The Financial Director Interview - The doctor's orders
When you rescue as many companies as Sir Lewis Robertson has, you learn a thing or two about what makes a good finance director. He has hired - and fired - quite a few FDs, too.
When you rescue as many companies as Sir Lewis Robertson has, you learn a thing or two about what makes a good finance director. He has hired - and fired - quite a few FDs, too.
Sir Lewis Robertson, whose 75th birthday on 28 November ought to havern a thing or two about what makes a good finance director. He has hired – and fired – quite a few FDs, too. been quietly celebrated in a number of boardrooms across the country, can lay claim to being perhaps the country’s most successful – certainly the most experienced – company doctor.
In a career that spans more than a quarter of a century (he was a late starter in the world of corporate recovery) he has been called in to haul back seven companies from the brink of disaster. In each case, he succeeded.
The number of other directorships, consultancies and public appointments where he has brought influence to bear cannot easily be counted. His own CV is four closely-typed pages long – and even that does little more than mention the bare bones of his corporate, charitable and social activities, his recreations, his honours and awards.
But let’s get down to brass tacks. Sir Lewis is a man who claims (and he probably isn’t joking) to have appointed more finance directors than almost any other company chairman – “and removed quite a few, too” he told a gathering of Scottish accountants two years ago. Indeed, in the seven main companies that Sir Lewis has attended to, finance directors in just four cases survived his arrival.
He has much to say about finance directors, and has a passionate belief in what makes a good FD. Yet this Scottish businessman – whose grandfather founded a Dundee practice that audited the books of Beano publishers DC Thomson before eventually forming a small part of the KPMG empire – was never able to complete his own accountancy apprenticeship. The war and family tribulations denied him that opportunity.
What accountancy training he did get was “soul-destroying”, though he says it gave him a physical feel for numbers. “In those days there wasn’t even an adding machine so you learned to add pounds, shillings and pence simultaneously,” he says. “Marvellous training in numbers.” That kind of feel for numbers helped him “to glance at the bottom line of the page and know at once that, whatever the correct answer may be, the one written or printed is just simply wrong, not possible.”
He says his apprenticeship also gave him some first-hand knowledge of the game of snooker, but life was clearly different for audit trainees back in the 1940s compared with today.
After the war, Sir Lewis entered his father’s jute business, eventually becoming managing director, then chairman. In 1970, some years after it merged with a larger group, Sir Lewis found himself on the outside of the company, looking for a job. At the same time, a Scottish, quoted mini-conglomerate called Grampian Holdings was looking for a chief executive.
He didn’t know it at the time, but it was to be the first of his corporate rescue missions and the start of his second career as a company doctor.
Grampian’s turnover was just #55m, yet it had 19 divisions, as diverse as golf club manufacture, musical instruments, construction and transport – “hardly any business gets that conglomerated,” he says. But it was a rich training ground, for exactly that reason: “You had to learn to run businesses through people, relying only on the essentials: control of cash, use of budgets and the control of capital expenditure. All of these were built into every company in one form or another. The language might turn out to be different, but actually underneath it the pattern was very much the same.”
The problem at Grampian was that it was over-borrowed, the banks were getting edgy and a somewhat directionless board – which had operated for four years without a chief executive – had taken the company into a few bad acquisitions. Sir Lewis – who at that point was still 20 years away from his knighthood but was already sporting a CBE – presided over a trebling of company profits in his five years at the helm.
He had a lot sympathy for the finance director, however. Grampian’s FD, says Sir Lewis, was “very dependable”. His problem was that, although he knew that the company was in trouble, “the divisional heads outranked him considerably in the mind of the chairman and the rest of the non-executive board. And accordingly, his voice was not heeded. In fact, he was not a member of the board, as far as I can remember,” Sir Lewis says.
Sir Lewis argues that the lesson from this is that, in a conglomerate, “the finance director is certainly equal in importance to the heads of divisions – and in many respects superior. And you’ve got to listen to him. Grampian was run in a slightly clubby way. There was no tough judgement being exercised; if the finance director popped up and said, ‘Look here: capital expenditure has run riot in the heavy transport division,’ the most that anybody would say would be ‘Oh, dear’. Nothing would actually be done about it.”
By the mid-1970s, with his profile among Scottish industrialists rising, Sir Lewis was offered the opportunity to be the first chief executive of the ScottishDevelopment Agency – a lowly-paid position whose politics, he freely admits, he naively underestimated.
Shortly after his return to the private sector five years later, Sir Lewis was approached about becoming chairman of a Midlands steel group known as FH Lloyd, whose institutional shareholders reckoned that the board needed a bit of a shake-up. At the time – early 1982 – steel was going through an awful time. A plan known as the Lazard scheme (named after the merchant bankers who devised it) used government and private sector money to reduce capacity. Members of the industry contributed to a pool according to their production levels, and that fund, including some government money, would be used to buy and close surplus foundries.
“Lloyd had the biggest steel foundry in Europe,” Sir Lewis recalls. “The first time I went into it it was like a cathedral on a Monday. Nothing was happening. The board had taken the view that it was absolutely unthinkable to close this foundry in which the original Frederick Henry Lloyd or Frank Something Lloyd had cast steel God knows how many decades ago.”
Sir Lewis had a simple plan: he closed the foundry and collected an enormous sum of money from the Lazard pool. Until then, FH Lloyd had been seen as one of the biggest contributors to the pool, not the company that would throw in its cards and walk away with the pot. “The former directors were pretty distressed by the decision,” he says. “But there it was. They had two other steel foundries. They could still happily cast as many pieces of steel as they could possibly sell.”
The finance director at FH Lloyd was “an awfully nice man, but very near retirement age”, Sir Lewis recalls. His ideal FD is “one of these granite-jawed Scottish chartered accountant-types who rarely smile but whose numbers are always absolutely dependable,” he says. “You can’t always get them like that and even when you do get them they don’t always look like that.
But it’s that sort of thing: it’s the integrity, and the degree of independence.
“One can only say that in a recovery situation, you need the strong and good qualities of the FD and you need them in spades.”
Sir Lewis was still at FH Lloyd when he was invited to help salvage another steel operation called Triplex – a “higgledy-piggledy” collection of businesses that lacked the kind of easy, obvious solution that Sir Lewis found at FH Lloyd. “Like a lot of businesses, it had been propped up by the war,” he says. “Everything it could produce was immediately taken away and fired into the air.”
His job was to find a new chief executive for the company, though it turned out that he also had to find a new finance director. “The finance director at Triplex had actually become acting chairman before I got there, and was not up to it,” Sir Lewis recalls.
The financial reporting systems at Triplex were not ideal – but neither was the board’s management of them. While the company was “teetering on the brink of disaster”, the board would spend a large part of every meeting poring over every single debtor of all 17 subsidiary companies, “no doubt finding this more congenial than thinking about the desperate state of the whole group,” Sir Lewis said in a speech last year.
Which brings us to his lessons about financial reporting: “In any company, good prompt financial reporting is vital, and with this goes the need for a good, strong finance director,” he said a few years ago. “Good reporting, relevant, dependable numbers – these are what it is about.”
Triplex also gave Sir Lewis the first hint of what would be a recurring characteristic in future rescues: the company had three banks – more than was probably necessary. One of his basic tenets regarding financial management is: “‘Too many banks’ is a remarkably reliable indicator of possible impending trouble.”
There were three or four dozen banks at Borthwicks, the company that Sir Lewis turned to in 1985. This heavily indebted, internationally over-stretched business was in the unusual position of having a capable chief executive who was not adequately supported by his chairman or the rest of his board. Sir Lewis arrived as chairman and helped shoulder some of the burden on chief executive Dennis Carey. “We had a very happy three or four years together, during the course of which we sold Australia, we sold New Zealand, we sold France… And we paid the banks back – which they must never have expected!”
One problem at Borthwicks wasn’t just the number of banks, but the fact that they were all over the world. “In those days the eyebrow of the governor of the Bank of England was regarded as a fairly effective instrument here in the City, but if you were in Wellington or Melbourne and somebody rang you up in the middle of the night and said, ‘The governor of the Bank of England wants to speak with you,’ they weren’t necessarily going to take it kindly. It was a tricky business, the organising of the banks.”
Borthwicks’ FD was, Sir Lewis says, “no problem”. Peter Brackenridge has since risen to become chairman of the slimmed-down company. Another of Sir Lewis’s basic principles as to what makes a good FD is: “He’s got to be tough and very convincing because the first and one of the most persistently troublesome tasks in a rescue is to keep the banks at bay for long enough to do the job. You have got to convince them that the job is being done. What you need, therefore, is not just any old finance director, but a very clearly good finance director, a very clearly reliable, accurate one.”
Next came a Scottish construction group called Lilley. A shadow passes briefly over Sir Lewis’s face as he recalls the company – his one “black mark”, since it is the only one of the seven that is no longer alive today.
The truth is, though, that the patient survived the Robertson treatment.
Unfortunately, it was run over and killed by the 1990s property slump on its way home from the hospital.
By the time Sir Lewis arrived in 1986, Lilley had expanded into industries and geographical areas it had no business being in. It had “a pretty ordinary” building company and a specialist tunnelling company at opposite corners of the US. These essentially unmanageable businesses were soon sold. Sir Lewis didn’t think very highly of the FD that he found at Lilley, but he replaced him with a man “whose face passes before me whenever I speak of the granite-jawed, ‘own-man’ Scottish chartered accountant. A very good man.”
Another lesson from the Robertson school of corporate survival: take enormous care over acquisitions. “Acquisitions can be a good way forward,” he said in a speech some years ago. “But they can be truly the kiss of death if they absorb all the effort, all the cash and all the credibility.”
At shopfitting group Havelock Europa, which Sir Lewis joined in 1989, he found a good, competent finance director – who is still with the group – but the chairman and chief executive had been “uncontrollable”.
While it may be easy to leap to the conclusion that the FD must share the blame for the failings of his fellow directors, Sir Lewis does not like changing FDs – or anyone else for that matter – just for the sake of it. “It’s troublesome, it’s expensive, and always – however careful you are – there’s always an element of a pig-in-a-poke when you hire any new staff member. It’s much better to keep the existing people on hand.” He told an ICAEW conference last year: “The FD of a company may say that he tried to tell the board about the company’s plight, but that they were deaf to him. You have to give them a chance.”
Hotels group Stakis was Sir Lewis’s latest major rescue (and possibly his last: at the age of 75, Sir Lewis finds that the phone doesn’t ring so often). In this case, the non-executive directors felt that they had to call a halt to the over-ambitious expansion plans of chief executive Andros Stakis, son of the founder Reo Stakis. “Andros had great energy and a lot of imagination, and no control,” Sir Lewis recalls. “It was just assumed in the vaguest possible manner that if we want to build 18 nursing homes on greenfield sites which cost about #2.5m site cost, and we want at the same time to build 8 or 10 or 12 really good motorway junction hotels, then the money will be found.”
Another of Sir Lewis’s basic tenets about finance directors: first, there should be a finance director on the board, and he should be professionally qualified. In a speech some years ago Sir Lewis reminded his audience that “not one of the directors of the original Rolls-Royce had any accounting knowledge or qualification at the time of that company’s collapse” back in the early 1970s. A professional qualification is valuable to the FD, he argued, “not only for the knowledge and grounding that this gives him (or her) but also because a finance director who has to restrain an impetuous or impatient chief executive is strengthened by his professional ethic, and the requirements that it imposes on him.”
He explains that the FD “needs to be prepared, if push comes to shove, to stand up and say: ‘This is not actually right. We can’t fudge it. The numbers will not work.’ Arguably the best chief executive may need it even more, because he will be moving fast, he will trying to fix acquisitions, changes, developments, so he all the more needs a finance director who is up to the job.”
Tough, granite-jawed, “his own man”, dependable, a qualified professional – Sir Lewis doesn’t expect much out of a finance director. But if all of this sounds fairly dour compared to the modern fashion for talking about the “changing role” of the FD, with more emphasis on business management and less on bean-counting, then think again. Sir Lewis himself seems to be far ahead of this trend. He ranks the duties of the FD in this order: first, he is a director (“and that’s a steeply rising duty in itself”); second, he is a member of the executive team, and is expected to play a management part in the business’s progress; third, he is to provide guidance to the non-executive directors; and, he is a professional, “with all that that implies”.
“Whether the FD’s role is expanding in terms of influence on the performance of the business, I am not sure,” he says of the current debate. “In a well-run business the finance director should be making his proper contribution to the running of the business, including his directorial use of imagination – and not only on the financial side. But that should be happening anyway.”
Name: Sir Lewis Robertson, CBE
Age (dob): 75 (28 November 1922)
Education: Ardvreck Prep, Crieff; Trinity College, Glenalmond
Honours: CBE (1969), Knighted (1991)
1939-42: Apprentice chartered accountant with Moody Stuart & Robertson (founded by his grandfather; now part of KPMG)
1942-46: Royal Air Force, GCHQ
1946-70: JF Robertson Ltd (family jute business); became MD in 1954; merged in 1965 to form Scott & Robertson Ltd, and became chairman 1968. Left in 1970 “because of the assertion of Scott family control”
1971-76: Chief executive, Grampian Holdings (and chairman from 1972) (highly-diversified conglomerate)
1982-87: Chairman, FH Lloyd Holdings (steel and heavy engineering): “Ownership, board and other problems resolved, management structures and systems altered and new management appointed”; merged with Triplex in 1987
1983-87: Chairman, Triplex plc (iron and non-ferrous castings, light engineering): “Financial difficulties tackled, corporate and management structures and systems altered and new management installed”; merged with FH Lloyd in 1987
1987-90: Chairman of merged group Triplex Lloyd: “Vigorously growing multi-divisional group”
1985-90: Chairman Borthwicks plc (food processing & food intermediaries): “Borrowings eliminated, international trading exposure ended and new management installed”
1986-93: Chairman, Lilley plc (construction): “Borrowings at first brought under control and profits restored, but property downturn and related heavy borrowings defeated a major reconstruction in 1993”
1989-92: Chairman, Havelock Europa plc (shopfittings): “Management reorganised, capital base restored and growth resumed”
1991-95: Chairman, Stakis plc (hotels & leisure): “Management reorganised, borrowings reduced and normalised, share value restored and growth resumed”
1969-76: Member, Monopolies & Mergers Commission
1975-87: Non-executive director, Scottish & Newcastle
1976-81: First chief executive, Scottish Development Agency
1983-96: Member, Restrictive Practices Court
1984-90: Chairman, Girobank Scotland
1991-96: Founding chairman of Postern Ltd, the corporate recovery specialists
Interests: Foreign languages (French, Italian, German), Johnson, foreign travel, computer use, photography, listmaking.