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Why FDs make great MDs

The role of the finance director has been opened up to unlimited possibilities in recent years. We now understand finance directors to be leaders with numbers, rather than simply the purveyors of numbers.

In the current economy, pressure on finance directors to lead has increased and it is no longer enough to just focus on profitability and cash flow. Finance directors advise, inspire and make an impact not just on numbers but on the way an entire company is run.

Relationships between finance directors and the Board have undoubtedly developed due to the financial crisis, as there has been a need for more transparency and dialogue between the two. Organisations are increasingly acknowledging the urgent need for their heads of business to work more closely with the finance department. They are therefore looking to business partnering to give the finance team more visibility across the company.

Business partnering enables finance professionals to become more proactive with their ideas, plans and strategies, thereby enabling the function to add greater value. The finance director becomes a trusted advisor in all areas of the company, working with key departments to ensure the optimum levels of success are achieved. It blurs the line between the FD and the MD even more. Cohesive relationships between FDs and MDs are crucial to the running of a successful business, and for FDs who become MDs the partnership with their successor is likely to require an even greater level of honesty and clarity than is normal.

Case studies

Karsten Fischer, Managing Director at PDD Group, an award-winning product and service innovation consultancy,made the transition from FD in 2008:

"I have a stronger relationship with the current financial controller as a result of my background and throughout the recession I have been in tune with the company’s financial affairs in a way I might not have been without my time as an FD. Monitoring the company’s finances comes naturally to me now and this, coupled with an ability as MD to see the overall picture, stands me in excellent stead when the business faces issues."

There can also be pitfalls: Ian Malcolm, Managing Director of Elring Klinger, the manufacturing company, made the transition from FD eight years ago:

"I think it can sometimes be difficult for the managing director to build a relationship with his or her successor; people, by nature, will all do things differently and it can be hard at first to step back
and allow someone else to take the reins. Typically, you will also tend to expect higher standards. On the plus side, in the instance that an MD has been an FD there is an innate understanding from both sides that there is a need for open dialogue."

Paul Carpenter went from FD to MD in Syncro Ltd, a national construction and facilities management business that is part of the Co-operative Group. He believes that the relationship can be successful providing there is a balance:

"MDs who were previously FDs must ensure that they are giving the current FD enough autonomy, while also offering support, guidance and feedback."

An FD will not necessarily desire to become a managing director but for those that do, the opportunity is often there for the taking. FDs have a strong insight into what is going on across the business and a collaborative relationship with the MD and other business functions. When the position for MD is open it needs to go to someone in a position of trust, which is often why the FD is a likely candidate. FDs have a strong handle on the business and what must change going forward but do not have the final decisions in their hands.

Ian Malcolm says:

"Ultimately, I made the move because as finance director I had a broad insight into non-financial affairs but it was not within my remit to ultimately determine the outcome of decision-making processes,’ comments Fischer. Typically, the move from finance director to managing director is one of the most straightforward routes in succession planning. Many of the skills required to be a managing director are an extension of those you put into practice as a finance director; you need to take what you have learnt and utilise it in a broader working environment."

For Paul Carpenter, the decision was an easy one to make:

"I had been FD in a historically underperforming company for six months but had restored financial control and brought the business close to breaking even. When the opportunity to become MD arose there was an opportunity to create a clear strategic direction in an autonomous role and return the business to profitability; this was achieved in several months. I remained MD for two more years until selling the business."

FDs with the necessary drive and ambition will find that they are strong candidates for becoming MD when the time is right. FDs have strong analytical skills and are adept at understanding their strengths and weaknesses. Since the recession we have seen even more focus on the need for finance professionals who possess a marriage of both strong technical and management skills. Strong leaders can motivate staff and therefore have a positive impact on retaining talent within the business. There has been emphasis on the need for finance directors with a combination of these skills for almost a decade now, but it is only in the last few years that we have started to see job specifications and roles created with this in mind.

One draw for a finance director wanting to become MD is money; in a larger company the salary of a managing director can be significantly higher than that of the finance director. However, finance directors seeking to become the MD will need more than simply a salary incentive to succeed; professionals must have the desire to broaden their skills base and should be confident that they can bring new things to the table. If you have a strong track record in finance and commendable leadership skills, why not look to utilise and develop these further?

Jim Collins’ book Good to Great looked at the key traits of the top echelon of leaders; these he referred to as ‘Level 5 leaders’. Finance directors displaying level 5 leadership skills are those most likely to make successful managing directors. Among the traits of a level 5 leader are: calm determination; inspiring high standards; ambition for the company and not for his or her self; unwavering resolve to deliver long-term, sustainable results; taking responsibility for failures and setting up successors for greater success.

Successful managing directors are strong leaders with a wealth of experience in supporting and managing change, supporting the growth of an organisation and understanding the individual areas of the business and how they have an impact on the bottom line. Finance directors at the top of their game will have acquired some level of this experience and can translate that experience to a managing director role.

Karsten Fischer says his FD background has proved beneficial:

"Having a strong corporate background and the ability to understand the financial implications of corporate decisions puts me at an advantage. For example, years of exposure to salary structures, remuneration packages, capital investments and the flexibility of the business to make changes to these, means I am now able to utilise this knowledge and be confident and bold in my decisions."

Ian Malcolm agrees:

"A good finance director can bring something different to the table in the transition to MD. Finance directors have the advantage of an analytical mind and the ability to quantify and evaluate. The level of interaction between the finance team and the rest of the business is unlike that of any other business function, therefore a finance director will have more experience and understanding of working with other parts of the business; this lends itself well to becoming an MD."

This article first appeared in Finance Director published by CCH  a Wolters Kluwer business.