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CFOs—The Momentum Towards Greater Leadership Chris Figgis & Kokkong Chan Egon Zehnder International Wednesday 27 September 2006. G100 NATIONAL CONGRESS. Today’s discussion. Leadership trends Constituents of leadership The EZI framework Do CFOs measure up? What next?.

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slide1
CFOs—The Momentum Towards Greater Leadership

Chris Figgis & Kokkong Chan

Egon Zehnder International

Wednesday 27 September 2006

G100 NATIONAL CONGRESS

today s discussion
Today’s discussion
  • Leadership trends
  • Constituents of leadership
  • The EZI framework
  • Do CFOs measure up?
  • What next?
the good old days
The good old days . . .

Delete

Print

The original computer!!

the cfo of the past
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
a review of job descriptions
A review of job descriptions . . .
  • “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

c. 1985

2006

drivers of change
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
on breadth of leadership
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 BabeauCFO, Pernod Ricard

on taking on business leadership roles
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 HuetCFO, Royal Numico

research on the value of top management
Research on the value of top management

The leader effect accounts for up to 40% of the variance in value

Year effect

Industry effect

Company effect

Leader effect

Company value

Source:

“When Does Leadership Matter?” ; Wasserman, Nohria and Anand; Harvard Business School working paper no. 01-063, April 2001

our own analyses confirm these findings
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

0

1

2

Management quality index

(MQI)

Correlation : 0.6 to 0.8

Source:

Egon Zehnder International

how have cfos responded
How have CFOs responded?

Aim: Build new technical skill sets and expand experience

  • Broadening exposure, eg COO roles
  • Additional training in skills, eg IT
  • Formal courses, eg AICD, MBA
slide13
But . . .

û

Technical skills and experience

Leadership competence

to summarise our proposition
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
the ezi philosophy in leadership assessment
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
what distinguishes leadership
What distinguishes leadership?

People and organisation leadership

Thoughtleadership

Business leadership

  • Collaboration
  • People development
  • Team leadership
  • Change leadership
  • Customer focus
  • Market knowledge
  • Strategic orientation
  • Functional capability
  • Results orientation
competencies what are they
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
measuring people against role requirements
Measuring people against role requirements

7

6

These become targets against which individuals can be as assessed

5

4

3

2

1

Results orientation

  • Transforms business model
  • Redesigns business practices

EGM

  • Improves business practices
  • Drives to exceed goals

GGM-GM

GGM-GM

  • Driven by goals

Front-line

manager

Manager

Individual

contributor

  • Would like to make things better
  • Fulfills assigned tasks
better leaders demonstrate increasing levels of proactivity
Better leaders demonstrate increasing levels of proactivity

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

Competencies are defined by behavioural indicators ordered by relative difficulty

7

6

Lower

5

4

3

2

Higher

1

ezi research and analysis
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
findings from ongoing research on the cfo function
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

outstanding cfos compared with outstanding ceos
Outstanding CFOs compared with outstanding CEOs

Outstanding CFOs

Outstanding CEOs

Customer focus

Results orientation

Marketknowledge

Functional capabilities

Strategic orientation

People development

Team leadership

Change leadership

Collaboration

why don t more cfos become ceos
Why don’t more CFOs become CEOs?
  • Motivation
  • Company structure
  • Opportunity
  • Not knowing WGLL
reflection
Reflection
  • How are you tracking according to these leadership competencies?
  • Do you have a plan for getting there?
cfos vs finance leaders who report into cfos
CFOs vs Finance leaders who report into CFOs

Report to CFOs

Report to CEOs

Customer focus

Results orientation

Marketknowledge

Functional capabilities

Strategic orientation

People development

Team leadership

Change leadership

Collaboration

Significant Development Gap = 4.4

Mainly on “business management” competencies

cfos vs finance leaders who report into cfos1
CFOs vs Finance leaders who report into CFOs

Report to CFOs

Report to CEOs

Customer focus

Results orientation

Marketknowledge

Functional capabilities

Strategic orientation

People development

Team leadership

Change leadership

Collaboration

But even on “finance function” competencies,

There are sizeable differences

outstanding cfos vs good cfos
Outstanding CFOs vs Good CFOs

Good CFOs

Outstanding CFOs

Customer focus

Results orientation

Marketknowledge

Functional capabilities

Strategic orientation

People development

Team leadership

Change leadership

Collaboration

Development Gap = 9

Key Differentiators: Functional strength, and ability to change a direction through personal influence and people

next rung down is not ready
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
why is this
Why is this?
  • Not identifying WGLL
  • Solution before diagnosis
  • “Ad-hoc” development plans
  • Inertia in opportunity creation
reflection on team
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?
summary
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