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CFO appointments no longer just a numbers game

Authored by Karl Simpson

AstraZeneca’s CEO, Pascal Soriot, recently said when announcing the newly appointed CFO Marc Dunoyer that he offered a blend of strategic thinking and financial expertise. Mr. Dunoyer joined AstraZeneca earlier this year from GSK where he was heading the Rare Diseases business and where he was also Chairman of GSK Japan. He joined AZ in a specially created role which perhaps indicated he was the anointed CFO successor given he has a finance background.

What this signals though is an increasing focus among boards to look for CFO candidates who can bring strategic leadership to the business. This strategy leadership will support that of the CEO who is ultimately responsible for the company’s vision. In the view of many boards, the role of the CFO is changing and the historical notion that financial technocrats are best, no longer applies in a globalising world. For example, Mr. Dunoyer takes the CFO role at AstraZeneca having acquired experience across a range of international markets in Europe and Asia and it is this multiple market experience which is of growing importance in CFO appointments, although HQ experience is equally highly important.

In looking for CFO candidates to fulfil roles in life sciences, Liftstream is highly inclined to look for candidates who bring the highly technical financial disciplines, controls and reporting, but who also possess this strategic ability and leadership. In many cases, the CFO is a highly likely contender for the succession plan for the role of CEO, therefore you need to bring in these more strategic competencies. In many countries you will see CFOs with no formal finance experience. This non-financial experience is perhaps indicative of the changing views of boards that they require a broader range of business capabilities, including the strategic and leadership experience, in the CFOs they appoint.

The role of CFOs across the pharma and biotech sectors can vary greatly. Clearly, many of the biotechs who occupy the landscape are principally focused on raising capital from investors but also the preservation of cash through reducing burn-rates. For the more fortunate companies who have income, there are important decisions to make about how to spend your money and on what. This allocation of capital towards R&D programmes is a very challenging judgement to make to ensure you’re supporting the right assets. These judgements are made even more complex by the financial cycles of the R&D programmes.

For single asset companies, which commonly is the model of biotechs these days, the outcomes are usually binary in nature. That is to suggest that a product either demonstrates clinical efficacy leading to both regulatory and payer approval for commercialisation, or it fails and the program is closed down placing the survival of the company is serious jeopardy. With many of the companies being invited to take to the public markets and raise capital via these markets, it is very clear the high risk or high reward for the investors and the responsibility this places on the executive management, and particularly the CFO. Mismanagement of R&D budgets and product failures can lead to value destruction for investors and the role of the CFO in pivotal in this respect.

Going public also puts incredible pressure, cost and regulatory obligations on a small biotech company. This year the IPO window flapped open and a raft of biotechs we’re ushered through. What perhaps is underappreciated is the capabilities the CFO needs to possess to get the company prepared for this listing. In particular, it is important to recognise just how different the CFO’s role becomes as a public company CFO. Arguably, it is one of the roles which has to undergo most change in this transition. Public markets are unforgiving and the mistakes that a company makes about reporting accurate and timely figures as well as giving proper guidance is what builds investor trust and rapport. Fail in this and your share price will be in for a rough ride.

This external communication is a prerequisite for CFOs of companies going public, or who are public. In the preparation process there is a strong need for building a good understanding among underwriters for what the company does and where it is positioned. The world of institutional investing is starkly different from private finance via VCs and the like, so the CFO needs to understand how to communicate effectively with this audience. Once public, the consistent messaging that the company needs to carry out is something the CFO really needs to have a good oversight for.

What is clearly evident is the appointment of a CFO is an incredibly important hire for any company. The changing perspective of boards place greater emphasis on aspects like strategy, vision and leadership  – not just the financial qualifications or experience. Appointing CFOs for large global companies like AstraZeneca needs as much important care as finding that CFO for your private biotech. With improving opportunities for public listings, private biotechs need to look closely at the CFO that will lead them into this new regulatory landscape and must be sure they have the right person to run a public company.

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