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US-LISTED CHINESE COMPANY CFOS

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METHODOLOGY

A growing number of up-and-coming Chinese companies have been seeking overseas listings in recent years. What types of skills and experiences should a CFO bring to today’s IPO market? What should companies do when they face a limited pool of qualified talent?

Russell Reynolds Associates analysed and compared the backgrounds of CFOs at 50 Chinese companies that were recently listed on the New York Stock Exchange and NASDAQ. This report reveals the main trends and specific insights into the experiences and skills that these CFOs bring to their roles, and the talent implications based on these findings.

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This analysis also includes insights provided by CFOs from both private and public companies in China. They shared with us their views on today’s finance talent market for Chinese companies, as well as their perspectives on the global IPO outlook for Chinese companies.

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METHODOLOGY

US-LISTED CHINESE COMPANIES

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NASDAQ NYSE

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66% of the companies are in technology-related sectors. Many overseas investors see huge opportunities in Chinese internet/technology stocks as the industry is increasingly delivering significant growth and showing substantial margin potential.

Traditional industries are also facing high-degree digital transformation in their businesses and start to rely heavily on technological advancement and digital strategies.

38%

16%

12%

6%

6%

4%

4%

4%

2%

2%

2%

2%

2%

INDUSTRY REPRESENTATION

INTERNET/TECHNOLOGY DOMINATION

Internet Services

E-Commerce

Computer Software/Hardware

Consumer Goods

Energy

Financial Services

Healthcare

Retail

Automotive

Education

Hospitality

Media

Steel

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KEY FINDING 1

CFO APPOINTMENTS EXPECTED TO SOAR

• According to our study, US IPO activities for Chinese companies picked up after 2009 and peaked in 2010 - a record-breaking year for Chinese companies listing on U.S exchanges. Unsurprisingly, there has been a noticeable increase in CFO appointments after the global financial crisis in 2008. The hiring rate started to accelerate even more in recent years: 76% of the CFOs were appointed since 2012; nearly half of the CFOs we studied were appointed in 2014 alone

• A 14-month moratorium on IPOs starting in late 2012 on mainland exchanges led to a backlog of nearly 800 companies requesting to go public. Although the ban was lifted in January 2014, many Chinese companies still want to seek overseas listings and maximize actual market visibility

• The IPO market for Chinese companies has started off flat during the first quarter of 2015, potentially due to the slowing growth trajectory of China’s economy; however, most of the CFOs we interviewed believed that the outlook of the IPO activities in the upcoming months would remain bullish, as average returns of recent IPOs have appeared to be high. In addition, we are expecting to see many Chinese emerging businesses return to the domestic capital market in the near future due to the debut of China’s new OTCBB, as well as the revival of the main board and growth enterprise board. Therefore, CFO appointments in both domestic and overseas market will rise.

Both IPO activities and CFO appointments have doubled in the last consecutive years, signaling high future transaction volume and immediate needs for high caliber IPO CFOs

IPO Per Year CFO Appointment

2008 2009 2010 2011 2012 2013 2014

0 1

21

5

8

4 4

2

6

1112

23

1 2

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KEY FINDING 2

A NEW GENERATION OF HOME-GROWN TALENT

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Most IPO CFOs are from Greater China (Mainland, Hong Kong, and Taiwan) – this highlights the importance of deep local knowledge of the Chinese market, even though they are listed on US stock exchanges; moreover, coming from the same background/origin as the CEOs often helps the CFOs win trust from their top leaders.

The average age of the CFOs from these US-listed Chinese companies is 44. Comparing to their peers from Fortune 100 (51) and Eurotop (52) companies, these CFOs belong to a much younger age group; nevertheless, they are still more experienced than their founder/entrepreneur CEOs, who were typically born in late 1970s or 1980s.

The majority of the CFOs are men; however, more than a quarter of this population are women – a significantly higher percentage than those of the largest companies in Europe (6%) and North America (10%).

Expats

ChineseNationals/Returnees

2%

98%

Female

Male

28%

72%

Average Age44

As we mentioned earlier, close to 70% of the companies are in the internet/technology sector, which is stereotypically dominated by men. Nevertheless, tech companies these days have become increasingly more aware of the need for gender diversity and started to add female executives into their leadership teams.

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OverseasEducation

Overseas WorkExperience

Accounting orFinance Qualification MBA

Nearly half of the CFOs have obtained accounting or finance qualifications. This shows that strong technical knowledge remains an important prerequisite for US-listed Chinese companies.

Over one-third of the CFOs have an MBA. This suggests the rising importance for finance leaders to have systematic training, potential strategic vision, and broad business sense.

70% 40% 48% 36%

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A meaningful percentage of the CFOs have studied and/or worked overseas, indicating a growing demand among US-listed Chinese companies for talent with international exposure and a global mind-set

Big 4Training

InvestmentBanking

Experience

Management Consulting

General Management

Experience

PreviousStart-up

Experience

Companies hire finance leaders with a Big 4 backgrounds for their strong technical skills and barrier-free communication with external auditors; many of them have previously done pre-IPO audit or consulting work.

Companies seek talents with investment banking background for their knowledge of the IPO process and ability to contribute significantly to roadshows, pricing, and building connections in the capital markets. However, CFOs who were ex bankers are likely to leave shortly after receiving their post-IPO financial reward.

Ex-management consultant CFOs are highly strategic and natural business partners with a great sense of, and extensive access to market insights. They are also able to build and maintain trusted, long-term partnerships with independent professional services firms.

More and more companies are looking for finance talent who can demonstrate strong leadership skills and gravitas, and make excellent business partners to the CEOs.

CFOs who have previously been with a start-up have strong financial knowledge of supporting a company’s early growth stages in a timely, cost-efficient fashion who is comfortable in a fast paced environment.

14%

32%

8%

32%

40%

KEY FINDING 3

INTERNATIONAL, STRATEGIC FINANCE TALENT PREFERRED

KEY FINDING 4

A DIVERSE MIXTURE OF PREVIOUS BACKGROUNDS

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The average current tenure of IPO CFOs at US-listed Chinese companies is much shorter than the that of the CFOs from the largest listed companies around the world, which averages around 5 years.

This is because:

• CFOs – often those that came from investment banks - are hired to specifically to facilitate the IPO process instead of being incentivized to serve as a long-term financial chief

• Once CFOs go through an IPO, they soon become in high demand in the market and may leave for more attractive outside opportunities or new challenges

• As pointed out by many CFOs RRA has interviewed, while companies continue to go through various growth stages before and after an IPO, the opinions of the CEO and the CFO may start to diverge, which can cause the CFO’s departure

KEY FINDING 5

IPO CFOs HAVE MUCH SHORTER TENURES

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2.3years

We learned from the CFOs we surveyed that managing relationships with and gaining trust from founder CEOs were among some of the biggest challenges since they began their tenures. As they alluded, these “big bosses” sometimes do not give enough importance to grooming a well-functioning finance organization within the modern business structure for the long run. In order to become true business partners to the top seats and elevate their engagement and commitment in the finance function, the CFOs need to always maintain straightforward and transparent communication with the CEOs, and be willing to speak their language and understand where their interests stand.

In addition, today’s multicultural capital market needs finance talents that are strong communicators, negotiators, and masters of resolving conflicts both internally and externally.

Average years between CFO appointments and public listings

1 year 2.8 yearsPre-IPO CFOs Post-IPO CFOs

IPO

98 |

KEY FINDING 6

HIGH VOLUME OF EXTERNAL, CROSS-SECTOR HIRING

Companies demand different skill sets from their CFOs during different growth stages. Nearly 70% were external hires as, more often than not, internal candidates’ qualifications are unable to meet the defined mandates throughout a company’s development:

1. Early stage: a finance leader with excellent accounting and financial control skills to support the company’s basic daily financial needs

2. High-growth stage: a finance leader who has strong knowledge in FP&A, tax, treasury, as well as ERP systems, to drive fast, direct financial impact to the company

3. Pre-IPO stage (12-18 months prior to IPO): a CFO with extensive capital market experience, investor relations skills and GAAP knowledge to effectively prepare a public listing

Companies usually prefer to hire CFOs with relevant industry experience in order to reduce the learning curve.

Our analysis shows that the majority of the CFOs who came externally did not have previous industry/product knowledge. This underlines the high transferability of top CFOs – such as technical knowledge, leadership skills, and learning agility – across industries.

68%32%

Majority of the CFOs came externally

65%35%

Majority of the CFOs did not come from the same industry

Came from Industry OutsiderExternalInternal

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KEY FINDING 7

PRE-IPO CFOs VS. POST-IPO CFOs

Taking a company through an IPO and being a scalable public company finance leader requires more than just a regular background. Our analysis shows that CFOs appointed pre-IPO appear to have a more competitive profile than those appointed after IPO.

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• The long listing process requires pre-IPO CFOs with broad experience and capabilities, as well as extraordinary resilience to handle the exhausting procedure of execution and being the face of their firms – they must be outward looking, and act as the CEO’s go-to person in communication with the Street and the Board.

• In addition, to comply with overseas stock market requirements, pre-IPO CFOs need to bring governance, processes and controls, rigorous accounting and reporting skills, as well as the ability to deliver reliable numbers on a timely basis.

• In contrast to pre-IPO CFOs, post-IPO CFOs are usually recruited as proven “routine” listed finance leaders with strong finance and control background to preside over the financial function and maintain the integrity of the financials.

Previous Portfolio Experience as a CFO

IPO Experience

Group CFO Experience

Previous CFO at another US-listed Chinese Company

55% 25% 41% 18%

59% 39% 45% 18%

Pre-IPO CFO Post-IPO CFO

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As more and more ambitious, high-growth Chinese companies start to set their foot in the global capital markets, there will be an increasing demand for CFOs who have overseas experience and a strategic mind-set, and are able to enforce the standardization of financial systems and manage the growing investment and financing requirements.

Companies look for different types of finance leaders to meet their unique operational needs during different growth stages. Therefore, finding talent with the right skills/experience at the right time is more than critical. In addition, when a pre-IPO company chooses a CFO, not only does it seek a finance leader with a proven track record of finance leadership, it also pays great attention to his/her personality, management style, influencing skills, and ability to win trust from the CEO, Board, and other key stakeholders.

Today’s IPO market needs finance talent with extensive knowledge of the capital market and the ability to be a great business partner. Whilst CFOs at multinational corporations in Greater China usually excel at business partnering, they may lack direct exposure to the capital market. Developing such experience is critical for this type of CFOs if they plan on moving to the IPO CFO career track.

As Chinese companies accelerate their pace into the global capital market game, the pool of qualified IPO CFOs with diverse mix of experience will remain limited. While internal referrals and PE/VC recommendations continue to provide valuable resources when searching for the next finance leader, top executive search partners can systematically identify, select, and assess the best pre- and post-IPO talent who can defend stakeholders’ interests and help companies succeed.

SUMMARY

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Jeffrey Cheng, FCCABased in Shanghai, Jeffrey is a key consultant of Russell Reynolds Associate’s Corporate Officers Practice. He has served more than 100 multinational organizations, Chinese SOEs and POEs across different industries. He has substantial experience providing advice and talent solutions for Chinese and multinational companies at different growth stages.

Rachel OuyangBased in Hong Kong, Rachel is a key member of the Knowledge function for Russell Reynolds Associates. She leads Corporate Officers Practice’s talent market analysis and other knowledge management projects for both Chinese and Multinational Corporations in Asia Pacific.

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AUTHORS

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ABOUT RUSSELL REYNOLDS ASSOCIATESRussell Reynolds Associates is a global leader in assessment, recruitment and succession planning for chief executive officers, boards of directors and key roles within the C-suite. With 350 consultants in 45 offices worldwide, we work closely with both public and private organizations across all industries and regions. We help our clients build boards and executive teams that can meet the challenges and opportunities presented in the changing global business environment. www.russellreynolds.com

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