CFOs are myth busters, says retiring Standard Bank CFO Simon Ridley
“As CFOs we need to be trusted advisors, rather than critics,” says Simon Ridley, CFO at the Standard Bank Group and last year’s CFO of the Year. In an exclusive interview with CFO South Africa, Ridley talks about the myth busting responsibility of CFOs and CAs, the charm of over-disclosing, the reason everybody at the bank knows his mother and about being the perfect business partner: “You can’t just throw stones at a problem.”
Thanks to a quarter of a century of CFO experience at Absa and Standard Bank, Ridley is regarded as one of South Africa's most respected finance leaders. Over the last decades, he has seen the role of Chartered Accountants changing - but he emphasizes that the basics still need to be in place. "CFOs and CAs need to switch from number crunchers to analysts to business partners. That doesn't mean just being a friend to other executives. It is crucial that we are myth busters. Often businesses believe in certain conventions, but assumptions or beliefs can be wrong and it is our job to test and challenge them."
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- This interview first appeared in CFO Magazine. Read it here!
There are many examples where organizations would have been well-served by finance leaders who had the courage to bust the myths, says Ridley. "If you go through many of the recent corporate failures, from Enron to banking collapses, you will see they are often due to misheld beliefs. This is especially the case in banking -compared to industrial companies banks are quite highly leveraged and that means the room for error is quite low."
"Assumptions or beliefs can be wrong and it is our job to test and challenge them."
Even at Standard Bank, the biggest bank in Africa, wrong paths have been taken, Ridley admits. "At some stage we had quite a big push into low income micro-lending, for example. We had a fast growing loan book which seemed great, but we soon realized our assumptions were wrong. We realized that late in 2012 and decided to change strategy. Now micro-lending is back to being a small part of what we do. It was just not something we were good at and we should not compete with banks that are. Realizing that early has saved us from a lot of pain."
Ridley is quick to say that being a myth buster does not mean telling other decision makers that they have it all wrong. "Helping the CEO of a business to understand the problem is crucial. You can't just throw stones at the problem. You need to use common sense. Be a trusted advisor, rather than just a critic." In recent years Ridley himself has been just that at Standard Bank Group, which had initially embarked on an ambitious international expansion path, but now focusses on positioning itself as Africa's number one financial institution.
"Standard Bank had to do a 180 degree turn to avoid imploding."
It's that experience and versatility that was rewarded by the panel of judges for the 2014 CFO of the Year Award, Ridley feels. "I have been around a long time in this game, which I guess helps! During the last decade Standard Bank has made a 180 degree strategy turnaround. Maybe the panel felt I contributed to a successful turnaround." Ridley was delighted to receive the award, especially since all nominees were strong. "For example the Super Group story really impressed me: the company was negatively rated and is now thriving - their CFO, Colin Brown, would have contributed hugely to this turnaround. Having said this, I don't think any CFO really feels he or she is 'the best' as every company is so different."
The amount of positive feedback surprised Ridley. "Certainly inside the bank many people commented on the award. As an organization we don't really like self-promotion, but for a long time I bumped into people who said 'well done'. Although the country is still getting to know CFO South Africa, people looked at the panel of judges and were impressed. That group of people provided the biggest source of credibility, because everyone knew them."
Ridley says one of the secrets to being a successful CFO in a major corporation is hiring the best people you can. "That is one of my objectives. Modern finance functions include very specialized areas; you need people dealing with things like treasury, M&A, investor relations, tax, financial systems and IFRS. Those are often deep career roles. I aspire to have the country's number 1 or 2 expert for each of those fields. Our CEO recently said 'your people are really good - they make you look very clever' to which I agreed whole-heartedly! You are dependent on people, but at the same time you need to own the mistakes your department makes."
Ridley himself considers the massive strategy change that Standard Bank underwent as one of the most interesting processes he has ever been part of. "At some stage we wanted to be the SAB Miller of banking and spread our business across all emerging markets. We're now consolidating it back to Africa and that is difficult. We had to do a 180 degree turn to avoid imploding. Typically, those turnaround processes are done by a new management team, but that has not been the case for us. Not many people go into a market and then out of it again and in the end the reversal did not cost too much money, so it's been an interesting experience - even though it felt a bit schizophrenic to sell businesses we had recently bought."
"Rather a lower stock price now, than losing credibility when bad news comes out later."
These days, Standard Bank's eye is firmly focused on the continent. "In South Africa we cannot really expand our market share; that is why we are looking at other African countries. We have a good brand, good systems and a lot of market share potential in many countries. Last year we grew 44 percent in Africa outside South Africa, so we're clearly on the right track." The biggest successes are currently in countries like Nigeria, where Standard Bank manages to employ local managers with European or American education and experience. "Luckily the diaspora wants to come back. That way we can employ local people who come from the world's best universities."
Disclosure is one of Ridley's hobbyhorses and he seems to elevate transparency above all other virtues. He believes there is very little downside to over-disclosing. "We want to tell the market almost as much as we tell the board. Bad news is always going to come out, so immediate clarity reduces the prospect of disappointment. Rather a lower stock price now, than losing credibility when it comes out later. You want investors to see the business accurately. Of course you want to do it in a way that does not harm your competitiveness. It is an ongoing tension that you can mitigate with intense internal processes. For example, we do at least two dry runs before our profit announcement."
Thanks to Ridley's vast experience in CFO roles, he is in a great position to comment on the changes in the profession. "Besides the move from number cruncher to business partner, the CFO is also much more involved in risk than 10 or 20 years ago," says Ridley. "That is what we talk about when investors meet with me. Through the financial crisis it became clearer to everyone what it actually is that banks do and that is raising many risk-related questions. Trying to develop talent has also become a much higher priority."
"The people that get to the position of CFO quickest are the most curious people."
Asked what tips Ridley would give to ambitious CAs who wants to scale the corporate ladder, he immediately emphasizes the need for well-considered career choices. "I always tell our youngsters 'Be honest with yourself about what you like and what you don't like to do. Otherwise there will be issues later'. The people that get to the position of CFO quickest are the most curious people. Never being satisfied with one answer and an irritating sense of curiosity are great assets for a finance leader. It is also important to work for someone who adds value to you. Don't make a career jump for money if you don't respect your prospective boss." A final tip from Ridley is to keep your language simple. "You always need to think as a shareholder with little time for waffle. In fact, when I try to explain stuff I always ask myself if my mom as a non-banker would understand what on earth I'm talking about, and a lot of people in Finance at the bank now seem to do the same! The question is always 'Would Simon's mom understand this?"