The global business environment has changed a great deal in the last decade, and this change has manifested in the way companies operate, and – of particular interest to finance professionals – has brought the role of the CFO to the fore.
To start with, the days of mere number-crunching are long gone. Of course, the CFO is still very much responsible for the financial health of the company, but there are some key competences and requirements on top of his or her financial expertise that point to the fact that the role of the CFO is undergoing a significant transformation.
Today, the CFO is expected to get involved and help the executive leadership team with setting the company strategy, and further executing that strategy through sound financial planning and performance management. That implies a deeper knowledge of company operations, industry environment and competitive landscape.
But the real challenge of this new role is not improving or acquiring an ever-expanding business acumen, it is, in fact, the ability to influence and collaborate with the Chairman, the CEO and the board. To be successful in his new role, the CFO must be an effective business partner and a sharp strategic thinker. To accomplish this, they need leadership skills.
This shift in responsibilities and skills is especially relevant in the Middle East, where family businesses are the core players in the region’s economy, and the role of the CFO is not fully realised.
Recent research by Ernst & Young reported that 80 to 90 percent of businesses in the region are either owned or controlled by families. The implications are enormous: family businesses generate 80 percent of the region’s GDP; they account for 75 percent of the economic activity of the private sector, across industries such as retail, trading, travel, construction, real estate, hospitality, oil and gas. And they also employ 75 percent of the labour force in the GCC, which accounts for 67 million employees.
Whilst family businesses face the same operational challenges as any other business in a global economic environment, they also need to deal with a range of specific problems, such as continuity – the proverbial ‘generational change’.
Globally, just a mere 20 percent of family businesses make it to the 3rd generation. The majority of family businesses in the GCC were set up in the 1960s and 1970s, and are now facing the tests and trials related to continuity and generational change.
The key to ensuring continuity and sustainability for a family business in its 2nd and 3rd and ongoing generation to come, is simple and straight-forward in theory. Sound governance, clear and efficient policies and structures – very similar to publicly owned companies. However, there they mean replacing the family dynamics, which are prevalent in the first and even the second generation, with a more corporate approach, discipline and diligence.
It’s a big change, one that calls for a seasoned and skillful CFO. As the majority of Arab family businesses are still relatively young, there is a limited pool of experience and expertise they can draw from, hence, the CFO role is most certainly outsourced. Bringing in an external person to fill a high level positon within family business operations challenges the values, culture and dynamics of the family business.
In a panel discussion hosted during our IMA Regional Conference held last month, several CFOs of family businesses – Fadi Atallah, Chief Finance and Investment Officer at Al Ghurair Group, Tarek Amer, Group CFO at Energy Care Holding, and Hassan A. Sharafeddin, Chief Executive Officer at Abnia, Danway Industries and Danway Fusion Glass – shed new light on the challenges and opportunities for the role of the CFO in a family business.
Armed with business experience and professional qualifications, the CFO has a juggling act at hand. They key challenge is refreshing what they have learned in their careers so far, and what they set out to accomplish as a mandate in the new role, with the family’s expectations of appropriateness, good manners and right timing, which sometimes may feel out of touch with the demands of running a business.
Via difficult encounters, the new CFO learns that the family culture and family values are very powerful engines. Steered in the right direction, they are drivers that can grow the business into future generations. Tested, defied or steered in the wrong direction they can lead to chaos and failure.
Before laying out a blueprint for family and ownership governance, continuity and succession planning; before charting a corporate and financial strategy along with performance management, finance and reporting tools – all of which are essential in setting strong foundations for business governance and best practices . The CFO’s first move is to make the conscious decision to understand and tap into the mindset of the family business – family comes before business.
This is the path to building trust and credibility with the founders and owners of the business. This is the way to channel real influence with the Chairman or the CEO, and become their right-hand person in the company.
Nevertheless, despite the prerequisite of building close relationships with the family, objectivity must remain a core value, because the CFOs are the guardians of control and good business practices in the company. Achieving the right degree of objectivity and collaboration with the family leadership is a tough balancing act, but it can also be highly rewarding. Ultimately, the key opportunity for CFOs in family businesses is to become agents of change.