Tales from the big table: the CFO view
There was a time when chief financial officers (CFOs) worked largely behind the scenes. After the financial crisis, however, the role was thrust into the spotlight as a key strategic position. We revisit some of Capital Insights’ top CFO interviews to find out how things have changed.
CFOs were once the last line of defense. When Simon Dingemans took over as CFO of GSK in 2011, for example, he says the finance function was “a follower of the strategy,” rather than a “leader of it.”
At the time, he believed that finance could help drive performance far more directly. “This meant improving the quality of decision-making and focusing finance on driving the returns out of the strategy that we’ve laid out over the last two or three years,” Dingemans told Capital Insights.
That approach has paid dividends, not only for Dingemans but for CFOs across the board. More and more, they are taking the lead, both developing and implementing corporate business strategy.
The 2008 financial crisis made it clear that CFOs cannot afford to sit in the background. Financing the business in times of capital constraint became a top priority, through traditional finance-driven initiatives of cost reductions and margin protection. But, for many, this focus on the fundamentals became a springboard for strategic growth.
Kelly Kramer understood this when she succeeded Frank Calderoni as CFO of Cisco in 2014: “What I wanted to bring to the party was helping the business through operational discipline and portfolio management,” she told Capital Insights. “I wanted to see the business continue to grow and to maintain our strategy of driving profitable growth.”
For Kramer, this meant keeping on top of innovation in an increasingly competitive tech environment: “We never minimize the potential for competition and disruptors, so it’s all about constantly having a healthy paranoia to make sure we’re staying abreast of product transitions or market transitions,” she said.
Part of that “healthy paranoia” is investing in the right areas. CFOs have become far more involved in M&A and portfolio management at a strategic level, in addition to executing the board’s plan.
For example, Jeff Bornstein, CFO of General Electric, has been hands-on when it comes to building the company vision: “We start with a strategic framework of where we think we want to take the company. We are constantly having top-down discussions about how each of the portfolio businesses has performed. What is strategic and what is not. This doesn’t change quarter to quarter — these are longer-cycle businesses,” he told Capital Insights.
“At the business level, we have product managers who go through their portfolios, constantly evaluating if we have our capital deployed against the right opportunities and making decisions about what we need to get into and get out of. It is a very dynamic process. The big themes such as health care, electrification and efficiency don’t change, but aspects such as distribution may change from period to period.”
That process requires greater flexibility and creative thinking these days, often involving selling up or partnerships, as CFO Frank D’Amelio found when looking to spin-off animal health specialist Zoetis from Pfizer: “It’s all about unlocking trapped value. In the IPO deal, we got a multiple of 20 plus. Our current multiple is 12. [Zoetis] was dwarfed inside Pfizer… It may seem counterintuitive — getting smaller to create value — but it’s about unlocking trapped value.”
D’Amelio said partnerships for Pfizer have been key: “We never say never to any acquisition, but bolt-ons are the main targets,” he told Capital Insights. “A rule of thumb on business development deals, such as JVs and partnerships, is that one plus one has to equal more than two.”
The CFO’s job doesn’t end when the deal is done. One of their key roles is integration – arguably, the toughest part of a deal but often a critical measure for success.
According to Professor Scott Moeller, Director of Cass’s M&A Research Centre, CFOs need to have greater and earlier involvement in the integration process than ever before: “If the CFO is involved in a very early stage of the deal, they have to get involved in the aspects that are not financial as well,” says Moeller. “The CFO has to work with a much larger group, than perhaps they did in the past. In the past, very often acquisitions were conducted and left for divisions to implement, but CFOs are expected to be more involved post-deal closing than they were in the past, and much more planning is needed for that.”
Koushik Chatterjee, former CFO, now Group Executive Director (Finance and Corporate) of Tata Steel, said he believes in a systematic approach to integration: “There are several challenges. First, you need to get the strategy right. Second, the objectives of growth should be clear. And finally, these objectives need to be translated into actions.”
CFOs now have to be global players. Globalization has expanded the reach and remit of the role – and has moved up the corporate agenda. And when it comes to organizations looking to raise capital, CFOs need to be keenly aware, not only of the right time but also of the right place – not just financially but strategically.
“Listing on the Hong Kong Exchange helped to significantly raise our profile and that of our brands — especially in Asia, which has yielded excellent operational benefits,” said Samsonite’s CFO Kyle Gendreau. “The expansion of our business in the region is a key focus for Samsonite, given our belief in the significant growth potential in this market over the next five years plus.”
The influence of the CFO will continue to grow, they are increasingly being groomed as future CEOs and, therefore must expect greater scrutiny.
A point succinctly summarized by Volvo CFO Hans Oscarsson in his interview with Capital Insights: “The CFO role is increasingly in the public arena,” he says. “And those in the role need to get used to being in the public eye — both internally with staff and externally with stakeholders and the wider public.”