Video"What better way to launch a magazine about strategic financial management in Europe," we wrote in our first issue ten years ago, "than to dedicate the first issue to another launch of significance to financial executives — that of Europe's single currency." The introduction of the euro, we noted, provided a "unique opportunity" for the region's finance chiefs "to demonstrate both their leadership skills and their ability to create value for their companies."
Such opportunities — both large and small — are now commonplace, as the profile and responsibilities of CFOs across the Continent have grown immensely. And although the worries about what impact the launch of Europe's single currency would have on their companies have long past, many CFOs' key concerns remain the same, even as the business world around them has changed dramatically since 1998.
Every quarter, our Business Outlook Survey polls more than 1,000 senior finance executives around the world about their concerns. Here, we explore the issues high on their list of concerns through the lens of the past ten years of CFO Europe, looking for clues about what the next ten years may bring for six key issues: attracting and retaining talent; navigating fast-changing capital markets; improving budgeting and planning to better reflect the strategic direction of the company; getting to grips with IT; keeping companies compliant without breaking the bank — or the law; and managing increasingly complex, global supply chains. After all, those who cannot remember the past are condemned to repeat it.
Human Capital Management:
Two things have dominated the list of CFOs' top concerns over the past decade: the cost and availability of labour.
The way Paul Venables sees it, "Compared to ten years ago, there are probably about 30% fewer finance people in an organisation but they are working 20% more hours." The "good news," the CFO of Hays, a £1.8 billion (€2.7 billion) UK recruitment company, adds, is that "they are probably paid about 30% more now." The shifting parameters of this equation have been vexing for more than a few finance chiefs over the past ten years, especially considering that CFOs were far less involved in "soft" people-management issues in 1998 than they are now.
Pay structures have changed markedly, nowhere more so than for those in the corner office. In 1998, Nestlé's then-chairman Helmut Maucher told CFO Europe, "there has been too much fixed salary, which doesn't provide executives with any incentive and doesn't take into account a firm's success." At the time, base salary made up 70% of a top executive's total package, compared with 40% today, according to Towers Perrin, a HR consultancy.
Nestlé was one of Europe's pioneers when it came to restructuring reward packages. Maucher introduced a bonus system back in 1983, and stock options in 1991. By the end of the 1990s, stock options had become a popular way of incentivising employees, but the enthusiasm for them began waning a few years ago as new accounting rules meant that previously "free money" had to be expensed on financial statements. What's more, massive payouts during the dotcom euphoria stoked shareholder anger after the bubble burst. In 2000, for instance, we wrote about an options programme at Spain's Telefónica — potentially worth more than €200m to its top 100 managers at the time — that was sparking investors' ire.
Given the general backlash, companies drastically cut back on options programmes in favour of performance-based cash and share rewards. In the UK, for example, only 37% of companies today offer employees stock options, compared with 72% ten years ago, says Towers Perrin.
Whatever the mix of base and incentive-based pay, overall pay packages for CFOs have risen steadily, reflecting the role's rising profile. "Most good finance directors now are effectively deputy managing directors," says Venables. For his part, he is responsible not just for finance but also for M&A, IT and investor relations.
And CFOs are demanding more from their teams. But that's easier said than done. Venables notes that the biggest challenge is finding finance managers with "good people instincts." Max Messmer, CEO of recruiter Robert Half International, agrees, noting that sustained hiring in accounting and finance over the past several years has resulted in "an increasingly shallow talent pool."
The pool is about to shrink further, observes Jim Matthewman, a partner at Mercer, another HR consultancy. As a case in point he cites statistics from the UK, where 19m of the working-age population are baby boomers (who are starting to retire this year), compared with 11m who are generation X and 7m who are generation Y.
Management styles also need to change to accommodate the new demographics. In particular, generation Y — those born in 1982 or later — are said to demand more time and attention from their managers than their predecessors. An article recently published by our US sister magazine, CFO, that questioned the loyalty of this new generation stoked plenty of criticism. One reader from generation Y shed light on what would buy their loyalty: "Provide meaningful training, assign jobs that allow for growth, mentor — don't micro-manage, work with the employee by providing meaningful job experiences, pay a good wage," and the list goes on.
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