Financial Officer
Russia CFO Route to the Top 2018 edition
A changing role for a maturing economy
Introduction This report provides a fresh overview of Russia’s current serving genera- tion of chief financial officers. Our ongoing data analysis shows that the present cohort of professional CFOs at the largest publicly traded Russian companies is becoming more competitive and mature:
»» Managerial and professional capabilities are more valued than they were five to 10 years ago, when personal drive and ambition were more highly prized; »» Companies prefer to appoint CFOs from the internal talent pool; »» More CFOs are “first timers”: only 21% of current CFOs have previous experience in the role; »» Average tenure increased by 14% in 2016 but levelled off in 2017; »» CFOs are expected increasingly to play a more active part in commercial finance and to be capable of collaborating cross-functionally. These demands are proving especially challenging for many CFOs, and indeed represent the most commonly cited reason for departure from a post; »» We note the continued professionalisation of the CFO role, including a wider recognition of the value of MBAs and qualifications such as those awarded by ACCA. russia cfo route to the top
AGE The average age of CFOs at the largest Russian companies has increased from 44.7 years in 2015 to 45.4 in 2017.
Average age of CFOs . . . Three-year analysis
. . . . . . . . Average age of CFOs by . . . . industry sector
▪ 2015 ▪ 2016 ▪ 2017
CON FS IND LS TMT
Russia is gradually approaching parity with the mature CFO function found in the UK and US, where the average age of a CFO is 53. As the Russian market more fully develops, its CFOs are increasingly able to bring to the role greater experience as well as demonstrable leadership stamina and instinct. The generation born in the 1970s is now at its managerial peak, succeeding their predecessors who came of age professionally in the Soviet period and entered senior managerial roles in the late 1990s and early 2000s. Managerial capabilities and solid professional experience are more highly rated now than in more turbulent times.
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INTERNAL VS EXTERNAL HIRING The rate at which CFOs are hired internally is rising year on year, from 55% in 2015 to 65% in 2017.
Internal vs. External % % % CFO appointments ▪ Internal ▪ External % % %
% % % % % % % % % Internal CFO appointments % % % by industry sector % % ▪ 2015 ▪ 2016 ▪ 2017 % %% % % % %
%
CON FS IND LS TMT
One of the universal indicators of a mature market is when businesses routinely put in place clear strategies for succession planning. Best practice identifies one or two potential successors for every senior role.
In terms of CFO talent, the Russian market is following the US market: 62% of Fortune 500 CFOs are internal appointments, with companies preferring to promote managers who already possess a deep understanding of the organisations’ culture and decision-making process. CEOs and boards in both Russia and the US tend to prefer dealing with internal candidates, and it can be easier to retain and develop internal talent than to find the ideal candidate in the marketplace. However, it is still important to benchmark an internal candidate against the best talent on the market. Appointing an internal candidate may come with advantages, but promoting a weak inter- nal candidate to the CFO role carries significant risks.
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PREVIOUS EXPERIENCE Expectations of a CFO’s previous experience are changing dramatically. Companies increasingly rate candidates who have managed the finance function of a division with its own P&L.
Previous functional experience, by role 2015 2016 2017 CFO 29% 26% 21% DFD 22% 26% 31% Controlling 11% 11% 12% Corporate Finance / M&A 10% 9% 7% GM 8% 9% 4% Reporting 7% 4% 10% FP&A 3% 3% 7% IR 3% 3% 2% Treasury 3% 3% 2% Risk 2% 2% 2% Non-finance 2% 2% 1%
Notably, only 21% of CFOs came to the role with direct previous CFO experi- ence. The remaining 79% of the CFO cohort reviewed were undertaking the role for the first time.
More and more CFOs are being promoted from divisional finance director roles, having run the finance function of a separate business or product divi- sion. This increasingly visible career trend, alongside the shift towards internal hiring, is helping to shape a new CFO profile in Russia.
Fewer chief finance officers are being hired from equivalent CFO roles in outside companies, the proportion dropping from 29% in 2015 to 21% in 2017. This decline does not correspond to the US trend, where the number of CFOs with previous CFO experience is rising (from 23% in Fortune 500 companies in 2006, to 29% in 2017). Valued prior experience for new CFO appointments in the US includes divisional finance director roles (22%), control (20%), treasury (13%), and general management (12%).
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TENURE Average tenure increased by 14% in 2016 but levelled off in 2017
. . Average tenure of CFOs Years in current role
. Average tenure of CFOs . . . . . . by sector . . . . . . ▪ 2015 ▪ 2016 ▪ 2017 . .
CON FS IND LS TMT
Of the total number of CFO positions reviewed, 18% of incumbent CFOs changed in 2017, compared with 16% in 2016 and 13% in 2015. TMT (tech- nology, media and telecommunications) is the most dynamic sector for CFO turnover, recording the shortest average tenure in 2017, of 4.1 years. CFO tenure across the traditional sectors exceeds five years, with tenure in life sciences reaching 6.7 years.
The dynamics of the Russian CFO market are growing closer to those seen in the UK and US. Ambiguity and disruption demand that CFOs be adaptable and flexible in their responses to change. We are seeing that companies hiring CFOs are more frequently paying attention to commercial finance and cross-functional collaboration capabilities. These skills have always been criti- cally important, but recently many Russian companies have made a leap in the calibre of their management culture and business processes. It follows there- fore that CFOs will assume wider areas of responsibility and exercise more influence in the business. CFOs are expected to take deep dives into other functional areas, as well as commercial issues such as product profitability.
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EDUCATION Those aspiring to CFO roles often are pursuing professional education qualifications — again, evidence of a maturing economy.
% % CFO education % % ▪ 2015 ▪ 2016 ▪ 2017 %
% % % % % % %
% % % MBA ACCA Ph.D. CFA
Nearly one-quarter (23%) of CFOs in Russia have MBAs (against 47% of Fortune 500 CFOs) and 11% hold ACCA qualifications. The latter represents an increase of 5 percentage points from the 6% recorded in 2015. Such professionalisation signals that international-standard qualifications are both valued and portable. Fourteen per cent of CFOs hold a PhD, a rise of 3 percentage points from 2015.
Such professionalisation is subtly changing the résumé of the modern CFO in Russia. During the country’s early stages as an emerging economy, in a period of rapid growth, working experience in tough situations and personal drive were sought after. Fiercer competition between professionals leads to greater educational and professional standards for future CFO leaders, giving companies a better choice of candidate for this vital role.
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DIVERSITY While companies do not have diversity targets, a growing number have female CEOs.
% % % CFO Diversity Male Female ▪ ▪
% % %
Women make up 18% of the CFO cohort, slightly more than the 15% recorded in both 2015 and 2016. The proportion is higher than in mature economies such as the US, where female CFOs are in place at 13% of Fortune 500 companies (up from 7% in 2006), and the UK, where 7% of the CFOs at the top FTSE 100 companies are women.
Turning to citizenship (of either gender), 8% of CFOs are expatriates. The remaining 92% are Russian nationals. Many senior expatriates were replaced by Russian nationals in 2014–2015, and the balance has remained almost identical since then. Very few Russian companies went public recently or have gone through a major transformation or M&A. Consequently, companies have not had to attract seasoned international CFOs with relevant experience of European or US markets.
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Collaborating and influencing
Research by Spencer Stuart has identified the crit- also are most likely to end up in the CEO’s inner ical leadership capabilities that have the greatest cabinet; they become a counsellor to the CEO and influence on executive performance. One of the have a disproportionate impact on the senior most important is collaborating and influencing. leadership team, the strategy and the broader organisation. This capability is made up of two distinct but inter- connected elements. It is about identifying and Spencer Stuart’s proprietary methodology meas- building relationships with stakeholders, and facili- ures an individual’s capacity for collaborating and tating dialogue to forge consensus and collectively influencing, by determining the level at which a achieve objectives. It also involves networking and CFO can affect an organisation. Every level has its working across boundaries when there are no own practical implication and a set of indicators formal lines of command or direct control. A CFO that enable us to judge the degree of advancement. with highly developed collaborating skills is able to An individual’s capability is revealed via a struc- reach a shared decision, making a compromise if tured interviewing process and has to be needed to deliver results. confirmed by third-party referencing.
By contrast, an executive who is weak at collabo- Collaborating and influencing capability can be rating and influencing often prefers working alone developed through active use of communication or with direct reports only, avoiding direct contact skills, learning and development, and most notably with the CEO and other senior executives. Poor by acquiring practical experience of systematic collaborators also do not like to share their ideas collaboration with other senior executives, both or disclose their agenda, securing their zone of internally and externally. These skills also depend responsibility and control from other executives. on a company’s scale: for example, we can see that The senior finance leader who lacks the ability to collaborating is a strong skill of CFOs at the collaborate and influence risks being regarded as world’s biggest multinational companies. merely the accountant. Indeed, our experience Executives have to collaborate actively to manage shows that a common reason for the failure of a the finance function of a publicly-traded company, new executive in the first 12 to 18 months is the operating in dozens of countries and employing inability to influence and collaborate across func- hundreds of thousands of people globally. From tions and business units. another point of view, the CFO of such a company would not survive in his role without an ability to In a matrixed business, for example, the ability to reach shared and well-weighted decisions with his collaborate with and influence the CEO and other peers and external partners. members of the management team is a differenti- ator. It is difficult to work closely alongside execu- Russian companies are rapidly catching up with tives outside of one’s own functional domain who international leaders in corporate governance, don’t share the same language or perspective on business process maturity and the requirements the business. Executives who excel in this area for executives, so we are expecting to see higher have a strong understanding of the drivers of the expectations of future CFOs in terms of collabo- business and find ways to engage and build part- rating as well. nerships with their colleagues. These executives
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Methodology The research uses data drawn from public sources and Spencer Stuart research that analyses the professional background and career paths of CFOs of the largest Russian public companies by market capitalisation. Ratings are based on data from the Moscow Exchange, RIA Rating estimates of foreign exchange floors and issuers’ data, and Bank of Russia data. Capitalisation is estimated as of December 30, 2017.
We have compared Russian market data with Spencer Stuart CFO bench- marks from the UK (FTSE 100) and the US (Fortune 500) markets in2017.
The majority of companies under review are industrial (63 companies out of 98), followed by financial services (15), consumer (9), technology, media and telecommunications (8) and life sciences (3). A full list of companies anal- ysed can be found on the following page.
Industry acronyms Function acronyms CON Consumer goods and DFD Divisional financial director IR Investor relations services FP&A Financial planning and analysis ONF Other non-finance FS Financial services GM General management OGF Other group finance IND Industrial CD/ Corporate development/ PS Professional services LS Life sciences M&A Mergers and acquisitions Technology, media and Control Financial controller TMT telecommunications
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Companies List Acron Group Mail.Ru Group Rostelecom Aeroflot Mat’ I Ditya Rusagro Alrosa Mechel Rusal AvtoVAZ MegaFon RusHydro Bank Saint- Petersburg MGTS RussNeft Bashneft MMK Group Sberbank Beluga Group MOESK Severstal Chelpipe Moscow Exchange Sistema Chelyabinsk Zinc Plant Mosenergo Slavneft Cherkizovo Mosoblbank Sollers Credit Bank of Moscow Mostotrest Southern Kuzbass Detskiy Mir MRSK Center Surgutneftegaz Dixy Group MTS Tatneft Dorogobuzh Nizhnekamskneftekhim TGK-1 Enel NLMK Group Tinkoff Credit Systems Europlan NMTP TMK EVRAZ Norilsk Nickel TNS Energo FG “Future” Novatek TransKonteyner FSK UES O’Key Group Unipro Gazprom OGK-2 United Aircraft Corporation Gazprom Neft OTCPharm United Wagon Company Global Ports Otkritie Uralkali Globaltrans Investment PhosAgro Uralsib Inter RAO PIK Group Utair Irkutskenergo Polymetal International VimpelCom KAMAZ Polyus Zoloto Vozrozhdenie Bank Kazanorgsintez Promsvyazbank VSMPO-AVISMA Kubanenergo Protek VTB Bank Kuibyshev Azot QIWI Group X5 Retail Group Lenta Raspadskaya Yandex LSR Group Rosbank Lukoil Rosgosstrakh M.Video Rosneft Magnit Rosseti
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