1998: CFO, ING Group
It’s almost a year since Cees Maas retired as finance chief of ING, a Dutch financial-services firm. Does he miss much about being a CFO? “No,” laughs the 60-year-old immediately. “No, no, no, no!”
That’s not to suggest that Maas didn’t enjoy his time running group finance at ING, he insists. When he discussed his role in preparing not only ING, but also the European Union for the impending launch of the euro with CFO Europe ten years ago, he’d already achieved more in his calling than the average finance exec.
Maas came to ING in 1992 after a six-year stint as Holland’s treasurer-general, a time he remembers “with great pleasure.” He chaired the committee that drafted and negotiated the Maastricht Treaty in 1991, paving the way for the introduction of the euro. Then, while at ING, he chaired a committee advising EU officials on the euro’s introduction. This has been Maas’s legacy. Almost a decade after the currency’s arrival, he admits he’s biased when it comes to discussing its impact, but he does believe it has generally brought Europe “great prosperity in terms of low inflation rates, low interest rates and a very great capacity to absorb shocks.” That low inflation is now being challenged for the first time, he adds, but times would arguably be harder if the euro zone countries still had their individual currencies.
As “one of the architects” that laid the foundations for the euro, then, Maas’s 11 years as a CFO are just a small part of his career. But it’s still a chapter of his life that he seemed to take to well. At Maas’s last AGM with ING in July 2007, supervisory board chairman Cor Herkströter described him as “an inspiring leader and a driving force behind the strong performance of ING.” Fittingly on the day he made his departure plans public in February last year, the company also announced a forecast-beating €2.1 billion profit.
Maas’s CFO tenure marked a couple of “firsts” for the financial institution. He was the first CFO appointed to its board and its first chief risk officer, a role he held throughout his time at ING. Since his departure, the two roles have been separated. The official ING line is that this split is due to “the increasing complexity and importance of both the finance and risk management roles within ING.”
Maas agrees with the logic, and says that the increased complexity amid growing regulatory demands is even more prevalent at ING than other companies, and means that anyone taking on the dual role today would need to be adept at accounting and risk management in both banking and insurance. So how did Maas manage it for so long? “I grew into it,” he says modestly. “When I started it was less complex.”
Less complex, but no less risky. During Maas’s time as CFO, he helped steer ING through market malaises ranging from the Asian crisis to Russia’s banking troubles to the bursting of the dotcom bubble. Hedging the group’s stock portfolio was a challenge during these periods, he admits, but there were some relatively enjoyable tests too — handling investor relations successfully, which is “easy when things are going well,” he says, and becomes a lot more rewarding in tougher times.
Maas isn’t quite ready for a quiet life. In April, the Institute of International Finance, a group of some 375 financial-services companies, issued a report about the current credit crisis based on an analysis by a working group chaired by Maas. He’s also chairman of a university hospital and medical faculty.
But when it comes to corporate finance, he’s happy to let the next generation take charge. Today’s CFOs, he says, need to help drive their company’s strategy from the front, rather than managing back-office functions. And they also must be able to convince the markets and their colleagues — including the CEO — of the rights or wrongs of the company’s financial or strategic plans. “It’s an exciting time for every CFO now,” he says. “I started on the board of ING when I was 44 years old, so why not let another young guy do it?”
1998: CFO, Ryanair
2008: Chief Operating Officer, Ryanair
These are turbulent times for airlines. Record fuel costs and shaky consumer demand have whipped up what Michael O’Leary, chief executive of Irish budget carrier Ryanair, has called the industry’s “perfect storm.” Just recently, Oasis Hong Kong Airlines shut down while in the US, Frontier Airlines, Skybus and ATA Airlines filed for bankruptcy protection.
For Michael Cawley, Ryanair’s chief operating officer and former CFO, the string of failures highlights the financial perils of the industry. It also underlines his belief that for a business to succeed, it has to be prepared for bad weather. “I remember in the first seven years of my life here, I was asked whether the world would end if fuel, which we’d bought at $20 a barrel, would go to $30. I said, ‘Well it might,’” he recalls. “And here we are at $100 wondering, ‘Will we cope with $150?’ Flexibility is critical.”
Cawley knows all about the need for financial flexibility in the airline business, having been Ryanair’s finance chief for six years. Joining the group shortly before its IPO on the Irish Stock Exchange and Nasdaq in 1997, he oversaw those launches and a secondary listing in London the following year. Even then, after more than a decade of growth, Ryanair showed only a sliver of its potential. When CFO Europe interviewed Cawley about the business in 1998, it had about 4.6m passengers every year. Today, it has more than 50m.
Last year, it announced that revenue increased 32% year-on-year to €2.2 billion, while profit increased 33% to €401m. In comparison, British Airways posted a 35.7% drop in profit, to £290m (€360m), on a 3.4% increase in revenue to £8.4 billion.
How has Ryanair succeeded where others have failed? Managing risk has been crucial, especially for a company growing as quickly as the Irish icon. Cawley describes Ryanair as “very conservative” financially — it doesn’t pay a dividend and has generated more than €2 billion of free cash flow. And he admits that it “probably loses a couple of points of ROI performance” by having no gearing other than for its aircraft purchases.
In today’s context, that’s no bad thing. In the late 1990s, fuel and oil accounted for about 15% of Ryanair’s operating expenses. In 2007 it was close to 40%. “We’re trying hard to maintain a high double-digit, after-tax margin in the face of those kind of increases,” Cawley says. “The fuel issue is largely out of our hands, except that we can hedge and get some certainty, albeit at very high prices. We can hedge, say, at $100 a barrel, but is there value in that if it falls to $90?”
Managing rapid growth also carries challenges. Amid EU expansion and regional deregulation, Ryanair has introduced new routes and bases rapidly, and Cawley says the company aims “to roll out the same standards even as [it becomes] geographically more diverse and more distant from the centre.” In what might be seen as an unflattering analogy, he compares a Ryanair flight to a McDonald’s Big Mac burger — customers expect it to be the same wherever they are in the world. To achieve such standardisation, all of Ryanair’s planes have computers in the cockpit that monitor “hundreds of parameters” in the flight, which are fed back to a department in Dublin that checks whether they vary from what Cawley and colleagues deem necessary standards.
Despite looking back fondly on his achievements while CFO, such as the IPO, Cawley says he never expected to stay long in finance at Ryanair. One reason was that when he arrived at the company, finance was in the capable hands of Howard Miller, the finance director. “He was a particularly strong member of the management team and I guess without an IPO, there probably wouldn’t have been any need for a CFO per se,” he says.
When Cawley became COO at the beginning of 2003, Miller was promoted to CFO. Cawley now focuses on the company’s commercial activities, rattling off a list of responsibilities that runs from negotiating with airports and planning routes to overseeing sales and marketing. He also shares the deputy-chief executive role with Miller. Either could be O’Leary’s successor when he retires. When that time will come is uncertain. In 2007, O’Leary said he may step down within three years, although he also pointed out that he’s mooted retirement dates several times previously but can’t seem to stick to them. As Cawley says, “This business never ceases to surprise.”
1998: CFO, Allied Irish Bank
2008: CFO, Home Credit
Ten years ago, like a banking version of Nostradamus, Declan McSweeney made a prediction. Speaking with CFO Europe in late 1998, the then-finance chief of Allied Irish Bank reckoned that the arrival of the euro would help accelerate the long-awaited cross-border M&A in financial services. Given last year’s hostile break-up of Dutch bank ABN Amro at the hands of a pan-European banking consortium, his prediction may finally be coming true.
Now, amid the credit turmoil, the 55-year-old Irish industry veteran sees more deal-making ahead. “The strong companies — and by that I mean those that are strong from a capital, funding and liquidity perspective and that have excellent asset quality — will see opportunities in this downturn,” McSweeney says. “I think over the next 12 to 24 months we’ll see a lot of acquisitions.”
McSweeney might even be involved in one or two himself. After 27 years (including eight as CFO), he left AIB in 2005 to become CFO of Home Credit, a Czech consumer lender with businesses in Slovakia, Russia and Kazakhstan, as well as interests in Asia. McSweeney says Home Credit and its Czech parent, PPF, “could well be acquirers in the current environment.”
If they are, McSweeney can take some of the credit. During the past year, he’s helped Home Credit raise finance from western capital markets. He says having access to this new line of funding has become a “critical competitive advantage” for the company. Ratings agency Moody’s concurs. In a report published last November, it noted the Czech business’s “broad mix of funding sources,” ranging from a syndicated loan to securitisation.
Opening the Czech firm’s access to new sources of capital is now McSweeney’s raison d’etre. The finance chief says he spent some 15 years helping AIB raise funds, and it wasn’t just Home Credit that wanted to benefit from those talents. Since leaving AIB, he’s also become a non-executive director at Genesis Lease, an Irish aircraft-leasing business that recently listed on the New York Stock Exchange.
Though McSweeney is laid-back in conversation, he admits that life as a CFO has become even more pressured than it used to be. One reason is always-on technology, which he sees both as a gift and a curse: a gift in that it enables finance chiefs to work anywhere, allowing McSweeney himself to work as efficiently at home with his family in Dublin as at Home Credit’s head offices; but a curse in that “it creates a lot more pressure because there’s no time-lag anymore. Everything has to be up to date, people respond immediately and the market moves very quickly.” That’s a particular pressure for McSweeney given Home Credit’s new focus on global capital markets.
As for advice for CFOs in 2008, he says, “credibility is critical with the capital markets. If a CFO hasn’t got credibility, he’s dead.”
Credibility in the markets has been a running theme for McSweeney throughout his career, having set up AIB’s investor relations department in the early 1990s. He learned just how valuable good investor communications can be in 2002, when AIB was hit with a $750m trader scandal at a US subsidiary. Press reports highlighted fears over another Nick Leeson, the rogue trader who brought down Barings Bank in 1995. But McSweeney says that a focus on investor relations helped the bank survive relatively unscathed — when the news broke in February 2002, AIB’s share price on the Irish Stock Exchange fell about 16%, but recovered in little more than a month as AIB updated investors regularly with news on its internal investigation.
“When you’re in a crisis, it’s important that people believe you,” McSweeney says. “We were telling people that this was a rogue trader, an isolated incident, it wasn’t a systemic failure of AIB’s systems. The investors accepted that and the ratings agencies accepted it, because we had put such a huge emphasis on relationships with [them] over the previous ten years.”
CFOs, of course, would still rather avoid that kind of drama, even with the most understanding investors onside. As for McSweeney, it’s a challenge he’s taken in his stride. And there are more challenges around the corner. “To sustain your enthusiasm and motivation in any walk of business life, you need new challenges to keep you fresh and stimulated,” he says of his decision to quit the Irish bank. “Before I finally hang up my boots, I think it’s good to work with different companies — and I’m enjoying it.”
H Glen Walker
1998: CFO, Whirlpool Europe
2008: CFO, US Postal Service
Not many CFOs relish the tough slog required to make their companies Sarbanes-Oxley compliant. H Glen Walker is one of the exceptions. While in the running to become CFO of the US’s Postal Service (USPS) two years ago, he actually included Sarbox on a list he drew up of the reasons he wanted the job. Now based in Washington, DC with the postal service, he reckons introducing the organisation to Sarbox’s Section 404 by 2010 — the deadline given to government organisations — “is one of the big opportunities for me as a finance professional.”
Not that there’s been a shortage of other big opportunities during Walker’s career. When CFO Europe first caught up with the American in 1998, he was already well known in finance circles for his pioneering work in setting up a shared service centre (SSC) while CFO of Whirlpool in Italy. By centralising all the basic transaction processing for 14 of the white-goods manufacturer’s units into a single facility based in Dublin, Walker helped put Whirlpool at the vanguard of finance best practice. Though SSCs were increasingly common in the US in the 1990s, only a handful of firms on this side of the Atlantic — including Whirlpool as well as Intel, Kellogg’s and HP — were brave enough to tackle all the cultural and linguistic issues that setting up SSCs in Europe entailed. When Walker spoke with CFO Europe ten years ago, Whirlpool’s SSC was going even further ahead, embarking on a second wave of centralisation to handle more strategic, customer-facing processes.
But a decision in 2000 to move back to the US after 23 years of working in Europe opened more opportunities. Walker’s first step after Whirlpool was to become CFO of the $3.5 billion US controls division for UK-based Invensys — a larger and more global role than what he had in Italy, which was “heavily involved in the whole strategic architecture.” After a strategy overhaul led to that division being broken up, Walker put his name forward for the USPS job, a big risk given that he had never worked for a public-sector organisation before.
But Walker’s heaps of private-sector experience was exactly what the USPS wanted. A law passed in 2006, the year he joined the postal service, was about to change radically how the postal service was run, allowing it for the first time in history to make a profit and invest earnings back into the business as a private-sector company would. Any concerns about whether he could make the transition to the public sector soon faded. “What I found [at the USPS] was that there is a lot more that’s the same than there is different,” he says.
A case in point: thanks to an enormous data warehouse, “they were very far along in making decisions and managing based on data,” Walker says. “Pretty much everything you need in terms of data, they had already, and we didn’t have to build anything new. I never had this much information available to me, and thank God it is available because we have 37,000 different units and more than 700,000 career employees.”
Along with projects such as setting up new capital allocation processes and introducing the postal service to enterprise risk management, Sarbanes-Oxley has been moving up his list of priorities. Is that a good thing? “Well, it’s a big thing, let’s put it that way,” he says with a chuckle. “Working for an English company, I missed part of that development.” Starting now, he says, puts the USPS “in a good position, because a lot of other companies have already gone through it so we can learn from their experiences. We’ve got a lot longer, but then we’re also a lot bigger than most other companies.”
Walker will be relieved that the USPS has an SSC network, making the centralised analysis and oversight of processes easier for Sarbox Section 404 compliance. The USPS had, in fact, set up three SSCs a few years before Walker arrived. As he recalls, “I had to strike off ‘setting up shared service centres’ from a list I had about what I could bring to the organisation.” No matter — the list was undoubtedly already long enough.
1998: CFO, DaimlerChrysler
2008: Chairman of the Board of Directors, Zurich Financial Services
More so than the euro. More so than IFRS. Manfred Gentz, former CFO of US-German carmaker DaimlerChrysler, reckons that the changing corporate governance landscape has had the biggest impact on the CFO role over the past ten years. New regulations and heightened investor scrutiny of how companies are run have put CFOs in the spotlight, he says, making their jobs much more externally focused than they were when he arrived at Daimler-Benz as a management trainee in the 1970s.
By the time he left the company’s HR function and was appointed CFO in 1995, there were seeds of change in Germany to enable greater corporate transparency. For that reason, Gentz remembers, one of the first projects he launched as finance chief was to scrap the firm’s dual reporting. Daimler was no different than numerous other European companies that reported one set of numbers internally for their staff and another set externally for regulators, tax authorities and the like. But “it didn’t make much sense,” he says. “It led to misunderstandings.”
Meanwhile, as part of a crusade to convert the company to value-based management, Gentz drove through Daimler-Benz Financial Accounting and Controlling Transparency System (DB-FACTS), a project to help with the adoption of US GAAP and introduce standardised internal performance metrics based on ROCE, among other things.
Those were prescient moves. CFO Europe profiled Gentz in our June 1998 issue just weeks after the $70 billion German firm announced its merger with Chrysler of the US via a mammoth $38 billion share-swap. Having cleaner, more transparent numbers helped as executives on both sides of the Atlantic worked frantically to combine the two firms, which led to Gentz’s appointment as CFO of the new DaimlerChrysler, while delivering on the promise made to investors that they’d save billions every year through synergies.
But a transatlantic auto powerhouse never materialised. Nine years after the merger, in May 2007, Chrysler was sold to private-equity firm Cerberus Capital Management, and Daimler returned to focusing on manufacturing luxury cars.
By then, however, Gentz was out of the picture, having retired in December 2004. While he may no longer be in finance’s top job, he’s well placed to observe how CFOs have adapted to a new era of corporate governance — today, he’s chairman of the board of directors of Zurich Financial Services, while also serving on the supervisory boards and audit committees at Adidas and Deutsche Börse from his base in Berlin.
As he sees it, the changes in continental European corporate governance have happened “in parallel to the Anglo-Saxon world,” largely with a view to avoiding the “overly bureaucratic approach that was taken originally by Sarbanes-Oxley” after its ratification in 2002. But, on either side of the Atlantic, the factors affecting the CFO’s role are the same. Consider audit committees. They’ve been around for a long while, but in Europe, as in the US, “they were not taken as seriously as they are today,” and now directly address CFOs frequently when questions arise about internal controls and corporate performance.
CFOs also need to be “chief integrators,” Gentz says. Risk management, internal audit and so on are all essentially focusing on the same target. He warns CFOs, “if you create an organisation where these aren’t integrated [and sharing information with each other], you are killing the business.”
But it’s not just about governance, he adds. More so than in the past, CFOs also need to be enablers, providing the company with support and resources so the strategies developed in the boardroom can actually be implemented. “This is where the CEO and CFO need to work closely,” he says.
So has all this changed the role of the CFO for the better? “It makes the role even more challenging,” replies Gentz, adding after a reflective pause, “but a lot more interesting.”
Tim Burke is senior staff writer and Janet Kersnar is editor-in-chief at CFO Europe.