The grey number cruncher of yesteryear is on the way out and is being replaced by ‘a leader, strategist, relationship manager, coach and communicator, intuitively understanding risk and comfortable with e-commerce’.

That’s the view of Terry Carroll, finance director of Wales and north of England-focused property developer Eatonfield, former finance director of National and Provincial Building Society and ex-treasurer of the Halifax. A 1980s pioneer of balance sheet management including derivatives at both these previous posts, and author of The Role of the Finance Director among other books, Carroll says his job at Eatonfield is essentially a matter of asking the right strategic questions.

Being on top of basic accounting is still an important part of the job, and most finance directors have accountancy training, if not a career background, in the profession. After all, among the many pressures coming to bear and expanding the role is the introduction of International Financial Reporting Standards (IFRS), certainly for companies quoted on the London Stock Exchange, and the increased risks posed by the controversial US Sarbanes-Oxley rules on corporate governance that are washing across the Atlantic.

Broader base of skills

But Carroll is not alone in arguing that wider, even ‘softer’, skills are needed these days, especially by those who see the post as a stepping stone to the top of a company. According to some surveys, that could number around a third of all finance directors. Carroll cites a recent poll of 45 leading chief financial officers by finance magazine CFO Europe, which showed that communication and relationship management skills are almost as highly valued as financial aptitude.

Stephen Oliver, former finance director of online learning group Epic and media concern Avesco, and now at human resources software specialist OneClick HR, agrees. ‘Ten years ago, the finance director had a process-driven role, concerned with money, getting in the cash, writing budgets and saying who was above and below budget,’ he reflects.

‘Now, especially in smaller companies, the role is much wider. The finance director has to stand shoulder to shoulder with the chief executive officer in understanding the company’s strategy and seeing it through.

‘Often the finance director is the “doer” in a company, executing the bright ideas of other people,’ adds Oliver. ‘Contracts will be passed to the finance director to review with an eye to the risks involved and the implications for revenue recognition and other related issues.’

Chris Bunning, finance director of Weybridge-based Property Investment Holdings, spells out what the position nowadays involves for a private company with £60 million of industrial, retail and office assets. ‘I have someone else to do the book keeping,’ he explains. ‘My role is to work with the four-strong management team on property acquisitions and disposals and arranging funding.’

Bunning takes part in decision-making on whether to buy one building or sell another, and lends a helping hand to surveyors on key valuations. ‘I’m engaged in the legal, tax and financing issues involved,’ he says. ‘You can get good bean counters for £25,000 a year, so I have someone who does the nitty-gritty, right up to regular management accounts, which I then present.’

Tough decisions

It’s not all teamwork, however. As finance director, Bunning and his predecessor have shouldered the burden of decisions on hedging future interest rates, which have had a significant impact on the company’s fortunes. ‘In 2003 my predecessor took a real gamble,’ he recalls, ‘and in 2005 I took another one, locking in our rate on £27 million of loans from two banks at 4.5 per cent for ten years.’ With rates now on the rise, the deal is saving the company money, which Bunning understatedly admits is ‘rather pleasing’.

Jonathan Kamaluddin, finance director at online fashion retailer ASOS, also argues that the finance director’s role has become more commercial than ever. ‘My day works out as 50 per cent of time spent on management and business strategy and 50 per cent undertaking traditional finance director’s tasks,’ he says. ‘I have a team to ensure all the numbers are done and make regular checks and balances, and I can easily review their work and see that it is all right. I’ve got a good team together and I have “upskilled” them so that they know how to ask the right questions.’

Assuming more risk

Kamaluddin, a trained accountant who admits his own ambition is eventually to become the chief executive officer somewhere, says he has to handle legal and regulatory issues, such as when ASOS outsourced its warehouse operations, or insurance, such as when a fuel depot exploded. ‘As the finance director’s role becomes commercial and operational there’s a risk that you neglect accounts, management accounts and so on,’ he reflects.

‘I have been careful not to let that slip,’ he continues. ‘Finance directors must remember that they are responsible for the numbers. Only when that side is working can you go on to the more strategic issues.’

As commercial pressures mount, it becomes particularly important to watch out for the possibility that taking a more commercial, proactive finance management role – as pursued by Carroll and Bunning – turns into potentially risky financial speculation.

Carroll recalls seeking to ‘optimise the total returns on the balance sheet’ when at the Halifax. ‘We matched assets and liabilities to derive incremental gains,’ he says. ‘And at a property company such as Eatonfield we might decide to hedge against rising interest rates and would have the opportunity to take short-term gains as rates rose. But we would draw a strong line between doing that and sheer speculation.’

Some trends, however, are working against allowing the finance director a more strategic role. In particular, new accounting and corporate governance requirements are imposing new responsibilities, adding to pressures for a further division of roles between the chief financial officer (strategic) and the finance director (nitty-gritty) – at least in larger companies that can afford it.

As Jonathan Hook of accountant PricewaterhouseCoopers puts it, IFRS, which became obligatory for AIM companies in January, has been a ‘big challenge’, with its different treatment of goodwill, options, pension obligations and a string of precise, small-print requirements. ‘In truth, small and medium-sized companies don’t have the resources for anyone but the finance director to handle this,’ he comments.

Chris Thompson, the new CEO of the Inter Link food group, agrees. ‘IFRS places more responsibility at the feet of finance directors; the demands are much more rigorous than they used to be,’ he says.

Risk management

Meanwhile, quoted companies face the need to provide a ‘risk register’, showing what business risks they have identified, how they are monitoring them and what stage they have reached at any time. And all companies, both public and private, are now confronted with the obligation to put a ‘business review’ into their annual reports, in place of the old directors’ report.

In addition to the traditional operating review, this must contain financial information and reports addressing health and safety and employee issues. ‘It encompasses far more detail about how companies function and it will force the finance team to be focused on all sorts of areas of business formerly seen as purely operational,’ he says.

Peter Lunio, director of business improvement at accountant Baker Tilly, says the initial impact of IFRS and Sarbanes-Oxley threatened to reverse the trend towards operational roles and force finance directors back into a narrow, box-ticking role. ‘Auditors have become less friendly and investors are more suspicious, leaving the finance director out on a limb.

‘We are now “over the hump” on these changes,’ Lunio continues, ‘but as a result it’s now all less collegiate and more confrontational. The pressures are greater and the turnover in finance directors is higher than it was, as the job involves spending ever more time striving to ensure there are no surprises.’

Linchpin and successor

The finance director is often considered the natural successor to the company chief, particularly in fast-growth companies. Chris Thompson of Inter Link took this route to the top himself and is emphatic that a finance director needs to be ‘the commercial eyes and ears of the business’. More than that, he maintains they ‘need to be aware of all the influences on a business before they make an impact’.

He goes on to argue that it’s the finance director who is in a position to see and understand all the links in a business, such as those between stocks, production, purchasing and creditors. ‘An excellent grasp of business dynamics stands you in good stead for the top job in the company,’ he says.

Now that FDs are developing the skills to be strategists, corporate financiers, legal experts, communicators and people managers, competition for high-quality players is fierce. Whether they retain the title, become chief financial officers or adopt some other transatlantic designation, Thompson says the role is becoming ‘an even better breeding ground for chief executives’.

As a result, Peter Lunio argues that the current climate is breeding a new type of FD able to be much more choosy about their career path, with the boss’s chair very much in view.