Coronavirus » S&P Global CFO on flexible scenario planning

S&P Global CFO on flexible scenario planning

Ewout Steenbergen, CFO of the $85bn financial information provider, discusses the value of rolling forecasts in the coronavirus environment

If you are CFO of one of the world’s largest financial information companies you might be expected to be innovative when it comes to delivering guidance.

It’s no great surprise then that Ewout Steenbergen, CFO of S&P Global undertook the group’s first rolling forecast in April 2019.

The New York-listed group develops rolling forecasts for the next 18 months combined with scenario planning to provide a flexible response to fast-changing global conditions. “We don’t have one point of view for the next 18 months, we have multiple points of view of what would happen in different sets of circumstances and assumptions,” says Steenbergen.

When coronavirus hit, Steenbergen says this approach proved to be hugely valuable. “It really helped us when the pandemic started because we could run very quickly, different perspectives of what the year 2020 would bring. With the infrastructure and foundation we had in place long before the coronavirus, we felt comfortable to disclose those externally,” he says.

Steenbergen says that in contrast to many companies that decided to withdraw or lower guidance, S&P Global decided to give investors guidance on three different scenarios. “These are projections with assumptions in terms of GDP, unemployment and when a recovery is going to start,” he says.

This flexible approach reflects the desire on the part of Steenbergen and the other members of S&P Global’s senior management team to be as open as possible. “Giving that much transparency to the Street has been very well received because investors could really understand how the company was going to cope with the changing environment,” he says.

The approach reflectsa determination on the part of S&P Global to keep evolving in order to address fast changing global conditions. “I think companies need to be very flexible in how they look at the possibility to reinvent.

“We are spending a lot of time thinking how we can leverage the current situation to accelerate our digital transformation,” says Steenbergen.

He says a reflection of that willingness to change meant taking difficult decisions in good times to ensure a healthy balance sheet. “Because we had taken some actions in good times, we have not needed to take any draconian decisions or implement any layoffs as a result of the coronavirus to date,” Steenbergen adds.

Rethinking the model

Three years ago, S&P Global embarked on a strategy to reboot the business by ensuring its value drivers were identified and effectively invested in, with Steenbergen – who is also responsible for strategy and corporate development – playing a key role.

He joined the Fortune 500 constituent after developing his career at ING before becoming CFO of the Dutch banking and insurance giant’s US arm that was spun off as Voya Financial.

He strengthened Voya’s balance sheet, de-risked its investment portfolio and delivered the group’s IPO in 2013, so was well placed to play a pivotal role at S&P Global – which boasted a market cap of around $85bn by mid-September.

Steenbergen says a major priority was ensuring S&P Global could grow from ‘a position of strength’. He says: “We looked at how we can keep such a company sharp and making sure that it can continue to further improve the performance, and that there is no complacency and satisfaction of where we are. We wanted to make sure that we take our position of strength as a starting point instead of using it as an endpoint,” says the group’s CFO.

He says driving research and analytics, the way S&P Global Ratings does for key areas like fixed income, or the S&P Global Platts data that factors into the Brent crude oil price, you have to be really mindful what a privileged position you’re in. “You should continuously look for opportunities to enhance and refresh so that you stay relevant thinking about new growth initiatives,” he says.

One area is ensuring that there is effective competition, ensuring a healthy tension across the business. “It means we can put serious dollars behind large new growth initiatives that that really make a difference.

“For example, we had a very modest position in China and we’re now expanding, after becoming the first rating agency to get a licence to serve the domestic market there. Another area of expansion is a hard push into the ESG (environmental, social, governance) space,” he says.

At the same time it was vital to ensure there was plenty of transparency through benchmarking functions and businesses, he says. “It was so we can see which are best in class in the world, and to aspire to get to those levels,” he adds.

“Of course if you provide a lot of transparency, it can also backfire when trends are going in a negative direction, but I always believe that the credibility you build up by being very open and being very active in putting information out is the best approach.

“When people really understand what the management’s philosophy and approach is, confidence in the future of the company goes up, which enables you to weather storms, such as a pandemic,” he adds.

The key to ensuring significant margin improvements across such a sprawling organisation in a large number of positions of strength was “not to be too satisfied with ourselves and to try to do better every day,” says Steenbergen.

Although the challenge of stepping up to the CFO role of a large business in good health appeared to offer limited opportunities for improvement, there was scope to improve the offer through applying data analytics.

By pivoting to a more selectively integrated structure, the opportunity arose to capture value through platforms using the same underlying data architecture. “New technologies also gave us many opportunities to go faster to implement alternative data to give new insights to clients, says Steenbergen, reflecting in the acquisition of Kensho Technologies, an artificial intelligence (AI) firm, in March 2018.

The moves are paying off. In its 2019 full year results, S&P Global delivered net income up 8 percent on the previous year to $2.35bn on revenue that increased 7 percent to $6.7bn over the same period.

Rounded background

After attending university in the Netherlands and the US, Steenbergen says he stayed ING for over a decade because it offered great opportunities for personal development and growth. Every few years he was offered a new role, in corporate or commercial positions, often in different parts of the world.

“It’s not been about compensation, but always about what can I learn, and what’s new in the role that helped me with personal development goals- the roof tiles theory of partial overlap and partially something new

From being the CEO of an insurer in Slovakia, he was transferred to group headquarters in Amsterdam to become the head of corporate strategy. Then it was on to Hong Kong to become the CFO and chief risk officer in Asia Pacific.

At the time he was surprised to be hired for the position, as he hadn’t taken a traditional finance route, but in the event someone with a strategic, business-oriented outlook who could be a business partner was exactly the right profile.

“They convinced me to take that CFO role. When the financial crisis started a year later everything the role was about making sure the balance sheet was under control with liquidity and risks managed, and so the role was really in the centre of everything that needed to happen,” he explains.

A big leap forward came in the shape of the US business CFO role, which he started in 2010, a daunting prospect given the American economy was only slowly recovering from the global financial crisis.

“Although a whole new leadership team was brought in to help us to get back on track, the challenges were very large, from liquidity issues to relatively weak balance sheets. And there were major constraints because it was clear there was not going to be any capital support anymore for the company. So it was a very delicate point in time to make sure that the company would survive and would be able to get back on track.

“Also, from a personal perspective because I was familiar with IFRS, but not with US GAAP I needed to learn very quickly the differences. Actually, we were reporting using both accounting standards for certain periods of time.

“And then getting the company prepared for the IPO was professionally a fascinating journey, and experience. I am always surprised when companies do an IPO and then they disappoint two three quarters later with their result. My personal view is that those companies were not ready and prepared to do the IPO.

“To deliver the IPO it was not only about cleaning up the balance sheets and get the company back on track, it was also making sure that we had good insight about the future performance, and the metrics and making the right promises to the Street.

“And then ultimately being able to deliver on that, and helping the company to build credibility with investors, so that’s why I stayed for a few years after the IPO because I thought it was very important that we did everything we promised. That what was sold to investors and analysts we were consistently being able to deliver on that, and therefore able to help the company build up credibility,” says Steenbergen.

Having spent much of his career at ING, in a combination of finance and commercial roles, has provided an enthusiasm for understanding organisational dynamics. “I think the deeper you understand what’s going on in the business, and in the organisation itself I think the better it helps you, as a CFO.

“The accounting and controlling part is one thing, but the economics and more forward looking aspects of what is going well, being sure you’re pointing in the right direction, is also key. Business partnering is definitely a very important element of my role,” he says.

His own career journey convinces him that taking a breadth of diverse roles is good for both organisations and individuals alike. “For example, people that have worked in Treasury might consider working in a strategy role,” he says.

On this agrees that the analogy of ‘total football’, in which the Dutch national team perfected the art of players shifting positions, is appropriate. “I’m a big believer that its very healthy for personal development as it can create a lot of different insights and perspectives.” he says.

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