Executive job search consultant Shane Phillips examines critical areas in the hiring and selection process of top management employees
SEPARATING THE chaff from the wheat is not an easy process for any recruiting agent or employer.
In my job as a search consultant, I recently interviewed 250 Chief Financial Officers (CFO), and only 8% passed their initial assessment for the position.
One CFO balked when I asked him to describe his vision for the financial agenda of his company. He explained that creating a vision was not the job of the CFO, but rather that of the Chief Executive Officer (CEO). He was disqualified.
Before I go into the eight critical areas of a CFO assessment, I’d like to present two brief examples of a visionary CFO. The first is from a small advertising boutique called CramerSaatchi that grew to become one of the largest advertising agencies in the world, Saatchi & Saatchi.
A visionary CFO
Under the creative vision of their Financial Director, Sir Martin Sorrell, they executed thirty-five acquisitions totaling more than $1.5 billion from 1972 to 1987. Their share price skyrocketed and increased the company’s value by twenty times in less than seven years.
The second and more recent example is Mark Loughridge, CFO of IBM. Loughridge developed the company’s plans as they relate to how to grow profit and earnings per share as well as how to invest cash.
He has championed more than eighty acquisitions and is one of the key architects of IBM’s vision for 2015. He possesses a potent mix of financial and strategic skill sets, and to many he is the living definition of the modern day CFO.
As we can see with these examples, top performing CFOs are visionaries. They are strategic leaders who take initiative and are critical impact players who help define the face of an organisation.
Sense of direction
In any executive assessment, an individual must have vision and a sense of direction. An executive cannot transmit something they do not have and if they cannot give direction to their own careers, they will not be able to give direction to a large and complex team of executives. Top performers begin with a vision; they exude a sense of direction, and they are meticulous with their execution.
This interview guide looks at eight critical areas and is designed only as the beginning of an exhaustive selection process. The assessment is generic and a proper selection process should always be designed and modified to meet the needs of the organisation.
The eight critical areas are the following:
- Organisational Fit
- Vision and Creating Shareholder Value
- Financial Strategy
- Mitigating Risk
- Reducing Cost / Increasing Efficiency
- Resource Allocation
It is important to be thorough and the initial interview should take approximately two hours. That gives only fifteen minutes for each section, but it is not important where one starts the assessment.
1. Organisational Fit
CXO executives (the highest level managers) often use a gut check of whether or not they would like working with a candidate during the small talk at the beginning and conclusion of an interview. Use this accepted phase of the interview to retrieve key information about the candidate.
When the candidate answers the questions below take note of not just what they are saying but how they are saying it. Do they present the answer with confidence, with a sense of direction and insight?
-Where did you grow up? What did you like about growing up there? What was your favourite game as a child?
-What was your favourite class in school (or university)? Did you play any sports? Leadership positions? Student body positions?
-Self-image – How would you describe yourself, not professionally, but who are you as a person? Now, professionally?
-What is your personal vision?
-What is your strategy to achieve this vision? (Look for key milestones.)
-What are your salary expectations in the short run? (This is an uncomfortable question for all candidates and can sometimes be asked at the end of the interview.)
-What are your salary expectations in the long run? (Look for benchmarking against industry mentors and gurus.)
-Community involvement / Non-vocational leadership roles? – How are you contributing to the community in which you live?
-Are you on any boards or management committees?
Driving a team to achieve goals in a competitive market is one of the most challenging tasks a senior executive can face. Individuals who score high in this section will have a clear idea of what leadership is and specifically what values and traits the ideal leader should epitomise. An organisation can never outperform the capabilities of its leadership so the purpose of leadership should be to create more leaders.
The first step in assessing leadership capability is to understand the candidate’s philosophy around leadership itself. Please see some suggested questions below:
-What is your team building philosophy?
-How do you embed your team building philosophy into the organisation? How do you embed this into your recruitment process, your training and development, you career planning, promotions, innovations, compensation and benefits?
-What do you think of the phrase “You cannot be promoted if you cannot be replaced?” How could you embed this philosophy into your organisation and even the role of the CEO?
-Describe a time you were able to turn around an underperforming team.
-What are the key attributes of a successful culture? What are the attributes of a successful leader? How do you embed these values into your organisation?
-What actions and support, in your experience, make a team function successfully?
3. Vision and Creating Shareholder Value
The raison d’être of the CFO is to use his or her financial prowess to create and capture value for the shareholders. This will require the savvy CFO to be a strategic visionary, a team leader, and a creative business partner.
Thus, the assessment starts by looking for examples of significant value creation. Sophisticated decisions that require intense financial strategy are at the heart of the CFO’s job description and these decisions cannot be relegated to anyone else.
Below are a few questions I suggest to test a candidate’s ability in this area:
-Give me an example of your biggest impact as it relates to building shareholder value.
-What is your vision for your current department?
-Give me an example of a time when you were able to successfully create and communicate a compelling financial agenda. Why was it successful?
-What is your vision of the finance department of the future?
-Describe a time you had an innovative idea that increased efficiency or increased revenue.
-Describe a time you felt the vision of your company was slightly off focus. Were you able to influence your leadership team to change directions?
-What makes a top CFO?
4. Financial Strategy
Financial strategy is the bedrock of any top performing CFO’s capabilities, and is a critical pillar of any competitive business. It threads throughout every department and every area of the business. A successful strategy will describe an approach to the fulfillment of the CFO’s vision that delivers a sustained competitive edge.
Below are some suggested questions to test a CFO’s strategic acumen:
-Have you ever had an idea that has allowed your company to enjoy a sustained competitive advantage?
-Give me an example of a project you worked on in which you had to switch strategies mid-project. How did you recognise a change in strategy was needed, and how did you implement the change?
-What is the toughest thing about implementing a new strategy?
-Give me an example of a time you were able to reduce working capital in your organisation.
-Your company has requested you to increase the return on assets. What are two strategies to achieve this goal?
-Describe a time you developed a strategy from scratch.
-What is your philosophy of strategic development and business planning?
-How often do you review your strategic plan?
-Do you include outsiders in your strategic process?
-What are the key steps in a successful strategic planning process?
-Describe the most exciting acquisition of your career. Was it your idea? What was your strategy of evaluating the acquisition target?
-Is your current/previous company’s strategy competitive? What changes would you make to it to make it more competitive?
-In your industry, who has the most competitive strategy of all? How can you compete against them?
The mature, seasoned CFO is able to leverage controls to direct human behavior under the financial strategy. He or she will examine each process in the business that involves financial transactions to see where there is a risk of losing assets and then install controls to reduce the company’s exposure to the identified risk.
This type of re-engineering requires an experienced individual who is able to identify legacy controls which are no longer needed, and has the foresight to see where the gaps in the system are as markets change direction. What is critical to assess are the candidate’s creative problem solving skills and his or her understanding of human psychology.
Below are some suggested questions regarding controls:
-Give me an example of a project you worked on that was suffering from control problems. How did you find the problem, and how did you fix it?
-The CFO often inherits a companywide measurement system that is based on historical needs, rather than the requirements of its current strategic direction. How do you prune out those measurements that are not resulting in behavior aligned with the strategic direction?
-What was your most challenging assignment as it relates to implementing reliable control systems?
-What is the toughest part about constructing reliable control systems?
-Give me an example of a project where you were able to design new controls for new systems from scratch.
-Give me an example of a time when you were able to create a measurement and reward systems to channel behaviours into correct areas.
-Describe a time you effectively removed a control from the business with positive results.
6. Mitigating Risks
A risk can be defined as any event that threatens the achievement of the business’s objectives as defined by its vision and strategy. The CFO must not only be aware of all past risks to the business but should be proactively seeking the probability that new unknown risk events may occur.
Traditionally companies buttress their risk policies with layers and layers of preventive actions aimed at dealing with risk events that have already occurred. In today’s environment most companies will have a Chief Risk Officer but even so the CFO should be heavily involved in risk assessment and have a deep understanding of risk management. Suggested questions to assess a CFO’s risk competency are listed below:
-What is your risk philosophy?
-Give me an example of a time you were able to successfully identify and mitigate a significant risk for your company.
-What are the three biggest risks to your department?
-Looking at our current business model, what do you think the most likely risks for the business are?
-How do you define your organisation’s risk appetite?
-Describe a time when you aligned your board and stakeholders on the appropriate risk appetite for the business.
-Describe a time when you process re-engineered your risk reporting function.
-How do you define a company’s risk threshold?
7. Reducing Cost / Increasing Efficiency
Increasing efficiency is the focus of any company that aims to be competitive and CFOs must become innovative agents of change. The most obvious is in the technology field for it has delivered the biggest efficiency gains in recorded history.
Today companies are delivering multi-billion dollar revenues with a fraction of the staff and the cost than that of even ten years ago.
Here are some questions focused on a CFO’s ability to deliver cost reductions and increase efficiency:
-What is your philosophy of cost reduction and increasing efficiency?
-Give me a specific example of how you benchmarked your firm’s performance to assess how efficiently it was performing. How did you identify where opportunity gaps were, and how did you propose to bridge these gaps?
-Give me an example of how your knowledge of bottlenecks in the production process affected your decision regarding capital expenditures.
-How does your organisation measure up to the industry’s average cost to earnings ratio?
-Give me an example of a re-organisation (or policy) you have spearheaded.
-Describe a time you were able to significantly reduce your company’s fixed costs.
8. Resource Allocation
Investing retained earnings effectively requires the decision-making rigor of an expert CFO. He or she must consider current growth opportunities, future expansion prospects, research and development, upgrading current facilities, pension fund investments, paying dividends to shareholders, and special projects.
This list of investment needs is never ending and the winning CFO knows how to strike a balance between current and future needs. As the gatekeeper to the company’s annual budget and guardian of its liquidity, the ability to expertly allocate financial resources is the touchstone of financial acumen.
Below are some suggested questions for this section:
-What is your investment philosophy?
-What is the most difficult decision you have had to make as it relates to capital expenditures?
-Have you ever been in a situation where there was a disagreement with your board about which projects should get funding and which shouldn’t?
-What is your philosophy of investing excess cash?
-Have you ever created a separate WACC for each department?
-What would you consider to be the three biggest mistakes a CFO makes as it relates to capital expenditures?
-Describe a time your investment allocation has outstripped your growth rate. What was the result?
The bedrock of a prosperous society is strong ethical business, and ensuring you choose your CFO correctly is critical not just to your company but also to the community. Therefore I hope this article enables you to make a better selection of your next CFO.