Recently, the IOD in the UK said that the major cause of organisational failings is due to high executive pay and lack of diversity. I agree up to a certain extent.
The big challenge is, do we have the right people with the right competence? Even if we do, are they placed in the right position at the right time? Sadly, there is a big concern when it comes to choosing the right talents. I believe that organisational failure is further due to lack of financial competence amongst executives.
The new rules is to shift thinking into a more integrated reporting framework. Understanding and linking, strategy, risk and best practice to financials is crucial in order to make the right and relevant choices. Measure of enterprise wide risk need to be linked to the financials with a stronger level of confidence when developing forward plans and business models.
I list 5 financial know how techniques which executives can use:
1) Understand your strategy – financial linkage: You need to know the core of your strategy fully. This is the first place to improve discussions at executive meetings. The richness in discussions is often missed out due to executives lacking strategy and financial understanding. By going through your strategy a few times, you will be able to master and see the financial link and connections more easily.
2) Learn from your financial team: It is important to spend time with your finance staff and learn more. Asking key questions pertaining to strategy linkage will open up a new dimension of understanding. This gives you the opportunity to have constructive discussions.
3) Read financial related information to your industry. Some time ago, I was a group finance director. One of our unit director had a problem understanding financials. She was sharp and knew her business unit very well but lacked the financial competence which often led to her struggling to present her unit performance and linking this to strategy. Not only did I personally guide her, I also gave her current trends and financial information relating to the industry. In a few weeks, she developed a heightened level of financial knowhow . This resulted in her being more confident and improved her overall presentation.
4) Attend a Financial training program: there are many courses for executives on finance for non finance managers. We at Rentadirector have designed toolkits for directors and executives. Whatever mode you use, the reflections from such training can result in improved corporate performance. Taking home a few points and implementing these in your organisation can add to your competitive edge.
5) Ask incisive questions: The most important aspect of growth and success is to asking the right questions. By asking questions to your finance team, directors as well as executives, you will be sharpening your competence. How is this related to financial competence? Well, think of this.. all decisions have some degree of financial involvement. By asking questions, you are building a stronger financial understanding whether directly or indirectly.
In summary, it is not only diversity or executive pay, but the financial know how which can add value to discussions as well as build heightened levels of awareness of what is going wrong and what needs to be done. Executives must raise their standards and think about long term sustainable measures.
