Back from the brink

ALISTAIR Darling’s autobiography is essential reading for anyone aspiring to be a finance director, and indeed anyone aspiring to be a chancellor. Although praising Gordon Brown, it also portrays him as a leader, prime minister and chief executive in an unflattering light. However, the really instructive part of the book is its gripping focus on Darling’s dysfunctional relationship with the PM (for which read chief executive) and his account of the 2008 financial crisis. They provide delicious insights for FDs grappling with a difficult chief executive.

I found myself reading this book from my own perspective, remembering when I was a recently appointed, beleaguered FD soldiering on under the weight of an insecure chief executive who had been accidentally promoted from the finance director role and was displaying Brown-like characteristics. In reading the book, I found myself empathising with Darling as he was “driven to breaking point”, and warming to his remarkable defiance and his admission that “my pain threshold is pretty high”. The parallels between our two very different, but disturbingly similar situations became increasingly realistic and engaging.

Beyond the obvious roles of PM/chancellor becoming CEO/FD, the book opens the imagination, casting the Queen as chairman, and Ed Balls as the frustrated terrorist financial controller livid at missing out on a promotion. The cabinet is the board of directors, divided and full of conflicting agendas and egos. The cast also includes Tony Blair as the ex-CEO who is smug in his new life after a big pay-off; the electorate as the shareholders; Sir Mervyn King as the know-all company banker; Sir Fred Goodwin as the high-bonus CEO of the largest customer suddenly faced with Chapter 11; Sir Callum McCarthy and Lord Adair Turner of the FSA as the audit partners; MPs as the staff council; the media as the media; Ed Miliband as someone that nobody knows yet; and George Osborne as the gifted and enthusiastic work experience student.

In my own case, I was preparing the business for a planned refinancing of its debt capital mountain when it was suddenly bomb-shelled by an unprecedented collapse in customer demand, along with yet another financial crisis. My chairman spoke the words that I expect the Queen might have used in her confidential briefings with the chancellor: “Why did no one see this coming?” As Darling must have felt like saying, having also inherited his debacle, I could only think: “I have just arrived and inherited this from your chief executive who was in my hot seat until recently. Ask him.”

Two camps

Finance directors and chancellors reluctantly divide into two broad camps (eyebrows excepted): on the one hand, there are change makers, and on the other, those who are safe but boring. The change makers include Brown, Sir Geoffrey Howe, Kenneth Clarke, Nigel Lawson and George Osborne, while the safer operating types include John Major, Dennis Healey and Darling. This difference between the two camps characterises the mismatch between Brown and Darling, and a lesson for FDs.

And this brings us to Ed Balls and his importance in the relationship. He was a Brown ally, and an unsupportive FD-in-waiting to Darling. Balls had become the controlling interface between chancellor Brown and his Treasury officials (whom the promoted Brown remarkably came to view with disdain and suspicion). Balls assumed undue power and influence over the detail, and over the officials themselves. He deprived his FD of vital information, briefed against him, and continued to deal directly with his previous boss, who was now the chief executive.

Although Darling tried to change the culture at the Treasury, Brown is accused of continuing to bully its officials into rigging the figures on the economy and of rejecting their view as too conservative. Balls became one of Brown’s attack dogs, accusing Darling of exaggerating the severity of the 2008 financial crisis, and interfering with the Budget process. As finance directors know, forecasts are just that. They can be wrong, but they have to be believable, robust and substantiated, and no one should be allowed to rig the figures. As my own refinancing project became more difficult – given the prevailing truth and an honest forecast – the responsibility for economic and market judgements should have sat squarely with the company’s lead banker. And it’s easy to see why Darling points out that Mervyn King “was guilty of a string of misjudgements as the crisis unfolded”.

Finance directors and “chancellors produce budgets not by committee but by negotiation, advice and judgement”. In Darling’s case, each successive budget became problematic. Brown’s lack of confidence in his chancellor’s judgement eventually resulted in the creation of a “national economic council” (a sort of board committee), with which he himself would not have put up when he was chancellor. This and issues over the budget became preludes to the breakdown of the relationship between the two.

As a former chancellor, Brown should have known better. In my own case, however, the crisis in customer demand made budgeting and forecasting impossible for a while and – much like Darling with 48 hours to go and no budget or forecast to present to the market – I faced a refinancing effort with no CEO support for the truthful forecast, and considerable disagreement on the way forward.

Brown wanted Ed Balls as chancellor, and he treated Darling in the same dysfunctional way that he and Tony Blair related to each other. Brown failed to use the cabinet (board) for collective discussion and would often reach a decision in a meeting with Darling, only to speak to others who held a different opinion and then change his mind. Darling complains of having to negotiate with people who were not in the room (a divided board, if ever there was one). The chief executive ignores the problem, sidelines his key staff, makes policies on the hoof, and misunderstands the scale of the issues.

Unit

The successful CEO/FD partnership calls for complete unity, and depends on loyalty, trust, respect, honesty and openness. So the revelations of the problems between Brown and Darling (as the pinnacle of the CEO/FD relationship) are staggering. Brown’s style is portrayed as dictatorial, unpleasant, insecure, disorganised, disloyal, domineering and egotistical – whereas Darling unsurprisingly portrays his own personality as placid, self-deprecating, thoughtful, modest, honest and not ambitious for the top job.

Eventually, Darling took charge. It was necessary when the RBS situation became so dangerous that it risked a collapse of the entire banking system within a matter of hours. On his own authority – and as a leading force independent of, but inclusive of, Brown – he called in the various bank chief executives to tell them his plan and refused to negotiate. Success.

And much like Darling did, I also took control of our crisis in spite of the chief executive, because there was no other option. We needed the funding and no one would have believed the chief executive’s story without the support of the FD. We were both essential to each other in presenting the business case to the lenders – otherwise, we would have had no deal. Just as Darling needed Brown, it seems, Brown needed Darling.

Given this portrayal of the Brown/Darling relationship, it is astonishing that anything was achieved at all. Surprisingly, much of their agenda did move forwards in spite of each other. For example, Brown ensured that all major nations signed up to the bailout after the 2008 Lehman collapse, and Darling dealt with the G20. However, if they had been running a real business, it would have gone bust due to dysfunction and paralysis. Lessons learnt? The Brown government paid the ultimate price, of course, and was voted out by the electorate (shareholders).

The Secret FD did achieve the essential refinancing and I am still here. My then chief executive found another position after certain shareholders imposed their intentions (that is to say: they fired him), my controller slavishly followed him, and I am still trying to find a less expensive replacement for the company banker. My aged, regal chairman is still in defiantly rude health. As is Alistair Darling, having handed the insoluble problem to (that previously mentioned work experience student, who is now the FD and) chancellor George Osborne. ?