The Chatham House Rule can be a source of both inspiration and some frustration. It was invented in June 1927 to allow a speaker at the Royal Institute for International Affairs (aka Chatham House) to make their case without the individual or their institution being identified. It would be fascinating to know who that person was and which body they represented. But the Chatham House Rule (and it is a rule singular, and not rules) makes that impossible. It is a classic catch-22 situation.
The annual (pandemics permitting) Equity FD and, after their relatively recent rebrand, Evelyn Partners summit for CFOs and FDs- The Contemporary FD - was held on September 13th at the rather swish offices of Evelyn Partners itself, which has a superb in-house conference capacity. It was held under the Chatham House Rule, so what was said can be reported (as it will be here) but not who from where said what. It was also run under the iron dictum of “no power point”. It had been revived last year after enforced suspension as an in-person symposium due to COVID-19, but even then it was not quite normal. The date fell in the interregnum between the death of Queen Elizabeth II and her funeral. The mood as well as the dress sense was, for many there, distinctly black and that affected the atmospherics.
The working assumption for the contemporary FD or CFO has to be that hybrid is here to stay with us.
This time round was, therefore, the real revival and allowed for the comparison with the lost world that was 2019. This sort of occasion represents the best chance of testing the temperature in the CFO community, not least because bespoke discussions by CFOs, for CFOs, with no attribution, no power point and with salespersonship distinctly frowned upon are extremely rare. The Contemporary FD forum is basically it. It is at core one of a kind. All too often the ‘F’ in CFO stands for “Forgotten”.
The content, by contrast, was eminently unforgettable. Candour hardly begins to describe it. Over the course of three individual interviews and four panels of different forms some patterns emerged.
The first was the degree that we are still living with the aftershocks of the virus episode. This can be seen by the extent to which certain sectors have been fundamentally transformed with little or no sign that they will return to what had been old certainties less than five years ago. In a similar spirit, anyone who believes that it is merely a matter of time before employers manage to convince their entire workforce to return to the office five days a week has a very long wait ahead of them. The working assumption for the contemporary FD or CFO has to be that hybrid is here to stay with us.
The second is that while the worst has probably been seen in terms of inflation in the UK and we are close to the peak when it comes to interest rates, matters will continue to be challenging on both fronts and the chances of returning to what we had thought was the “new normal” from 2009 to 2019 are very slim indeed. Some comfort was drawn from the fact that the dire prophesies from the Bank of England back in September 2022, that the country was on the brink of what would be the longest and deepest recession since at least the 1930s and arguably the Black Death, had turned out to be massively overstated but the concern that Threadneedle Street having been too slow to start to increase interest rates would now prove too slow to realise that it was time to stop raising them, remains a real one. No one who addressed the audience expects anything other than a tough slog.
The order of the day increasingly looks like dynamic budgeting, with a range of potential outcomes rather than a hard set of numbers, with utterly constant revision.
That realisation has consequences for CFOs. One of them is that the historic model of budgeting may well have passed beyond its sell-by date. The traditional ritual of collecting data a few months ahead of the start of whichever financial year a company may have adopted, and then confidently projecting ahead for another full year, with perhaps the option of a modest tweak half-way through is looking like it might be covered in cobwebs. The order of the day increasingly looks like dynamic budgeting, with a range of potential outcomes rather than a hard set of numbers, with utterly constant revision. Instead of being an outlier method of doing business, witnessed in some sectors but not all of them, dynamic budgeting seems destined to become the standard. It does not help that the predictions made for the economy as a whole by the likes of the Bank of England, Office of National Statistics or Office for Budget Responsibility seem to be less consistent and reliable than a punt on astrology. The CFO is on their own and has to be prepared to take another look at the numbers on a regular basis.
As one of those on stage put it dryly, “a private equity business is always up for sale”.
That drive for dynamism does not apply uniquely to the P&L or the balance sheet. It is essential in terms of planning ahead for an exit, especially if there is a private equity or venture capital owner. The timing of these events is emphatically not under the control (or even possibly the influence) of the CFO and as the economy starts to recover, the chances of an exit at short notice will increase.
So, the CFO and the finance team have to be ready. As one of those on stage put it dryly, “a private equity business is always up for sale”. The experiences of those speakers who had been involved with investment, divestment and ultimate sale were extremely varied but what they had in common was the theme of speed. No one would win friends among those who were ultimately responsible for the fate of a firm by pleading for more time to produce the numbers needed for an exit decision.
The deliberations at Evelyn Partners Towers were not, though, confined to looking at the numbers. An absolutely striking aspect of them involved the pivotal nature of finding the right people, extracting the most from them, being flexible with them, accepting that the balance of power in negotiations between senior management and their staff has changed and that retention is a much more complicated exercise than it once used to be. The slightly glib phrase “our people are our most important asset” has become the maxim for corporate Britain.
Making the most of the widest pool of talent is a pre-requisite for success, not least because it reduces the fatal risk of engaging in the kind of groupthink that often serves to undermine a company or sector.
Which shines a light on what has become an increasingly important dual focus for the modern CFO. There was an overwhelming consensus among speakers and the invited audience alike that the character of culture and values in any company was critical to it realising its potential. There is a need, to put it slightly differently, for a uniformity of purpose. This does not have to involve the whole team chanting out the mission statement in the style of Chairman Mao’s Little Red Book, but it does require there to be a shared notion of a vision and an agreed route on how to realise it.
Along side this, there was an equally strong level of agreement on the importance of diversity in people. Making the most of the widest pool of talent is a pre-requisite for success, not least because it reduces the fatal risk of engaging in the kind of groupthink that often serves to undermine a company or sector. Thus combining uniformity of purpose with diversity of personnel is the key to ultimate success . How businesses go about achieving this and how far they get will we are sure will be questions we shall be returning to at the 2024 event and beyond!
