0. G100 NATIONAL CONGRESS CFOs—The Momentum Towards Greater Leadership
Chris Figgis & Kokkong Chan
Egon Zehnder International
Wednesday 27 September 2006

1. Constituents of leadership The EZI framework Do CFOs measure up?
Today’s discussion
Leadership trends
Constituents of leadership
The EZI framework
Do CFOs measure up?
What next?

2. The good old days . . .
The original computer!!
Delete
Print

3. Highly technical “scorekeeping” function Not represented on the Board
The CFO of the past
Highly technical “scorekeeping” function
Not represented on the Board
Strategic planning was a financial projection
Expenditure and administrative control function

4. A review of job descriptions . . .
2006
“major emphasis on cash management”
“ability to be an active thought partner of CEO and be capable of influencing outcomes in the strategic agenda”
“profit improvement responsibility control of cash, inventories and capital expenditure”
“hit targets through drive and ability to change processes to deliver improvements to performance”
“introduce professional financial management planning to cover banking relationships and insurance”
“able to delegate appropriately, and empower direct reports to perform at a higher level”
Called Group Financial Controller, GM Finance and Administration
Called CFO, Finance Director

5. More sophisticated financial markets
Drivers of change
Capabilities of CFOs
More sophisticated financial markets
Size, complexity, internationalization
More focus on governance/risk and compliance
Increase in capability of technology

6. On breadth of leadership …
“Because the CFO puts together the information necessary to manage the company, he naturally becomes a cornerstone in all projects, whether the question at hand is the strategic evolution of business units or identifying takeover targets.”
—Emmanuel Babeau CFO, Pernod Ricard

7. On taking on “business” leadership roles . . .
“A good CFO must be able to stand in for the General Manager of any business unit since he shadows every operation through reporting and accounting.”
—Jean-Marc Huet CFO, Royal Numico

8. Why is leadership important anyway?
Impact

9. Research on the value of top management
The leader effect accounts for up to 40% of the variance in value
Leader effect
Company effect
Industry effect
Year effect
Company value
Source:
“When Does Leadership Matter?” ; Wasserman, Nohria and Anand; Harvard Business School working paper no , April 2001

10. Our own analyses confirm these findings
EBITDA Impact of management quality
EBITDA margin
0.3 to 1% improvement in EBITDA margin
0.1 improvement in MQI
Major
reservations
Some
reservations
Good
Outstanding -1 1 2
Management quality index
(MQI)
Correlation : 0.6 to 0.8
Source:
Egon Zehnder International

11. How have CFOs responded?
Broadening exposure, eg COO roles
Additional training in skills, eg IT
Formal courses, eg AICD, MBA
Aim: Build new technical skill sets and expand experience

12. Technical skills and experience Leadership competence
But . . . û
Technical skills and experience
Leadership competence

13. To summarise our proposition . . .
The CFO’s continuous momentum towards leadership generates . . .
NOT a need for an increase in Experience
BUT an increase in Competencies

14. Some common competencies!

15. The EZI philosophy in leadership assessment
Leadership abilities can be described by certain behaviours
Behaviours can be categorised into competencies
Almost all senior management roles can be defined by 7–9 competencies

16. What distinguishes leadership?
Business leadership
Thought leadership
People and organisation leadership
Collaboration
People development
Team leadership
Change leadership
Customer focus
Market knowledge
Strategic orientation
Functional capability
Results orientation

17. Competencies—what are they?
A measurable characteristic of a person that is related to success at work. It may be a behavioural skill, a technical skill, knowledge, or ability. For example:
Results orientation
Each competency has a set of behavioural indicators. For example:
Works on assigned roles and tasks, works to complete tasks
Introduces a new model that successfully transforms an existing business
We order these behavioural indicators by relative difficulty and sophistication thereby scaling each competency

18. Measuring people against role requirements
Results orientation 1 2 3 4 5 6 7
These become targets against which individuals can be as assessed
Transforms business model
Redesigns business practices
Improves business practices
EGM
Drives to exceed goals
GGM-GM
GGM-GM
Driven by goals
Front-line
manager
Manager
Would like to make things better
Individual
contributor
Fulfills assigned tasks

19. Better leaders demonstrate increasing levels of proactivity
Competencies are defined by behavioural indicators ordered by relative difficulty 7 6
Lower 5 4 3 2
Higher 1
Understand
Try
Interact
Willing
Make no mistakes
Respond
Apply
Meet
Collaborate
Doing
Take on ownership
Be involved
Improve
Exceed
Inspire
Getting others to do it
Take risks
Proactive 

20. EZI research and analysis
Early findings of analysis selected from a database of several thousand assessments done globally, all at senior manager to CEO levels
Focus specifically on:
How CFOs rate against CEOs
How the next rung rate in leadership

21. Findings from ongoing research on the CFO function
All EZI database
Rating
All finance executives
15%
Outstanding
23%
51%
Good
55%
28%
Some reservations
19% ü 6%
Major reservations 3%
Finance people rate highly against peers overall

22. Outstanding CFOs compared with outstanding CEOs
Results orientation
Market knowledge
Functional capabilities
Strategic orientation
Collaboration
People development
Team leadership
Change leadership
Customer focus

23. Why don’t more CFOs become CEOs?
Motivation
Company structure
Opportunity
Not knowing WGLL

24. How are you tracking according to these leadership competencies?
Reflection
How are you tracking according to these leadership competencies?
Do you have a plan for getting there?

25. CFOs vs Finance leaders who report into CFOs
Report to CFOs
Report to CEOs
Results orientation
Market knowledge
Functional capabilities
Strategic orientation
Collaboration
People development
Team leadership
Change leadership
Customer focus
Significant Development Gap = 4.4
Mainly on “business management” competencies

26. CFOs vs Finance leaders who report into CFOs
Report to CFOs
Report to CEOs
Results orientation
Market knowledge
Functional capabilities
Strategic orientation
Collaboration
People development
Team leadership
Change leadership
Customer focus
But even on “finance function” competencies,
There are sizeable differences

27. Outstanding CFOs vs Good CFOs
Results orientation
Market knowledge
Functional capabilities
Strategic orientation
Collaboration
People development
Team leadership
Change leadership
Customer focus
Development Gap = 9
Key Differentiators: Functional strength, and ability to change a direction through personal influence and people

28. Next rung down is not ready
Good news about CFOs’ leadership capabilities ends at the next level down
Both when viewed by seniority, or by level of capability
The gap to the next level down is too wide

29. Solution before diagnosis “Ad-hoc” development plans
Why is this?
Not identifying WGLL
Solution before diagnosis
“Ad-hoc” development plans
Inertia in opportunity creation

30. Do you know their individual and collective development gap?
Reflection on team
Do you know their individual and collective development gap?
Are you spending your training and development funds effectively?
Are you taking risks with leadership development?
Are you hiring correctly and getting the right advice?

31. Yet the development of future CFO leaders have lagged behind
Summary
The CFO of today and the future is a “business leader” in his/her organisation
Yet the development of future CFO leaders have lagged behind
CFOs need to do better in both
Their own leadership competency development; and
That of their team
Overall improvement in top management competencies has strong correlation with shareholder returns