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GE and American Express have developed fast-track programs for the top talent in their finance teams. But is the star system the best approach?
Lotte Chow, CFO Asia
October 1, 2003
It's not every day that a CFO fresh off the plane draws a line in the sand. But Wayne Chang, who became CFO of General Electric's Medical Systems China unit two years ago, walked into the job in Shanghai with a certain confidence that people would listen to him.
He needed it, because GE's China goals were typically big. His mandate: pushing company sales to US$1 billion from US$200 million in five years, or to 30 percent from 20 percent growth a year. Chang's strategy for growth involved customer financing, the first time that GE had tried this outside of its aircraft leasing activities in China, which structured deals in US dollars.
The customer financing at the medical unit would be in renmimbi and would involve close relationships with Chinese banks.
Customer financing naturally bolsters growth, but also carries the risk associated with arranging loans for customers in boom markets. The practice came under fire in the US after many technology companies' customer-financing programs went bust after the tech bubble burst.
Ultimately, Chang was able to overcome reservations and built confidence in the plan. "A lot of people would like to buy our products but need financing to be able to do so," says Chang, who is 34 years old. "So we have to find an external third party, say banks, to provide financing. But China being an immature financing market, we have to carefully manage risk in order to successfully drive growth," he says.
The success of the project hinged upon the capacity to pore through balance sheets of potential business partners and instill risk management skills to his staff. Chang had good experience to contribute here. He had spent long hours as an internal auditor to GE units around the world as part of the company's fast-education training program for finance executives. As for meeting those Herculean goals: Chang says he's on schedule. GE Medical Systems China is growing at 25 percent per annum with a projected US$600 million revenues for yearend 2003.
Leadership, or Effrontery
Chang's confidence might have struck some long-time employees as effrontery, but GE has made a policy of encouraging its finance professionals to assert themselves. Chang is one of 15 CFOs in GE's worldwide operations that entered the company in a special training unit designed to instill leadership into a finance team—and make those skills transferable across hemispheres and cultures. Other global companies, including American Express, Proctor & Gamble, and Microsoft, have also developed leadership and fast-track career programs, and swear by them as costly, but ultimately, value-building long-term investments. In Asia, the concept is relatively new but several companies with global reach have created their own campuses to train the cream of their recruits. These range from Infosys, the Indian IT service provider which runs a leadership institute at its campus in Bangalore, to Legend, the Chinese computer maker, which has its own management school on the outskirts of Beijing.
Building in corporate efficiency and accountability through in-house training is not, however, a route that all companies can take. As Hellmut Schutte, dean of the business education institution INSEAD in Singapore, points out, most companies don't have the resources. And even if there is money for grooming would-be finance chiefs, human resources may be a problem. Not every company can afford to lose 20 or 30 people to a training program, and not every one of those same people is likely to be capable of training. "If you're a good manager, it doesn't mean you are a good teacher," says Schutte.
Even if you are, it may not be enough, according to Larry Lang, professor of finance at Chinese University in Hong Kong. A textbook-perfect teacher dedicated to turning out the "exceptional finance professionals" of a GE-scale training program may find the textbook itself is inadequate. "You know these general kind of training materials are not successful for China. There's nothing wrong with the theory but you need in-depth discussion, you need local cases, you need to adapt for the local environment."
Getting the right local spin on training materials for CFOs is not as important as it is for CEOs, says Lang, but it is still vital for finance chiefs to know the market and to be more than aware of the law from liability down to the ever-changing minutiae of the rules on IPO reporting.
The other, perhaps lesser problem is that instilling a strong sense of corporate culture could result in narrow-minded rather than single-minded leaders. "That's the drawback with any internal program," says Schutte, "it leads to in-breeding. Some companies have a corporate culture and they manage—although I don't like to use the word—to clone each other."
That said, Schutte concedes that big in-house training programs can spawn plenty of healthy debate among "graduates", particularly if their corporate alma mater has a diverse range of businesses. He also points out that there are Asian companies that have enviable training facilities. "Korea and Japan have large institutions, particularly Japan, and many business schools would pale in comparison." And large institutions, inevitably, can seek out the best of the young high-fliers.
Talent, and Hype
GE, of course, is famous for this type of talent scouting, and many cliches that have sprung from its "culture". Readers of business magazines have for years heard of the wonders of Six Sigma, the program used by GE and others to promote excellence, stretch goals, and, pace GE's famous former CEO Jack Welch, doing things "straight from the gut."
Given GE's rocky performance in the last year, skeptics have questioned whether creating a star system within a company is an effective method of harnessing an organization's creative energy. After all, the focus on talent and dynamism at Enron under former McKinsey consultant Jeffrey Skilling, who served as the energy trader's president, led to a kind of creative destruction that was a wonder to behold: the biggest corporate bankruptcy in the US up until that time and, in addition, thousands of people out of a job.
Some experts argue that it is precisely because renegade finance teams led to disasters at Enron and Worldcom that more —and better—leadership training is needed. "Companies know the public and their shareholders want accountability and transparency, partly to reduce the risk of future Enrons or Tycos," says Jonathan Schiff, president of New York-based Schiff Consulting Group that specializes in finance leadership development.
Fresh from School
GE's Financial Management Program (FMP) recruits right out of college and places its highest potential employees in its Corporate Audit Staff, where they travel among the company's units as independent internal auditors. This gives them both lessons in independent judgement and an overview of the company's operations. "We have always believed in driving financial leadership and creating a huge pipeline of financial talent within the company for GE," says Roshan Thiran, human resources manager for GE's finance professionals in Asia and director of the region's FMP.
The company started FMP in the US in 1919 and began a program in Asia 30 years ago. Today, some 75 percent of GE's top 20 business CFOs are FMP graduates.
Wayne Chang graduated from Indiana University in Bloomington, Illinois in the US in 1991. Never mind that he was an economics and psychology major and had never set foot in an accounting class, GE saw his drive and ambition and recruited him into its FMP. The program offers its participants four job rotations within a two-year period to learn all areas of finance and accounting, business development, strategy and controls. Chang's first assignment was at GE Aerospace, a manufacturing plant in Utica, New York, doing cost accounting and financial reporting. After six months, he moved to internal auditing, handling compliance and policy issues. His third job was financial planning and analysis focused on product line profitability, long- and short-term forecasting, variance analysis, risks and opportunities. His last assignment was at the company's Ocean and Radar Systems headquarters where he was an operations analyst dealing with total business measurements such as sales, margin and cash.
In each rotation, Chang picked up new skills and learned from his mentors and coaches through continuous feedback and regular performance reviews. He also attended lectures taught by GE senior managers and studied with other FMP participants via the internet. "My lack of training in finance in college was not a huge disadvantage, because GE picks people who can learn quickly and gives them opportunities to learn," says the Beijing-based Chang.
After getting a grounding in finance and learning how a business operates, Chang got his first real job as investment analyst at GE Aerospace headquarters in Syracuse, New York. After two years, he was fast-tracked to another GE finance leadership development program: the Corporate Audit Staff where he got to travel first around the US and later in Europe and Asia, auditing the company's businesses, doing due diligence and special investigations.
Chang recalls that as an auditor, he sometimes worked as much as 80 hours a week and traveled to two countries in one day. "It was one of the most demanding yet rewarding jobs I've ever had," he says. As an auditor, Chang added supervising responsibilities to his list of talents, first by looking after a team of five to eight people and later 10 to 20.
After six years as an auditor on the road, Chang became executive audit manager for Asia, based in Tokyo. Two years later, he was offered the CFO job for GE Medical Systems China. How has FMP and auditing helped him in the new job? "FMP develops your functional and critical thinking skills," Chang says. "It helps you analyze situations to plot strategies, move from facts to root causes, anticipate consequences and build problem-solving solutions."
Aside from skills, knowledge and experience, participants say finance leadership development programs offer other valuable benefits. Wee-tuck Tan, the Singapore-based CFO of CNBC Asia Pacific, a GE subsidiary, says the contacts he made during his time in Corporate Audit Staff have proven valuable. "I've found the people I met and the friends I made while I was in Corporate Audit have been tremendously responsive whenever I need their help," says Tan, who joined Corporate Audit seven years ago and who, like his peers, has worked in the US, Europe and Asia. He adds: "I know when I pick up the phone, I'll be talking to someone I know."
Job Rotation Anyone?
American Express may not be as big as GE, but its leadership development program is as elaborate. Amex's global job-rotation program trains its MBA recruits, but includes high potential employees as well. While the MBAs get a three-year rotation during which they are introduced to a range of disciplines in global finance, the company high-fliers get job swaps for two years to gain exposure in diverse roles for cross-functional development, work experience in different cultures, exposure to senior management and an opportunity to build networks within the company.
Carol Robinson, who joined Amex International Corporate Audit department as project leader in the UK four and a half years ago, is one of three internal employees selected for the global rotation program. An auditor for 10 years, five with UK accounting firms before joining Amex, Robinson has been managing high-profile international audits and leading teams of up to four people. But she is keen to expand her management responsibilities and develop cross-functional finance skills. Her first post on the rotation scheme, starting on September15, will be travel finance manager in Sydney.
In her new position, Robinson will have wide responsibility. She will supervise a team of 13 while maintaining the reporting, accounting and controllership of the travel office. She will also be expected to promote changes to reduce cost and conduct research. And, as if that wasn't enough, she must in addition resolve requests from senior management relating to changes in accounting practices, and identify opportunities and new approaches to a process or project. To ensure the development of her leadership talent, Robinson will have Amex's finance controller for Australia and New Zealand, Peter Pak, as her mentor. She will also network with other Amex finance leaders and utilize Amex's Finance Virtual University for learning.
"I want to succeed at American Express and the finance leadership development program will provide the necessary tools to help me achieve my goals," says the 32-year-old.
In-house finance leadership programs aren't without their critics. Some consultants say the programs foster a mentality of survival of the fittest and pressure everyone to perform or perish. Academics, like INSEAD's Schutte, argue that by learning, working and mingling only within their companies, participants miss out on outside exposure. "They could lack a wider view of the world and how other companies and managers operate," says Rae Weston, professor of management at Macquarie Graduate School of Management in Sydney.
But the companies defend their programs by saying that a performance-based system that rewards those who deliver is a good way of identifying and developing talent. As for outside exposure, Pak, Robinson's about-to-be mentor, says Robinson will get to mix and network with other finance professionals when she attends functions and training courses held by organizations such as the Australian Certified Chartered Accountants.