KPMG CEO Trevor Hoole: The evolution of the modern CFO
Since Trevor Hoole joined KPMG in 1975 he has witnessed the change in CFOs from “the traditional bespectacled back-office-person” to the modern money boss of today. We asked the CEO of our principal partner what it takes to be a successful finance leader in a world of change, big data, volatility, risks and cybersecurity. Here are Trevor’s insights summarised in nine burnings topics.
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1. Risk & compliance - change is constant
Risks are of all eras, but the nature of them is volatile and change is a constant. Being at the helm of a leading firm like KPMG, Trevor spends a "a fair proportion" of his time on risk management and brand awareness, he says. "What I have certainly learned is that in a multifaceted business, risk often comes from unsuspected quarters." While only some issues make it into the newspapers, hardly ever a week goes by in which the CEO doesn't get a complaint about something or the other "whether it is corporate recovery, deal advisory, valuations or something else".
You cannot make an omelette without breaking eggs though, so for a company like KPMG Trevor considers this par for the course. "Of all those emails, messages, phone calls and conversations, most complaints fortunately lack substance. In a way, dealing with this is routine for a CEO of a big firm like ours. If I would receive no complaints, it would mean we don't have enough work in the market place."
With risks evolving and complexity increasing, compliance and paperwork follows. "For a CFO, the pressure on governance is broad," says Trevor. "Whether it is sustainability, thinking green or balancing your transformation agenda with the government's imperatives, you have to comply. Our American firm has developed software that tracks compliance and calculated that an average non-financial services company has to deal with a staggering 650,000 pieces of legislation. Consequently, there will be increased costs."
2. Cybercrime - tomorrow's threat today
"Cybersecurity is massive, both for KPMG as for the CFO," says Trevor. "I learn every day. When you think of cyber fraud, you think of people hacking into your system. But fraudsters may also send you an email based on your profile. For example, if I am a golfer, they can send me something that looks like a promo for a golf shop. If I am tempted to open that email, they may gain access to my system. They will know when I am away and can then pretend to be me and send an email to my CFO requesting a payment to a certain account, using all the same language we would normally use. That is cybercrime, but not by attacking a payment system. And it is just one of many examples."
"There is a huge demand on CFOs recruiting cybersecurity specialists.Yes, you can outsource a fair bit, but you need some internal capacity on your premises as your first line of defence, while leaving training and implementation to externals."
3. Analytics - mining your data
"The big buzzword is data. How do you manage and maximise that? How do you use data to find early warning signs? How do you use it to cut down lead times? Some companies are better than others and there is a lot of scope for improvement here, especially in the medium term. There is already technology that recognises shoppers by their cell phone when they enter a shop and then target them with deals based on their profile, but that may still be a few years away in South Africa. Shops can also combine photos of customers with images of clothing items to show their customers what they will look like in a new dress. That goes a lot further than manipulation of data, as you also have to deal with privacy issues and the POPI act."
4. Being the business partner - and dealing with perception
"People like the previous CFO award winners Deon Viljoen (Alexander Forbes), Simon Ridley (who recently retired from Standard Bank) and Aarti Takoordeen (JSE Limited) are much more involved in the business side than CFOs ever were," says Trevor, adding that CFOs "need a machine" that takes care of IFRS and other repetitive tasks.
"The questions CFOs of listed firms deal with are very broad these days. Can we operate a mine? Can we close a mine? What does it mean for the surrounding community? One of the main items on a CFO's agenda is saving costs and one of the ways you can do that is by working smarter, but business decisions that CEOs and CFOs make have knock-on effects. As technology takes over, how is that mitigated in a country where there is poverty and where unemployment is unacceptably high."
"Someone like Deon Viljoen is a good example of issues that keep a modern CFO occupied. Alexander Forbes had to deal with bulking issues for example. As a CFO, those things are part of your role. Public perception and managing your own market is massively important. You have to manage sentiment as well as numbers. The role of the CFO is pivotal. Investor analysts are not necessarily interested in the way you depreciate your assets, but they want to talk about your people and about the way you respond to the economic climate."
Telkom's Deon Viljoen with Trevor Hoole
Pressed to name some of the best finance leaders of today, he concedes he is meeting less CFOs in his current role. "These days I tend to mix more with CEOs and maybe few CFOs of listed clients like Investec, where CFO Nishlan Samujh is doing an outstanding job. The new Standard Bank FD Arno Daehnke is also a remarkable person. He is a typical CFO of the future, with accounting skills, but a treasury and risk background."
5. Re-imaging leadership - eloquent and outgoing
"The CFO role demands strong interpersonal skills," says Trevor. "When I look back at my early days, CFOs were absolute bean counters. They collected data, put them in spreadsheets and did the financial statements. They were not involved in discussions with unions, for example. People were just told what they would get paid. These days, young people want to talk about their salary, but also about the way their performance gets measured. That is not just an issue for the Head of HR, as the CFO needs to get involved in setting parameters for salary increases."
A modern finance leader still needs to have some accounting background, says Trevor, but it takes a different kind of person:
"Clearly, CFOs need technical expertise, but it also needs to be someone who can communicate, who is eloquent, gregarious and outgoing. Strong technological skills are also paramount. You cannot judge the influence of social media on your market profile if you don't understand it yourself."
6. Business climate - bigger and badder storms
The CEO is extremely positive about the influence that Pravin Gordhan, the minister of finance, has had since his reappointment. "We are trading in a difficult economic and political circumstances, with state capture and other polarising issues. Business is totally behind the minister of finance. We are totally aligned with some initiatives minister Pravin Gordhan has undertaken. For some time, I have publicly been saying that I was worried that the agendas of government and business were not aligned. I am thrilled to see how Pravin Gordhan has since embraced business. When delivering his budget and the budget speech, the minister had clearly done his homework. It created the spirit of togetherness that I had been speaking about. I was very pleased."
Just after Gordhan and president Jacob Zuma returned from the World Economic Forum in Davos in January, he invited 90 CEOs to a meeting at the Nedbank-headquarters in Johannesburg to hear the views of South Africa's captains-of-industry and share government's views. "We received a three-day notice, but there were about 60-odd people who made it that day," Trevor recalls, complimenting the minister on his willingness to listen. "For example, one of the comments to the minister was that the government cannot make ad hoc decisions like the introduction of long-form birth certificates, which has severely impacted the hotel business and the rest of the tourism industry. Even though there might have been valid worries that the legislation was trying to address, the regulations were done in a high-handed way that did not achieve its objective."
7. Firm rotation - saying farewell to friends
"As the world hopefully continues to become more global, practices from elsewhere in the world will also come to South Africa, like mandatory firm rotation, which is already in place in Europe. That means CFOs will have to face new questions: How do you make sure it is business as usual? How does the company keep making money, while meeting the expectations of the regulator?"
Trevor is not in favour of the mandatory rotation, but he knows it is on the cards. "Audit firm rotation is not going to achieve what the regulator expects in terms of improved quality and independence. I think there are other checks and balances that are more effective. However, I am expecting either mandatory firm tendering or rotation in the next three years in South Africa."
8. Transformation - a brave new world
Staying out of politics is simply impossible for a firm with the stature of KPMG, which plays a leading role in shaping the new South Africa. There are still many people disappointed that former CEO Moses Kgosana was succeeded by Trevor, regarded as someone from the old white guard. However, Trevor feels the criticism has died down. "I spend a lot of time worrying about transformation. I have a lot of interaction with ABASA and the Black Management Forum. They have accepted that transformation at every level is crucial for me. It is an important journey, but one that will not be finished in my lifetime."
Trevor goes as far as to say his "proudest achievement as CEO" has been the appointment of black colleagues in the leadership of the firm. "Our board is 60 percent black, our executive is 50 percent black. Our Head of Advisory, which is 50 percent of our business, is a black woman. Our Head of HR, which is our lifeblood, is a black woman. Financial services, which brings in a third of our profit, is headed by a black man. The new head of forensics will also be black. These are all my appointees."
The CEO says he has never been approached by a white colleague who felt unjustifiably side-lined, because of his or her skin colour. "There is strong realisation that transformation is needed and we need black role models in the profession. I also have to recognise a lot of groundwork was done by colleagues and Moses, my predecessor. We have in no way sacrificed quality. Disappointment about missing out on a job is normal, so there might be white colleagues who feel that. But if you play cricket or football and you don't make the squad, you will also be disappointed. The coach of a football team has to choose a striker and will have one that runs harder, one that is better in the air, one that gives a lot of assists. Only one of them will make the line-up."
When talking about transformation of the CFO profession, Trevor is equally optimistic:
"There are a lot of quality CFOs around. Are there enough with all the right attributes at the top-200 firms? Are there enough black CFOs? Maybe not, but I believe that the new guys that are coming through have what it takes. In the next three to five years we will see a lot more black CFOs at listed companies."
9. Work & life - a new kind of balancing act
"I love wildlife and the bush," Trevor reveals, when asked if he ever manages to relax and forget about work. He is about to embark on a short holiday in Kruger to "sit at a water hole and watch the impalas".
He admits "it is tricky to switch off completely. I always do a few hours of emails. When CFOs are appointed they do not know what their tenure is and if your job is indefinite, you have to pace yourself. I know that my tenure is four years, after which I will be too old for a second term."
That doesn't mean Trevor doesn't look for balance, just like he advises CFOs to do. "I have a great family with two older children, two younger children, a grandchild and one on the way. I love spending time with them, but sometimes when I am with them, I am not really with them. I try to go to the office at seven and come home at seven. Then I spend two hours with the kids, before doing some more work. I do go on vacations. Otherwise I will burn out."
The trick for a CFO is to manage his or her modern role, without getting consumed by it, Trevor says. "It is an absolute reality that things like data, cyber and compliance are increasing. If this all comes through the CFO office, you don't have time for the big picture stuff. Take internal audit: these days it is very difficult to have an effective insourced team that is always up-to-date. Although internal audit shouldn't functionally fall under the CFO, practically it often does. When the auditors don't function properly, other employees come to you to moan and it takes up more of your time. If you cannot be confident that all the elements of your portfolio are taken care of, you get bogged down."