| Financial competence is not a static variable, in that it | | | | companies that will assist them in diverse market |
| is something that is ever-changing, and the skills | | | | situations; NOT JUST WHEN TIMES ARE GOOD. |
| associated with being financially competent must be | | | | The solution: The following are some of the steps |
| sharpened consistently. The fact is that failure to | | | | that key decision-makers need to take in order to |
| have financially competent decision makers can be | | | | assist the company in building a more competent and |
| highly destructive to an organization. What is meant | | | | more effective financial management infrastructure. |
| by "financially competent" goes well beyond being | | | | 1) Your executive Finance team: To have a financially |
| able to identify credits or debits or being able to | | | | competent executive team; YOU NEED A TEAM; |
| properly read financial reports. Being financially | | | | there is ALWAYS an inherent danger in leaving major |
| competent should focus on one's ability to break | | | | financial decisions to a few individuals. The fact is that |
| down the financial information provided in those | | | | we are talking about money; and when that is the |
| reports and analyze how they should be used to | | | | subject then many times self interest replaces |
| determine the financial path of the organization going | | | | corporate interest in the decision making hierarchy. |
| forward. | | | | Furthermore a company that has a properly chosen |
| Furthermore, a person must be able to understand | | | | team of individuals to make decisions provides a |
| how risk factors into the financial decision making | | | | system of checks and balances which mitigate the |
| matrix and how that risk should affect the courses | | | | risks associated with these decisions. |
| of action taken by the company. These are the | | | | 2) Training Courses in Finance: Another conduit would |
| things that separate competent financial management | | | | be to get a day or two day workshop in financial |
| from incompetent financial management. This is likely | | | | training where current decision makers receive |
| a major reason why roughly 21% of all CEOs serve | | | | tutelage in financial decision making from an |
| in a financial oversight position prior to becoming a | | | | application standpoint instead of an academic or |
| CEO and why almost a third of CEOs have served in | | | | theoretical standpoint. Bringing in people that have a |
| a financial capacity at some point in their careers. It is | | | | history of being competent financial managers will be |
| also important to realize that the outcome of certain | | | | helpful. But also teaching examples of how poor |
| situations has no bearing on the competence of the | | | | decisions have destroyed companies would be helpful |
| decisions that have been made. The fact is that poor | | | | as well. Many course offer sound coverage of |
| financial leadership can still yield success from a | | | | financial topics of importance. However, it is |
| periodic standpoint. In the same manner that an | | | | important to check background, experience and |
| unskilled Poker player can have a run of "good luck" | | | | credentials of the trainer before embarking on a |
| and win big in a night of gambling, so to can | | | | course. |
| incompetent financial managers "GET LUCKY". | | | | 3) Get a Coach or Corporate Consultant: Coaching at |
| The problem with depending on luck to manage the | | | | executive level has proven to be popular in many |
| financial infrastructure of an organization is two-fold: | | | | parts of the world. Experts believe that the value an |
| 1. Luck does; and will always run out at some point in | | | | executive coach (whether it is a successful |
| time | | | | consultant, former executive, or entrepreneur) adds, |
| 2. Financial management isn't gambling; especially | | | | significantly impacts progression and drives |
| when considering what's at stake whether it is the | | | | performance to a higher level. There are many |
| shareholders, the market, the employees, or the | | | | coaches available but you need to ensure you get a |
| customers; there is simply too much at stake to | | | | coach who will listen to your concerns at the same |
| make financial management a "Coin Flip." | | | | time offer the right and relevant professional advice. |
| To ensure that the key decision-makers are | | | | With the advent of the internet, organizations also |
| financially competent it is incumbent upon | | | | offer virtual coaching support. |
| management to analyze the knowledge of these | | | | 4) Have self-analysis meetings: At least once a year |
| individuals and provide opportunities for them to | | | | all organizations should seek to have a meeting with |
| update and hone their skills as it relates to financial | | | | all people involved in the financial decision making |
| management. The good news is that most | | | | process (executives, senior financial/accounting |
| organizations generally select the financial | | | | personnel, board members, etc.) and simply have a |
| decision-makers within their organization by doing a | | | | brain-storming session that focuses on the direction |
| thorough search; this generally allows them the | | | | of the organization; future financial needs, current |
| opportunity to select the person that they feel best | | | | financial position, etc. These meetings have a way of |
| can handle the position. | | | | bringing issues to light that otherwise would stay in |
| Furthermore, most organizations that utilize | | | | the dark; and furthermore you want all of these |
| committees to help manage operations have a | | | | people to work well with each other, and this is a |
| financial management committee (as it is considered | | | | good platform to start from. |
| to be the most common among companies with | | | | While most organizations believe that the decision |
| three or more committees). The problem is that | | | | making aspect of their financial infrastructure is at |
| many companies don't understand the position | | | | least competent; the fact is that many organizations |
| enough to fully handle this search, so they end up | | | | aren't aware of what constitutes competence as it |
| hiring people that have had past success without | | | | relates to financial decision making. The fact is that, |
| determining whether the source of that success was | | | | no matter where your organization is located, the |
| luck or skill. | | | | WORLD HAS CHANGED for companies; to stay |
| If the current global economic calamity has taught us | | | | prosperous companies must focus on sustainability |
| anything; it has taught us this: When the economic | | | | and not luck; they must focus on consistency and |
| climate is advantageous to organizations it is much | | | | not major peaks. Financial competence has little to do |
| easier to seem competent than when things go bad. | | | | with an education in finance, it has everything to do |
| In a good economic climate decision-makers can take | | | | with how your executives can use that information |
| huge risks and if they win they are superstars; if | | | | and analyze the health and the future of the |
| they lose there are generally opportunities to mitigate | | | | organization. Those that understand this are in an |
| that loss (either by acquiring debt capital; increasing | | | | advantageous position; those that don't are playing |
| sales, or raising equity funds just to name a few). | | | | with fire. |
| In a bad market we have discovered that THE | | | | CAUTION: While all the above (and others) may |
| SAFETY NETS ARE GONE; and risky decisions have | | | | prove useful, the idea is not to micromanage and get |
| real consequences. In this market we are finally | | | | bogged in deep financials. Keeping it simple is the |
| paying the price to learn that there is a real | | | | message. I believe if boards can set criteria through |
| difference between corporate sponsored gambling | | | | Executive Policy Development from the onset, |
| and effective financial management. What we need | | | | keeping it simple yet covering all financials of your |
| to do now is train current and future financial | | | | organization is the way forward. Subsequent |
| decision-makers about what makes an executive | | | | monitoring of the financial health at appropriate |
| financially competent, and what does not. This will | | | | intervals will help you shape your organisation's |
| produce more effective financial decision-makers and | | | | financial strength further. After all, it is all about |
| more importantly it will provide a future asset for | | | | accountability at board level. |