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The Right Stuff Leadership in Finance

A report prepared by CFO Research Services in collaboration with Tatum


The Right Stuff Leadership in Finance

A report prepared by CFO Research Services in collaboration with Tatum


The Right Stuff: Leadership in Finance is published by CFO Publishing Corp., 253 Summer Street, Boston, MA 02210. Please direct inquiries to Jane Coulter at 617-345-9700, ext. 211 or janecoulter@cfo.com. CFO Research Services and Tatum developed the hypotheses for this research jointly. Tatum funded the research and publication of our findings. We would like to acknowledge Cindie Jamison and Mark Rosenman for their contributions and support. At CFO Research Services, Celina Rogers directed the research and wrote the report. CFO Research Services is the sponsored research group within CFO Publishing Corporation, which produces CFO magazine in the United States, Europe, Asia, and China. CFO Publishing is part of The Economist Group. March 2008 Copyright Š 2008 CFO Publishing Corp., which is solely responsible for its content. All rights reserved. No part of this report may be reproduced, stored in a retrieval system, or transmitted in any form, by any means, without written permission.


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The Right Stuff: Leadership in Finance

Contents Finance leadership— Meeting the demands of an expanded role

2

About this report

3

Critical leadership skills

4

Qualities of a finance leader

8

Becoming a leader

12

An exceptional position, an exceptional opportunity

16

Sponsor’s perspective

17


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The Right Stuff: Leadership in Finance

Finance leadership— Meeting the demands of an expanded role In early 2007, CFO Research Services conducted a research program to examine the state of the finance profession from the perspective of senior finance executives. The result of that work—Finance Chiefs Reveal the Downside of Their Expanded Role—found that U.S. finance executives are acutely pressured by increased responsibility and heightened accountability. We found that finance departments are not only under pressure to manage financial compliance, processes, and controls in an environment of intense regulatory scrutiny, but also increasingly accountable for business performance. Finance executives responding to last year’s survey told us their companies were demanding more of finance’s time and attention for strategy development, decision making, and planning and analysis than they have in the past. These demands were compounded, according to finance executives, by inadequate resources.* One year later, as a weakening economy and tight credit markets threaten to stifle growth—and as the regulatory climate demands that companies conduct business more and more transparently—it seems clear that the resource gap in finance will only grow larger in the months ahead. The cost of the finance function has already resumed its downward trend after a brief spike when Sarbanes-Oxley took effect in 2004-05— suggesting the trend toward doing more with less in finance probably will continue for the foreseeable future. Our findings in Finance Chiefs Reveal the Downside of Their Expanded Role led us to wonder: How are finance executives navigating this challenging environment of high demand and relatively scarce resources? What distinguishes the most successful finance leaders from their peers? And what about the upside of finance’s expanded role? Now more than ever, finance executives have the opportunity to guide and influence not just the finance function, but also the business at large. What are the skills and qualities they need to do so?

Top-notch technical skills in finance and accounting are indisputably important for finance leadership. Certainly intense regulatory pressure has placed a spotlight on technical finance and accounting skills in recent years— perhaps at the expense of non-technical management skills. In Preparing Finance Staff for the Future, a recent study on finance training, we found that companies train intensively on technical finance and accounting matters. But the finance executives who participated in that study also told us that they’re eager for broad management training that will help them manage and support the business. Finance executives seek training on industry and competitive dynamics, business management, and the skills often labeled as “soft skills”—collaboration, negotiation, and communication.† The results of our research on finance training suggest that finance executives recognize the value of broad management skills—but they also suggest that these skills may be lacking at times among senior finance personnel. And—although it would be a mistake to underestimate the importance of technical skills—Finance Executives Reveal the Downside of Their Expanded Role documents a complex set of challenges for finance leaders—and those who aspire to leadership—that no amount of technical skill could address. These studies suggest that management skills and leadership qualities are becoming increasingly important as finance executives pursue their broad, organizational mandate—and work to attract the resources they need to execute that mandate. In the current research program, we sought to uncover the combination of non-technical business management and leadership skills that finance executives will need to carry out this expanded business mandate. What business and leadership skills do the most successful CFOs possess? What are the qualities and characteristics of the ideal finance leader? How can leadership be learned? We found that the most successful finance leaders tend to exhibit clarity of thought and of action—and that they bring a level of adaptability and judgment to their work that is often the result of experience.

* See Finance Chiefs Reveal the Downside of Their Expanded Role, CFO Research Services, March 2007 (available for download at www.cfo-research.com). †

See Preparing Finance Staff for the Future, CFO Research Services, November 2007 (available for download at www.cfo-research.com).

MARCH 2008

© 2008 CFO PUBLISHING CORP.


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About this report In early 2008, CFO Research Services (a unit of CFO Publishing Corp.) launched a research program on leadership in finance. This study, based on a survey of senior finance executives at large and midsize North American companies, explores executives’ views on the non-technical skills and personal qualities of the most successful leaders in finance. Respondent Demographics CFO Research Services surveyed 250 senior finance executives to prepare this report. Survey respondents hold positions with the following titles: CFO VP of finance Controller Director of finance EVP or SVP of finance CEO, president, or managing director Other

35% 20% 16% 16% 4% 1% 8%

Respondents represent a broad cross-section of industries, including: Auto/Industrial/Manufacturing Business/Professional Services Chemicals/Energy/Utilities Financial Services/Real Estate/Insurance Food/Beverages/Consumer Packaged Goods Hardware/Software/Networking Health Care Media/Entertainment/Travel/Leisure Pharmaceuticals/Biotechnology/Life Sciences Public Sector/Nonprofit Telecommunications Transportation/Warehousing Wholesale/Retail Trade Other

In the current research program, we sought to uncover the combination of non-technical business management and leadership skills that finance executives will need to carry out their expanded business mandate.

24% 6% 6% 17% 5% 4% 9% 4% 3% 4% 2% 4% 8% 2%

Note: Percentages may not total 100 percent, due to rounding.

Š 2008 CFO PUBLISHING CORP.

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The Right Stuff: Leadership in Finance

Critical leadership skills

A solid majority of respondents (63 percent), for example, say that the ability to follow through on decisions is critical for success, while 59 percent of respondents say that the ability to foresee the future consequences of current actions—an important skill for solid decision making— is critically important. Sixty percent of respondents say that the ability to communicate clearly and effectively is critical. Collaborative skills—working well with C-level peers, and persuading others to follow a course of action—were also rated very highly by respondents.

One of the questions we sought to answer was this: Which management skills do finance executives believe to be critical for success? We asked finance executives to evaluate a variety of non-technical management skills, including communication, collaboration, foresight, and even time management. An overwhelming majority of respondents recognize that all of these non-technical skills, across the board, are important. But respondents most often say that skills associated with decision making, communication, and collaboration are critical—not just important—for success. (See Figure 1.)

Figure 1. Finance executives most often say that decision making and communication skills are critical for success as a finance leader. In your opinion, how important is it for the most successful CFOs to have mastered each of the following non-technical professional skills? The ability to. . . 2% 1%

34%

63% Follow through on decisions 60%

36%

4% 1%

59%

39%

2% 1%

Communicate clearly and effectively in writing, orally, and through visual media

Foresee the future consequences of current actions 4% 1%

47%

49% Persuade others to follow a course of action

40%

49%

10%

1%

11%

1%

Work well with C-level peers 45%

44% Understand organizational and internal political relationships

2%

4%

52%

41% Negotiate with others, inside and outside the business

8%

54%

38% Manage projects effectively (i.e., organize others to deliver on time and within budget)

20%

53%

24%

1%

16%

57%

26%

Handle constructive criticism and professional conflicts effectively

2%

Manage personal time effectively

0% Critical for success

20% Important for success

40% Nice to have

60%

80%

100%

Usually outweighed by other factors

Percentage of respondents Note: Percentages may not total 100 percent, due to rounding.

MARCH 2008

© 2008 CFO PUBLISHING CORP.


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The skills that respondents most often say are critical for success mirror a familiar paradigm for organizational effectiveness: To be effective, a manager should know what to do (foresee the consequences of actions), say what needs to be done (communicate clearly and effectively), and then see that it is done (work with others to follow through on decisions). The most successful CFOs, survey results suggest, not only know how to make good decisions—they know how to make those decisions happen.

The most successful CFOs, survey results suggest, not only know how to make good decisions—they know how to make those decisions happen.

It is informative, however, to view the core management skills cited most often as “critical” in light of some of the skills respondents report as critical least often—the ability to navigate organizational politics, negotiation skills, project management skills, and the ability to handle criticism and conflict. Finance is perhaps the most analytical and information-based of all the business functions, so it’s easy to understand the appeal of clear thought, clear communication, and measurable followthrough to finance executives. It seems that finance executives perceive other types of skills—those that involve complex and, at times, even sensitive interactions with professional peers and colleagues— as secondary. But as demands on finance from other functional areas in the business continue to increase— and as finance assumes a broader role in the enterprise as a consequence—finance executives may find themselves calling on these nuanced interpersonal skills more often in the years ahead. Survey respondents observe, for example, that a finance leader’s success depends in part on his or her ability to act as an effective advocate for the finance function. “Finance serves all the organization’s stakeholders,” writes the CFO of a midsize cable networking company

© 2008 CFO PUBLISHING CORP.

in an open-ended survey response. “To a large extent, its success depends on its ability to persuade each category of stakeholder of the value of the services it provides,” he continues. Other respondents identify opportunities to add value to the business through finance’s expanded role. The CFO of a midsize financial services company writes, “The CFO has the opportunity to look across the organization and solve problems anywhere in the firm. Tremendous value can be added if you view ‘everything’ as your job—if you see yourself as free to add value in driving strategy and performance improvement in all areas of the firm.” That level of contribution often requires finance leaders to move flexibly between finance’s modes of thought, analysis, and argument and those of their peers in other areas of the business. Many respondents point out, for example, that making a convincing argument to colleagues working outside of finance involves not just communicating a clear message, but also tailoring the message to fit the audience. Arguments that may be persuasive to colleagues in finance might need to be cast in more general management terms for colleagues in other areas of the business. “It’s important to be persuasive as a colleague by putting things in terms that most people can understand and relate to—which often means non-technical terms,” writes the controller of a life sciences company. “People often want to do the right thing once it’s pointed out, but they frequently get nothing from finance but technical terms that are difficult to understand.” How well have finance executives mastered these nontechnical leadership skills? We asked survey respondents to assess their own performance across the full range of these skills—a skill set that they nearly uniformly agree is important for success. Not surprisingly, we found that finance executives tend to say they’re doing best at the skills they believe to be most critical—50 percent of respondents, for example, say their performance at communicating clearly and effectively is “excellent,” and 47 percent say their ability to follow through on decisions is excellent. (See Figure 2, next page.)

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The Right Stuff: Leadership in Finance Figure 2. In general, finance executives say they’re performing best at the leadership skills they say are most critical. In the spirit of self-assessment, to what extent have you mastered the following skills? 50%

44%

6%

Communicate clearly and effectively in writing, orally, and through visual media 47%

47%

6%

Work well with C-level peers 47%

44%

9%

Follow through on decisions 44%

Manage projects effectively (i.e., organize others to deliver on time and within budget)

48%

39%

9%

52%

8%

Foresee the future consequences of current actions 34%

50%

16%

Understand organizational and internal political relationships 31%

55%

13%

Persuade others to follow a course of action 28%

58%

14%

Negotiate with others, inside and outside the business 22%

63%

15%

Handle constructive criticism and professional conflicts effectively 19%

51%

30%

Manage personal time effectively

0%

20%

Excellent performance

40%

60%

Adequate performance

80%

100%

Room for improvement

Percentage of respondents Note: Percentages may not total 100 percent, due to rounding.

Although most finance executives say that their performance in all of these professional skills is at least adequate, it’s interesting to note that relatively few respondents say their performance in more political, personal, or sensitive areas is excellent. Only 31 percent of respondents, for example, say their performance at persuading others to follow a course of action is excellent. Persuading others is, of course, a much more interactive skill than simply communicating clearly. But persuading others to pursue a course of action is also necessary if the organization, not just the individual, is to follow through on decisions.

MARCH 2008

The same could be said for navigating company politics, negotiation, and even conflict management: Managing difficult situations involving other people is an important part of getting things done, but it’s also the area where respondents tend to rate their performance as less strong. In some cases, finance executives may find that improved interpersonal skills may lead to even better performance in the leadership areas that are most important to them.

© 2008 CFO PUBLISHING CORP.


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Exploring self-assessments: The role of job function in developing skills To better understand the basis for finance executives’ selfassessments—which tend to be very positive across the entire respondent pool—we compared survey responses provided by three respondent segments: I Those who say they focus mostly on business partnership

in their roles (optimizing capital structure, enterprise strategy, M&A, etc.) (37 respondents); I Those who focus mostly on business support

(planning, financial analysis, decision support, etc.) (128 respondents); and I Those who focus mostly on core finance activities

(controllership, transaction processing, and reporting) (64 respondents) We uncovered substantial differences in each group’s assessment of their own performance across the full range of management and leadership skills. Respondents who focus on core finance activities were much less likely, nearly across the board, than those focused on business support or business partnership to report “excellent performance” in any of these skills. Business partners were much more likely to rank their performance as “excellent” in nearly every category. For example: I 76 percent of business partners say their ability to

Both business partners and business supporters are much more likely to say their performance at “foreseeing the future consequences of current actions” is excellent than core-finance respondents. (Forty-five percent of business supporters and 43 percent of business partners say their performance at foreseeing future consequences is excellent, compared with only 27 percent of those focused on core finance.) Do we find these correlations in the data because those who are more skilled at leadership are simply more likely to act as business partners (and hence as business leaders)? Or have those who focused on business partnership worked to strengthen a different skill set? Because other survey results strongly affirm that onthe-job practice, observation, and mentorship are the primary paths to leadership improvement, this skills analysis suggests that core finance-focused respondents lag behind in their self-assessments not because of any shortfall in native ability, but because their work offers few opportunities to hone leadership and management skills. The results of the segmentation itself tend to support this view, since many respondents focused on business support—the group most likely to have honed the ability to predict consequences through day-to-day practice at decision support and analysis—report excellent performance at foreseeing consequences, alongside those focused on business partnership.

communicate clearly is excellent, compared with only 46 percent of business supporters and 45 percent of core finance-focused executives. I 61 percent of business partners say their performance

at working well with C-level peers is excellent, compared with 50 percent of business supporters and 40 percent of those focused on core finance.

Relatively few respondents say their performance in more political, personal, or sensitive areas is “excellent.”

© 2008 CFO PUBLISHING CORP.

MARCH 2008


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The Right Stuff: Leadership in Finance

Qualities of a finance leader Exploring leadership skills—competencies that can be developed and deployed in professional situations— reveals one aspect of finance leadership. But what are the qualities of the best finance leaders? What approach does the ideal CFO take to management and leadership? Conventional wisdom breaks down leadership styles into two main categories: the hard-charging, competitive style, and a more relaxed, collaborative style. Which style—or combination of styles—would the ideal finance leader adopt?

Survey responses show no absolute preference for either the hard-charging style or the more collaborative style of leadership.

Respondents tend to show a clear preference for one end of the scale in the following areas (See Figure 3, next page): Assertiveness: Preference for outspokenness, rather than reserve Results vs. process: Preference for results orientation (“emphasizes what gets done”) over process orientation (“emphasizes how things get done”) Approachability: Preference for open-door policy (“My door is always open”) over formality (“Let’s schedule some time”) Focus: Preference for the big picture, rather than details Delegation: Preference for delegation, rather than hands-on attention Decision-making style: Preference for a collaborative style over a command-and-control style

We asked survey respondents to consider a number of pairs of personal qualities and attributes, and to choose the balance they believe the ideal CFO should strike between them. We found that survey responses show no absolute preference for either the hard-charging style or the more collaborative style of leadership. But we also found that the qualities and attributes of the ideal CFO break down into two main categories: qualities that operate in almost every business context, and qualities that strongly depend on context. In the former category, survey results indicate a pronounced preference for one end of the scale over the other. In the latter category, survey results tend to cluster around the center of the scale, indicating that respondents’ preferences depend on context. This latter category defines a group of complex, highly context-dependent, adaptive behaviors that may well distinguish some of the best finance leaders from their peers.

MARCH 2008

Flexibility vs. consistency: Preference for flexibility (“makes mid-course changes”) over consistency (“stays the course”) So, for example, survey responses suggest that the ideal CFO tends to be more approachable than formal—that is, the ideal CFO would tend to have an open-door policy, rather than formally scheduling appointments. Finance executives tend to view this informal, open-door approach as a more desirable quality in the ideal finance leader, regardless of circumstances.

© 2008 CFO PUBLISHING CORP.


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Figure 3. The qualities of the ideal CFO fall into two categories: those that operate in every business context, and those that depend on context. Respondents tend to show a clear preference in the following areas:

5%

3%

57% 35%

Reserved

Outspoken

2% 13%

14%

40% 31%

Emphasizes how things get done

38%

22%

Emphasizes what gets done

10% 28%

“My door is always open”

“Let's schedule some time”

4% Detail-oriented

Big-picture thinker

28%

1% 12%

10%

48% 30%

Prefers to be hands-on

Prefers to delegate

10%

53%

8%

23%

45%

Collaborative style (“We’ll decide”)

Command-and-control style (“I'll decide”)

29%

9%

13% 3%

40% 35%

“Makes mid-course changes”

“Stays the course”

Survey responses demonstrate that the following traits often depend on context:

2%

20% 3%

22% 53%

High tolerance for business risk 3%

Low tolerance for business risk 22% 2%

29%

Bases decisions only on demonstrated facts

Bases decisions on “informed intuition”

44%

33%

1% 15% “Drives a hard bargain”

9%

42%

“Gets to yes” 31%

2% 20%

4%

43%

Dramatic change

1

2

3

Incremental change

4

5

Percentage of respondents indicating a preference using a 1-5 scale

© 2008 CFO PUBLISHING CORP.

MARCH 2008


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The Right Stuff: Leadership in Finance

But survey responses also suggest that, in some areas, the ideal finance leader should be flexible, changing his or her approach according to circumstances. Survey responses indicate no pronounced preferences among several characteristics, indicating that the ideal CFO would adapt his or her approach according to context (See Figure 3, previous page): Risk tolerance: Low tolerance for business risk versus high tolerance for business risk Basis for decision making: Basing decisions on informed intuition versus basing decisions only on demonstrated facts Negotiation: Only a slight preference for a mutual gain or win/win approach (“Gets to yes”) versus an advocacy approach (“Drives a hard bargain”) Approach to change: Only a slight preference for seeking incremental change versus pursuing dramatic change In these areas, survey respondents tend to show a preference for a thoughtful, flexible approach to problem solving that takes specific circumstances into account. For example, several respondents note in open-ended responses that a low or a high tolerance for business risk depends on the company’s particular circumstances and objectives. Other open-ended responses say the same about seeking dramatic versus incremental change. In some areas, of course, finance’s responsibility to safeguard the company from a compliance standpoint renders the question of which approach to take moot. “The pairing ‘drives a hard bargain’ versus ‘gets to yes’ works for most business situations, but it doesn’t apply to situations that are squarely in the accounting camp,” one respondent points out. “Recent business failures demonstrate that a ‘customer-is-always-right’ approach can’t apply to accounting.” But open-ended survey responses most often emphasize the need to adapt approaches to changing circumstances in all areas. “The ideal CFO should never be continually at one end of the spectrum or the other,” writes

MARCH 2008

one respondent. “Although I’ve given some answers that lean away from the middle of the spectrum, in reality, the ideal CFO is any, or even all, of these things at the appropriate time.” Other respondents discussed the factors that would affect their choices, including company size, industry, business conditions, the personalities and needs of coworkers, and the specifics of the situation or question at hand (such as the time available to make a decision). “Some of these traits will depend on the organization,” writes the controller of a biotech firm. “For example, in a small organization, it can be critical for a CFO to be more hands-on, while in a larger organization, it can be just as critical for the CFO to prefer to delegate.” A VP of finance at a manufacturing company writes, “CFOs need to be in charge, but they must be adaptive, based on the situations and the people they’re dealing with.” Observes the CFO of a large nonprofit institution, “Collaborative decisions take time (for meetings, communications, and so on). If there isn’t sufficient time to process a collaborative decision, a command-and-control decision must be made.” Being able to adopt different approaches is one part of leadership, say survey respondents. Having the judgment to know which approach to adopt, and when, is another. “I think the most important factor is to use appropriate judgment for the given situation. A CFO must understand when it’s appropriate to exercise, for example, a command-and-control style of leadership, versus a collaborative style. This ability to make quick assessments and to understand the context of the matter is critical to successful performance,” writes the controller of a health care company. In these areas, then, the most successful CFOs not only have the ability to adopt either approach when necessary, but also have the judgment to know which one would be best in the given circumstances. How do finance leaders develop that judgment? Other survey results suggest that this level of adaptability and judgment comes primarily with experience.

© 2008 CFO PUBLISHING CORP.


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Professional flaws that hold finance leaders back Nobody’s perfect. That said, some flaws can make it particularly difficult to be successful in certain roles. We asked finance executives to tell us which professional traits would be most likely to limit a CFO’s ability to lead.

But as finance takes on an increasingly prominent role in the business, it seems likely that many finance executives would agree that finance leaders who set aside more abrasive personality tendencies will find more allies in their pursuit of a new and broader mandate. It is hardly surprising that, in a professional context, finance executives gravitate toward skills that will help them accomplish organizational objectives, and away from traits that would interfere most directly with their ability to see those objectives accomplished. It would be a mistake, however, to underestimate the importance of personal effectiveness, since a finance executive’s ability to get things done at the enterprise level also depends on his or her ability to enlist the support of immediate colleagues, superiors, and peers across the business.

Survey respondents most often cite traits that interfere with decision making and organizational effectiveness— indecisiveness and a lack of follow-through (“all talk and no action”)—as the attributes most likely to limit a CFO’s success. They cite personality traits that tend to disrupt relationships on a personal level—rudeness, insensitivity, and hypersensitivity—much less often. (See Figure 4.) These results mirror respondents’ broad affirmation of skills related to decision making—such as foresight and follow-through—as the skills most critical for leadership success. In general, survey responses indicate that being rude and insensitive (or, indeed, being passive, hypersensitive, or lacking perspective) might hold an aspiring leader back less than conventional wisdom might suggest.

Clarity of purpose and decisive action—not simple congeniality—are the traits most likely to inspire affirmative loyalty and respect within finance. But, as one respondent writes, “Treating employees with respect, as people, is critical to achieving true leadership.”

Figure 4. Professional flaws that interfere with organizational effectiveness are most likely to limit a CFO’s success, according to survey respondents. Which of the following traits would most limit a CFO’s ability to lead the finance function?

Indecisive

51%

41%

All talk and no action

Controlling/ Micromanaging

30%

Passive/Overly deferent

22%

Blows things out of proportion

17%

16%

Rude

Insensitive

6%

Hypersensitive

6%

3%

Other

0%

10%

20%

30%

40%

50%

60%

Percentage of respondents Note: Respondents were asked to select their top two answer choices.

© 2008 CFO PUBLISHING CORP.

MARCH 2008


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The Right Stuff: Leadership in Finance

Becoming a leader Respondents most frequently say that on-the-job observation and practice has made a very substantial contribution to their current mastery of non-technical skills.

Finance executives in this study tell us that the ideal finance leader exhibits a high level of flexibility, adaptability, and judgment. Many respondents also say that on-the-job experience and relationships with professional mentors have contributed most to their mastery of the non-technical, interpersonal skills they use every day. Together, these results suggest that experience—and the maturity that comes with it—is a primary avenue toward developing the flexibility, adaptability, and judgment that characterize the best leaders in finance. But what kinds of experience contribute most to leadership development? Survey respondents tell us that they’ve drawn on a wide range of experiences to become better managers and better leaders—and they say they’ve gained much of that experience on the job.

By a large margin, respondents most frequently say that on-the-job observation and practice has made a very substantial contribution to their current mastery of non-technical skills; 40 percent of respondents say that on-the-job observation and practice “taught them everything they know,” while another 54 percent say that they wouldn’t be the same person without the lessons they’ve learned on the job. (See Figure 5.)

Figure 5. On-the-job observation and practice contributes most to mastery of non-technical skills, say respondents. To what extent have the following institutions, activities, or experiences contributed to your mastery of the non-technical, interpersonal skills that you often draw upon in your current role? 40%

54%

6%

On-the-job observation and practice 12%

41%

40%

8%

Formative teacher, guide, or mentor 10%

59%

25%

7%

Family upbringing/Early life 7%

41%

45%

7%

College/Graduate school

Activities outside of work (volunteer work, hobbies)

2%

32%

2%

14%

1%

15%

48%

17%

56%

29%

External seminar, book, or other media

Company-sponsored seminar, workshop, or teambuilding exercise

0%

52%

20%

40%

32%

60%

80%

100%

Very substantial contribution—“taught me everything I know”

Substantial contribution—“I wouldn’t be the same person without it”

Some contribution—“informs my leadership and management style”

Little or no contribution—“has little bearing on my leadership and management style” Percentage of respondents Note: Percentages may not total 100 percent, due to rounding.

MARCH 2008

© 2008 CFO PUBLISHING CORP.


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Although only 10 percent of respondents say that family upbringing and early life made a very substantial contribution to their mastery of non-technical skills, 69 percent of respondents say that family upbringing made at least a substantial (“I wouldn’t be the same person without it”) contribution to their mastery of these skills. Many respondents also mention the importance of family influence, parental role models, and formative life experiences such as time in the military in open-ended responses. In general, respondents exhibit a strong preference for real-life experience over vicarious experience. While many respondents note that classroom experience made at least some contribution to their mastery of non-technical skills, they’re least likely to say that vicarious experience gained through seminars, books, and workshops made substantial contributions to their mastery of these skills.

Indeed, when it comes to improving their leadership and management skills in the future, most respondents, by a wide margin, say they expect work experiences—onthe-job observation and practice and candid feedback from a professional mentor—to be most helpful. (See Figure 6.) (In a separate question, 88 percent of respondents say that, among those they’ve worked with, their supervisors taught them the most about leadership and management.) On-the-job practice and mentoring relationships far outstripped other potential sources of improvement, including outside activities, external seminars and books, and company-sponsored workshops and teambuilding exercises.

Figure 6. Work experience—including on-the-job practice and relationships with mentors—is the path to leadership improvement, say finance executives. Looking forward over the next five years, which of the following do you think will be most helpful to you in acquiring the management and leadership skills that you aspire to improve?

76%

On-the-job observation and practice

66%

Candid feedback from a professional mentor

Activities outside of work (volunteer work, hobbies)

13%

External seminar, book, or other media

13%

Formal education (advanced degrees, certifications)

8%

Company-sponsored seminar, workshop, or teambuilding exercise

8%

Other

3%

0%

20%

40%

60%

Percentage of respondents Note: Respondents were asked to select their top two answer choices.

© 2008 CFO PUBLISHING CORP.

MARCH 2008

80%


14

The Right Stuff: Leadership in Finance

We asked respondents to tell us, in their own words, about the efforts they’ve undertaken to improve their leadership and management skills in the last year. We received an overwhelming response, documenting a wide range of efforts. (See sidebar: “Taking steps to become better leaders,” next page.) Finance executives often write that they’re working to improve their leadership skills by taking risks and stretching themselves on the job—taking on new projects, new roles, and new responsibilities. Many finance executives also write that they’re working to improve their own leadership skills by taking the time to mentor others.

Many finance executives write that they’re working to improve their own leadership skills by taking the time to mentor others. Open-ended responses demonstrate the deep commitment that many finance executives have to training and mentoring others. Perhaps they derive this commitment from an acute awareness of the scarcity of mentors for the most senior executives in finance: When we asked respondents to identify the greatest barriers to leadership improvement, 48 percent cited “few mentors available for senior finance executives.” Respondents named only the “scarcity of time, attention, and other resources” as a barrier more often (52 percent). “It’s unfortunate, in this world of 24/7 activity and early retirements, that we’ve lost many of the best people to help the rest of us ‘learn’ leadership,” writes one respondent. “Some people are born leaders for whatever reason, and the rest of us could really use the support of mentors to understand how to be effective.” While survey respondents clearly recognize the growth to be gained through mentoring subordinates, it seems likely that available mentors for a finance executive only become more scarce as his or her career advances. Who, in the organization, can reasonably serve as a mentor for the CFO? In many cases, the CEO is the only available candidate. “Fortunately, I’m currently working with one of the finest CEOs one could work for. It’s a genuine pleasure to work with him,” writes the CFO of a financial services company. But the CFO goes on to point out that

MARCH 2008

often managers provide a negative example of what not to do, rather than positive modeling of excellent leadership. “Much of what I’ve learned about leadership and management actually came from bitter experiences associated with really bad managers,” he writes. “I learned a lot about what not to do from those bad examples—and I suspect a good many others in your survey have had similar experiences.” A lack of effective mentoring is by no means the only barrier to improvement that respondents mention in openended responses. Several respondents mention a lack of long-term perspective among senior management. “I strongly believe that a renewed focus on a long-term perspective is needed,” one respondent writes. “I feel that finance managers have become so risk averse and ‘pennyminded’ that reliance on derivatives and on outsourcing has become too great. Ultimate success is always measured over a long period of time.” The respondent goes on to advocate for a broader approach to financial management: “We see now that risk management and financial management are not simply quantitative exercises. The biggest and brightest financial firms are suffering, because they either missed their problems by a long shot, or they simply ignored the risks and were lured by the short-term reported gains their decisions produced.” Other open-ended responses echo the concern that a deluge of data and analyses are obstructing CFOs’ ability to lead. “I have found too many of my group CFOs bogged down in analysis and unable to focus on key drivers of the business,” writes a VP of finance at a large financial services firm. “This turns finance activities into rock fetching exercises that have no correlation to effective decision making that will move the business forward.” Finance executives faced with scarce resources and little support from other business functions also express frustration. “In a privately held company where finance is viewed as ‘overhead,’ getting approval to add staff is difficult. As a result, I’m personally too focused on details and not enough on strategy,” writes one CFO. “I don’t know how to overcome this, but I wish someone could help me figure it out before I lose my mind!”

© 2008 CFO PUBLISHING CORP.


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“A finance leader needs to be a business leader who uses his financial technical expertise to help reach business objectives. He or she should be clear that technical excellence, in itself, is not an end-game objective,” writes one respondent. Many respondents advise other senior finance executives to put their impressive technical skills to work in the service of broad enterprise objectives. “A finance leader needs to be a business leader who uses his financial technical expertise to help reach business objectives. He or she should be clear that technical excellence, in itself, is not an end-game objective,” writes one respondent.

Becoming a true business leader often means pressing beyond finance and into other critical areas, say respondents. “It’s important that finance leaders and their staff understand the business they serve. There is value in spending time on shadowing people in key functions (sales, operations, etc.). This allows for meaningful analysis and partnering with the executives you’re supporting—which results in better decision making,” an executive writes. Experience in leading an operating unit can be extremely valuable to a finance leader, writes another: “To be of maximum value to the organization, the ideal CFO will have run a business, with P&L responsibility, in addition to possessing technical knowledge. From that experience, the CFO will know the integrated functioning of a global business well.”

Taking steps to become better leaders Finance executives report a wide range of leadership improvement efforts. Here, in their own words, are just a few of the steps respondents say they took in the last year to become better leaders: Getting and giving feedback: “I listened more, talked less.” “I actively solicited feedback from superiors, peers, and subordinates alike.” Seeking new work experiences:

Taking classes, courses, and seminars: “I completed graduate-level coursework.” “I’ve attended several leadership classes/seminars. I try to put into practice the new ideas presented.” “I undertook an 18-month leadership training course through the Boy Scouts.” Making connections: “I’ve made a conscious effort to connect with others at the C-level by forcing more communication and sharing of ideas.”

“I joined a corporate board to gain broader perspective.” “I’ve been spending time in new areas—taking on projects that I’m slightly uncomfortable handling.” “I’ve taken more risks and challenged the status quo.” Mentoring and training others: “I’ve made a concerted effort to mentor a level below my direct reports.” “I’ve been trying to spend a significant amount of time with my controller to help mentor her.”

“I’ve focused on being more collaborative in my decision making, while making sure we don’t revert to management by committee.” “I’ve built new relationships—it’s as much who you know as what you know, if you want to get the information necessary to make informed decisions.” “I’ve become involved in two different small groups in the past few years. One is a cross-section of people, the other is only senior executives in large corporations. These groups provide a ‘safe’ environment to discuss ideas and issues.” Personal reflection:

“I made changes in the organization to cross-train staff and institute a ‘training’ attitude toward staff development.”

“I’ve been working to slow down before rushing to a conclusion.” “I’ve focused personally on what I should and should not do myself, and on what I must build in people so that they’ll be successful when I move on.”

© 2008 CFO PUBLISHING CORP.

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The Right Stuff: Leadership in Finance An exceptional position, an exceptional opportunity The finance function’s broad organizational scope and analytical expertise place finance leaders in an exceptional position not only to safeguard a business from improper conduct and regulatory pitfalls, but also to guide it and contribute to its success. The finance executives who participated in this study recognize the privilege of this position—and they recognize the personal responsibility that comes with that privilege. “Leaders in finance have a unique opportunity to guide organizational success within the framework of control and reporting. It all depends on how much responsibility and effort the individual wants to invest,” one respondent writes. Adopting this broad, organizational perspective often requires a willingness to connect with others. “A leader must be open to all points of view and encourage employees to participate,” writes a respondent. Another writes, “Leadership in finance includes supporting and partnering with decision-making managers to help them understand how their actions are costing the company, saving it money, or putting the organization at risk. Intelligently empower them.”

“Leaders in finance have a unique opportunity to guide organizational success within the framework of control and reporting. It all depends on how much responsibility and effort the individual wants to invest,” one respondent writes. Senior finance executives recommend respectful, thoughtful guidance when mentoring and coaching employees. “Finance leadership, as in any other area, is best when individuals are guided to perform, not directed, and allowed to succeed. Latitude to learn, make mistakes, and contribute is extremely important—when balanced with accountability,” a respondent writes. This study shows that the judgment that emerges from experience is the hallmark of finance leadership. Knowing not only how but when to deploy a wide array of skills and approaches sets the very best finance leaders apart from their peers. “The CFO needs wisdom and maturity to lead for long-term results,” one respondent writes, and the finance executives in this study recognize that the best teacher is experience.

Many finance executives are putting their leadership skills to work—and, at the same time, developing them—by teaching others. Survey respondents point out that developing finance staff creates better managers and more productive, loyal employees—which, in turn, can help ease the burden of resource scarcity. “The best CFOs coach and train to strengthen their team. Not only do they increase their capacity for immediate work, but in the long run workers are more fulfilled, and the firm at large has lower turnover and smoother transitions as valued staff members retire,” writes one respondent.

MARCH 2008

© 2008 CFO PUBLISHING CORP.


Sponsor’s Perspective

Meeting the demands of an expanded role In 2007, CFO Research Services, in collaboration with Tatum, found that CFOs feel extreme pressure due to escalating demands from multiple constituents, fewer resources, and compromised lifestyle issues. With termination levels at a historical high and average tenure in role dropping to less than 30 months, it seemed to us that a clear crisis existed within the financial function. At the same time, the reliance upon and importance given to a highly functional finance department was extreme in 2007, and has continued to escalate to even higher levels as we enter 2008. Finance has become the new corporate “functional imperative,” as manufacturing was during the eighties and sales and marketing were in the nineties. The finance function simply has to meet its mandate to perform or business performance—even existence—is put at risk. Obviously, the downside risk for all—C-level executives, board members, and shareholders alike—of a poorly functioning, over-stretched, under-performing finance function is sky-high. In attempting to address this, many CEOs and boards find a convenient (if costly) approach to the corporate functional imperative by turning to more of the same: new (but not different) leadership in the finance function. And so we find termination statistics that continue to climb, and tenures that continue to decline in early 2008.

© 2008 CFO PUBLISHING CORP.

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In reality, the role of the CFO has changed so dramatically that an entirely different approach is required. We continue to believe emphatically that the winners in this increasingly fluid environment are those who adapt to the ebb and flow of business lifecycles with a flexible approach to assembling, deploying and re-deploying finance teams. Bringing the right skills to the table at the right time is a never-ending challenge, but it is the only way to stay successful in today’s exceptionally demanding markets. This includes: use of flexible high-level resources to meet everchanging business challenges through executive services; an investment in systems to better support increasing service levels expected of the finance department; and a framework for staff augmentation so that SG&A investment can expand and contract with true business needs. We call this solution—this approach to leading finance—“The CFO Suite.” Embarking on an effective “CFO Suite” implementation involves three elements: strong and deep technical skills, effective and shrewd use of “soft skills,” and a clear set of priorities, tools and approaches to “get the job done.” Proper resource levels and a focused project management approach can transform a failing finance department to meet its functional imperative goals in about 100 days. Embedded within “The CFO Suite” concept is the need for CFOs to moderate “typical” behavior—trying to do more with less, burying themselves in work as opposed to delegating effectively, and mistakenly thinking that others within the corporate structure “get it.” In fact, becoming an effective advocate for attention and resources in competition with other corporate functions requires a certain sophistication of leadership style: clear and compelling communication, persuasive business case presentation, effective negotiation, and corporate political savvy.

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Sponsor’s Perspective

Since the ability to provide relief is so closely tied with CFOs’ personal comfort level with interpersonal skills and effectiveness, we thought that it would be interesting to research how CFOs perceive their own ability to do just that. Hence we joined with CFO Research Services to explore this topic, and to share these findings with a broader audience. We were impressed that an overwhelming majority of respondents recognize that non-technical skills are important. Their recognition of the importance of good decision making, communication, and collaboration further strengthens our belief that CFOs understand the need to work with others within the organizational hierarchy. A linkage between clarity of thought combined with active follow-through demonstrates CFOs’ bias toward a practical approach. The characteristics that survey respondents least often cite as critical for success were equally revealing: the ability to navigate organizational politics, negotiation, project management, and the ability to handle criticism and conflict. Clearly, CFOs are less comfortable with complex, potentially emotional interactions that arise in the course of carrying out their duties. Interestingly, in rating themselves on an array of interpersonal skills an overwhelming majority rated themselves “adequate” to “excellent” across all characteristics. If this were, in fact, the reality, then why don’t we see more successful CFO Suite implementations? Why are turnover statistics remaining at all-time highs and why do CFOs continue to report such high levels of personal stress?

MARCH 2008

Our hunch is that CFOs are not as effective at these skills as they would like to think. In fact, in Tatum’s recent informal survey of audit committee members, respondents say CFOs do not demonstrate their interpersonal effectiveness very well. Audit committee members in this informal survey rated CFOs’ performance lower than CFOs scored themselves on virtually every measure— the largest differential being on effective communication. The barriers to CFO success most often cited by the directors we spoke with were often personality issues. This research would seem to provide a clear roadmap for CFOs to learn from and embrace this feedback. Driving the creation of a new kind of finance organization that meets the new functional imperative starts with recognizing that we need to improve our ability to navigate rough waters interpersonally. CFOs correctly identify and strive for behavior that will enable them to augment technical skills with resources and tools; if there is a mandate for 2008, though, it has to do with holding themselves to higher standards and ensuring that their “actions” fully match their “words.”

To continue this conversation, please contact Cindie Jamison at cjamison@tatumllc.com.

© 2008 CFO PUBLISHING CORP.


The Right Stuff: Leadership in Finance  

Views of executives of executives

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