strategy and decisions taken by the board and shareholders.
‘The ultimate goal is to maximise shareholders’ benefits and increase the company’s market value,’ said Jiang. He believes that a successful CFO has immense knowledge of the job and company as well as ‘unique thinking’. A CFO has to know how to structure a deal and lead a team through it.
A tale of four cities
The roundtables in China followed a similar exercise in Singapore last March, when ACCA brought together directors and company executives to hear their perspectives on what makes a CFO valuable.
The views in China echoed, in large part, those that emerged in Singapore while taking into account the realities of the China market. Chiew Chun Wee, ACCA head of policy, Asia Pacific, who moderated at the Chinese roundtables, presented the findings from the Singapore event, remarking that participants emphasised the importance of the CFO constantly asking ‘Why?’. This allows the CFO to obtain an in-depth appreciation of what is happening within the organisation. It also means that the CFO has to be willing and able to critically challenge the CEO and their fellow C-suite colleagues when their plans and actions go against the organisation’s ‘conscience’ and the CFO’s sense of integrity. Then, the CFO is expected to act as the ‘voice of reason’.
Alfred Romann, journalist