Capital Markets

Then & Now

Tracing CFOs' top concerns through time.
May 5, 2008

“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.

In CFO Europe’s quarterly survey of finance chiefs, the cost and availability of labour has been a top-three concern for many years. Faced with such scarce, expensive and demanding young talent joining the junior ranks, it looks likely to stay that way.

Capital Markets:

Call them barbarians at the gate or a catalyst for corporate efficiency, private equity firms have been prominent players during ten years of extraordinary change across Europe’s capital markets.

Amid stock exchange closures and consolidations, coupled with a widening and increasingly complex range of ways to raise capital, it’s private equity firms that have been changing the game the most for Europe’s finance chiefs.

As CFO Europe has reported over the years, the pre-dominance of private equity has introduced new challenges for finance executives, whether it’s coming to terms with a new owner or introducing their company to the public markets after a private-equity shareholder exits. For the daring CFO, it’s also opened up some new career opportunities, as private-equity firms look for financial talent to oversee their investments.

The total value of deals in which financial buyers, such as private equity firms, bought listed European companies was more than seven times greater in 2007 than 1998, with volumes last year setting an all-time record. (See “Off Market” at the end of this article.) And, at least before the recent credit crunch, it seemed that no company was too impregnable a target. “Who would have thought ten years ago that someone would make a bid for Sainsbury’s and that it would be a private equity fund?” asks Tom Troubridge, PricewaterhouseCoopers’ London-based capital markets head, referring to last year’s interest in the UK supermarket from US private equity firm Kohlberg Kravis Roberts.

Private equity firms top the list of the new investors to whom today’s CFOs expect to answer, if not directly, then via other shareholders who pose pointed questions about capital structure vis-à-vis highly geared private equity-owned competitors. Alex Tamlyn, head of the EMEA capital markets group at law firm DLA Piper, describes the entrance of private equity houses and hedge funds into the markets as the introduction of “two new players in a very well-established dramatis personae, where the players don’t generally change that much over the decades, let alone the years.”

Of course, the nouveau riche private equity firms sometimes play the role of villains. But when Tamlyn and colleagues quizzed 167 corporate decision-makers last autumn — half of whom were CFOs — their attitudes to private equity and hedge funds were mostly positive. How active private equity remains during the current economic troubles remains to be seen, though all-out retreat seems unlikely — the value of European public-to-private deals ?in late April was already about 36% of the total for 2007.

If the changes wrought by private equity firms were the biggest story of the past ten years, what’s next for the capital markets? Will the deep pockets of sovereign wealth funds, many of which have come to prominence as saviours of companies stricken by the subprime turmoil, alter the finance landscape as fundamentally?

Whatever the case, the CFO’s focus on funding will stay the same. “It is critical to keep focus on the capital markets and also critical to ensure that you have very strong funding and liquidity,” says Declan McSweeney, CFO of Czech consumer lender Home Credit and former finance chief at Allied Irish Bank. (See “Where Are They Now?”) That’s nothing new, but McSweeney thinks the current market turmoil means some CFOs could do with a friendly reminder. “These are old lessons,” he adds, “but they needed to be relearned in the past 12 months.”

Budgeting and Planning:

Not so long ago, the drawn-out annual budgeting and planning process was something that every company loved to hate and would have done almost anything to get rid of. But now they’re not so sure.

In one of CFO Europe’s earliest issues, we wrote about how companies were galvanising around plans to bin budgeting, replacing the time-consuming, cumbersome annual process with various tools that promised to be more nimble and reflect fast-changing operating environments. One such company we profiled was Borealis. As Bjarte Bosgnes, head of corporate control at the petrochemicals company, explained at the time, the budgeting process, which took six months every year to complete, was bogged down in too much detail, not to mention “a lot of internal haggling and negotiation.” To help bin the budget, the company launched a series of projects in 2005 to introduce quarterly rolling forecasts looking five years ahead and balanced scorecards.

But over time, the old way of budgeting stuck around Borealis, albeit with some streamlining and support from new tools. “Organisations evolve and operate in different conditions, so I can certainly understand the decision to get back into a more formalised budgeting process,” observes Daniel Shook, Borealis’ CFO since last year. That said, “the budgeting process can be extremely painful because you can potentially spend a lot of time talking about things that don’t necessarily drive your business forward and help you perform better.”

So, although the budgeting process seems a firmly entrenched annual tradition at most companies, CFOs have helped make it more efficient. One way has been to keep a firm grip on the process. “It’s the art versus the science, making sure that you get the brakes in place,” says Shook. “You don’t want to spend a lot of time in your budget reviews discussing whether an allocation is up, down or sideways, when it is indeed just an allocation.” He adds that the ongoing transformation of finance staffers into business partners plays a big role in improving budgeting and planning. “We want to make sure that we give our people enough of a view of the business so that they understand what the numbers mean, not just what they are,” he asserts.

Thanks to steps such as these, companies have been making improvements, according to the Hackett Group, a benchmarking company. Since 2000, the average company has reduced the number of budget iterations from around five to four, while budget line items have also been reduced, from 455 to 270.

But the exercise remains a drain on time. The average number of days needed to complete an annual budget has increased from 108 to 120. There are several possible explanations, says Hackett. One is that companies have had other, more urgent projects competing for their attention. Another is the widespread use of spreadsheets, despite the growing availability of budgeting and planning technology that claims to be faster and more efficient.

Spreadsheets are still in use at Borealis, but Shook doesn’t see it as a problem. He hasn’t, however, ruled out looking around for better tools, including those that the firm’s ERP system could provide. Nor has he ruled out looking for more ways to make the budgeting and planning process less “painful.” Whatever happens, he concludes, “Budgeting shouldn’t be a zero-sum game.”


For CFOs, the pace of technological innovation has proven to be both exciting and frustrating, often in equal measures.

“Even at the best of times, the relationship between CFOs and CIOs can be an uneasy one.” This was what Yuri Zaytsev, CIO of Swiss Re, told CFO Europe in 1999. Is it any different today?

Not exactly. Few functions have the capacity to exasperate CFOs as much as IT. In 1999, Zaytsev declared that it was “time to re-examine traditional corporate structures that require CIOs to report to CFOs.” If anything, finance’s control over IT is stronger today, with IT directors continuing to report to CFOs, assuming that a company hasn’t outsourced the IT function to a third party, reducing its interaction with finance to contractual negotiations over price and service levels.

Although CFOs remain largely responsible for IT, mastery is another matter. If he had to summarise the key theme of enterprise IT over the past ten years, Hub Vandervoort, chief technology officer for enterprise infrastructure at Progress Software, would cite the growing gap between “the velocity of the pipeline” versus “the velocity of the data refresh rate.” Put another way, Vandervoort explains, the pace of business — namely, the volume of data generated by IT-enabled processes — has increased by an order of magnitude since 1998, while the speed at which systems can collect that data has increased by only around 10% over the same time.

This, says Jan Vink, CIO of Boekhandels Groep Nederland (BGN), a €170m Dutch bookstore chain, results in the “biggest battle” facing executives when it comes to IT: balancing the need to both “operate” and “innovate.” Despite a radical technological overhaul at BGN, Vink says that close collaboration between IT and finance helps to keep operational IT costs at just over 1% of revenue, while spending of innovation accounts for just under 1%.

Two years ago, BGN launched an initiative to tag every one of the hundreds of thousands of books that pass through the chain every year with radio-frequency identification (RFID) chips. This allows automated screening of inventory, with item-level data flowing between warehouses, stores and the web. “The most dominant competitive advantage for the coming years,” Vink notes, will be “flexibility and speed.” With close to real-time visibility of its stock available to employees and customers alike, BGN believes the added agility will allow it to thrive, or at least remain relevant, in an increasingly competitive industry.

Few companies have embraced technologies like RFID — and the “service-oriented architecture” that underlies it — as enthusiastically as BGN. At many companies, the adversarial CFO-CIO relationship would make the adoption of such bleeding-edge IT “solutions” unlikely.

But at BGN, Vink is making a major effort to train employees across a variety of functions, including finance, on effective IT management. “I’m starting to educate business and information analysts, but this doesn’t mean that they will be under my responsibility,” he says. “It’s my aim to integrate them into the relevant specialist areas, pushing knowledge from IT directly into places like the finance department.”

Within five years, Vink predicts, 40% of IT managers will cease to work in a distinct support department, thanks to initiatives such as his effort to instil IT savvy in employees across the company. “It may sound funny,” Vink notes, “but it’s reducing my job to almost nothing.” That’s one way to avoid potential tension with the CFO.


For many CFOs, the regulatory crackdown in response to a spate of financial scandals was necessary in theory, but goes too far in practice. When, if ever, will the compliance burden stop growing?

Although Houston, Texas is a long way from Europe’s financial capitals, the 2001 collapse of local energy trader Enron did a lot to change the regulatory environment in which Europe’s CFOs now work. Having spawned the hastily written Sarbanes-Oxley Act of 2002, it has altered corporate governance “in a way that probably hasn’t taken place since the 1933 National Industrial Recovery Act was enacted [in the US] as a result of the 1929 stockmarket crash,” claims David Stulb, a partner with Ernst & Young. Now that CFOs — and their boardroom colleagues — can potentially face prison for inaccurate financial reporting, the cost and time dedicated to compliance have rocketed.

For a brief period, the absence of Enron-sized scandals in Europe seemed to prove the superiority of governance on this side of the Atlantic. In 2002, when CFO Europe spoke with Olaf Berlien, then CFO of German industrial group ThyssenKrupp, he said confidence in the US system — a beacon of best practice — was shaken. “People are thinking that the European system might not be so bad after all, and that there are some worthy practices, such as in accounting standards, that the US could benefit from adopting.” The dual-board system prevalent in continental Europe also gained new supporters as the sordid tales of domineering CEOs and pliant directors at scandal-ridden American firms like WorldCom, Tyco and Adelphia came to light.

But then, in 2003, Ahold in the Netherlands and Parmalat in Italy put an end to Europe’s smugness, causing governments and regulators across the region to redouble their efforts to introduce laws inspired by Sarbox.

At the EU level, a host of new company laws have come into force, including the Transparency and Market Abuse directives. The Statutory Audit Directive — dubbed “Europe’s Sarbox” — is due to be implemented by member states this year, though it adopts a much less prescriptive approach compared with its US counterpart.

Despite the aggressive regulatory crackdown, scandals continue to surface. Germany’s Siemens is currently embroiled in a wide-ranging bribery investigation, while Société Générale’s internal controls failed to stop an audacious rogue trader, whose recent trades lost the bank €5 billion. As a result, risk management practices and incentive structures across Europe — particularly in the financial services sector — are still being questioned, seven years on from Enron’s precipitous collapse.

Stulb reckons that the regulatory pendulum will swing towards stricter enforcement for at least the next three to five years. To prepare for this, what can CFOs learn from the past ten years? The “hype and fear” created by harsh new regulations like Sarbox created an environment in which companies employed armies of auditors and consultants to get “the best level of compliance ever, when all you needed to do was pass,” says Norma O’Callaghan, European CFO of Trend Micro, a Tokyo-based technology company. Having only recently delisted from Nasdaq, the company went through Sarbox compliance, and is currently dealing with its local equivalent (known as J-SOX), while also facing myriad EU laws.

“The question every company needs to ask itself,” O’Callaghan says, “is ‘What is the incremental cost and the incremental value of being over-compliant versus ensuring that you’re just compliant enough?’” For CFOs in today’s ever-changing compliance environment, that means walking a fine line between efficiency and enforcement.

Supply Chain Management:

A CFO Europe poll of finance chiefs in 2004 found that nearly two-thirds of respondents thought they would play a greater role in supply chain management in the future. That future is now.

There once was a time when finance could have got away with taking a bird’s eye view of the supply chain. From that vantage point, CFOs could thump on their desks and demand faster inventory turns, tougher agreements with suppliers or shorter payment terms for customers. But as suppliers, partners and customers now stretch around the globe, CFOs need their finance teams to get to grips with the intricacies — not to mention the risks — of supply chain management.

Just ask Jan van den Belt. When he joined Océ as CFO in 2000, supply chain management at the €3.1 billion Dutch document-management and printer company was relatively straightforward — manufacturing, and to a large extent sourcing, was done in Europe. It made a lot of sense, especially given currency trends at the time. “We had relatively high production costs, but with the currency working to our advantage, we felt our products had such a plus over our competitors’ products that we could afford to be slightly more expensive,” he recalls. “Even though we knew we would not be living off a strong dollar forever, we had this feeling that we could manage it.”

But when the euro began its steady climb against the dollar, Océ decided — “quite late,” the CFO concedes — to shift its manufacturing from the Netherlands to Singapore, Malaysia and, to a lesser extent, eastern Europe, while keeping its German plants for orders requiring heavy customisation. Having started this shift four years ago, 80% of the relocation is now complete, with the rest to come this year.

Manufacturing isn’t all that’s going global. Sourcing, for example, is now also done largely in the Far East — “in countries that I hate to refer to as ‘low cost,’” van den Belt says — while logistics management has been centralised into three regional hubs, rather than being handled country by country, as in the past. Van den Belt’s finance team, meanwhile, is “very much involved” in synchronising these hubs.

Despite various efficiency improvements, however, supply chain management “doesn’t become easier, but totally different. There’s been so many changes that it’s been quite complicated to get to grips with,” he says. But, he adds, get the basics right, “and things should fall into place.”

Tim Burke is senior staff writer, Jason Karaian is deputy editor, Janet Kersnar is editor-in-chief and Eila Rana is senior editor at CFO Europe.