ChinaForum
November 15, 2006

With the right credentials, the opportunities for chief financial officer candidates are wide open in China. But those credentials are very different than expectations in the United States or Western Europe. Success is linked to the ability to set up processes and systems, as well as the ability to thrive in the local environment.

Demand, supply

When foreign companies move their manufacturing operations to China from nearby Asian countries, moving regional headquarters follows. Then the banks come along. This migration has created a huge demand for qualified financial professionals and a special demand for a unique type of CFO.

Thomas Zhou, an executive recruiter with DaCare Associates in Beijing, told ChinaForum, “On the corporate side, the hiring activities are quite busy because all companies need a CFO or controller. Financial management helps them grow the business. We do quite a lot at the controller and CFO positions.”

Other recruiters see the same. In a recent article “Hiring Days are Here Again,” consulting firm Wang & Li says, "The greatest need area that we are getting is for candidates with strong financial management backgrounds who are able to take on CFO and Controller positions.... In addition to being familiar with both international and China GAAP, such a person must also have very strong experience in setting up financial systems and processes."

To underscore the importance of systems knowledge and process, a study last year by PriceWaterhouse Coopers and CFO Magazine said that one reason CFOs in China find financial reporting a struggle is incompatible IT systems and poorly trained staff. Ting Liu of PWC’s advisory group in Beijing was quoted as saying, “The key reason that the finance function in China is not up to world class standards is mainly due to a shortage of qualified professionals as well as the advanced techniques coupled with state of the art IT systems.”

At smaller companies, Wang & Li, which specializes in placing international caliber bilingual professionals, points to a disconnect between the international environment expected by many CFO candidates and the localized environment of the businesses that need them. "Typically, the direction and intent of both the board and executive management team is there, but the day-to-day operating realities are quite a different story. Therefore, it requires a person who really understands how to get results and bring about fundamental change in a highly local Chinese company environment."

Some companies take the route of not hiring a CFO at all. Lehman Brown, for example, provides outsourced CFO services for companies that have good finance teams in place but which lack the resources to hire a full time CFO, or which have only sporadic oversight requirements.

Credentials

Most CFO candidates Zhou sees have their CPA credential, which they typically earn in China. Although an MBA is not always necessary, many have earned graduate degrees and certifications overseas in the U.S. or U.K. Some candidates are trained by their companies or they are promoted to the Asia-Pacific level (Hong Kong, Singapore, Kuala Lumpur) and are trained there, he says. Other recruiters say companies like to see candidates with both an MBA and CPA, although finding such a candidate is rare in China’s tight job market.

Special skills

At a multinational company operating in China, bi-lingual fluency is not only an advantage but a necessity. “The person has to be able to speak English and Mandarin very well,” Zhou says, and be able to read and write both languages. “English is a must because he will have to report to headquarters in Europe or the U.S.”

Fluency in changing accounting regulations and market knowledge is also important. Not only must candidates be very familiar with the U.S. GAAP and China GAAP, but they should understand the China market and the U.S. market.

Soft skills are also important, Zhou told ChinaForum. “They should be able to manage a team. And personality is always very important. You have to be able to communicate very well.”

David Yeoung, a partner in the CFO and professional services practice of Hendricks & Struggles in Beijing, says that IPO experience is also helpful, given the number of overseas IPOs, although it’s not absolutely necessary as most investors know that IPOs are driven by teams. It is more important for the CFO candidate to have run the full financial function.

Ambition, a recruiting firm with offices throughout Southeast Asia, reports a trend toward “exact fit” hiring of CFOs, leading to a more rigorous selection process, which can take six months. With CFOs in China now highly visible after recent accounting scandals, and with responsibility far beyond accounting, the risks of hiring the wrong candidate must be avoided. One of those risks is simply not fitting into the corporate culture, which is why “internal candidates” are often perceived to be the right choice for regional CFO positions.

Meanwhile, Ambition is also observing in China new “governance roles,” which support the CFO in compliance and financial reporting matters. New roles are leading to job creation and increased opportunities for senior level financial professionals beyond the CFO title, often at high rates of compensation. Ambition describes this as a new governance support profession.

Hiring

Zhou’s search group is typically used by foreign companies doing business in China, generally the Fortune 2000, and including such companies as Intel, Microsoft and EBay. When a company seeks a high level executive or CFO, his firm is able to attract candidates by presenting the company well and offering an attractive package, which can mean more than straight compensation. In China, he notes, the job title is important. “More and more candidates like to see their career progress while they are working in the company.” Rather than the title China CFO, many would like to see the title CFO- Asia-Pacific, according to Zhou.

And whereas China has a reputation for being a low-cost labor pool, hiring at the CFO level is an area where scrimping doesn’t work. One mistake that corporate executives typically make is thinking that they will be able to hire financial talent cheaper in China.

In a June interview with the Dallas Morning News, Martin Tang, Spencer Stewart’s chairman for Asia, said that some companies think they can hire a CFO in China for as little as $40,000, but learn it may cost five times that, or more. Not only that, but wise companies over-hire to sandbag against employee dropout.

Tang described five talent pools from which executives are chosen: (1) Western expatriates, (2) Asian expatriates, (3) Chinese natives who return after earning graduate degrees abroad, and (4) Chinese locals who have remained in China. Of these, the most valuable are the Chinese who return from abroad, according to Tang. That’s because they have education, knowledge of both cultures and the advantage of being Chinese themselves.

When multinationals can’t find these returnees, Hendrick & Struggles’ Yeung says they should consider foreign CFOs who have worked in China “for a meaningful period of time” rather than hiring expatriates. Ambition reports that it is “extremely rare for a full expatriate package to be offered to a CFO hired locally.”

In Zhou’s experience, half the candidates are coming from the Mainland, half are expatriates. Local candidates “can have a good degree, be well trained in the Big 4, also have some industry experience and work long enough in the local markets for a multinational company. Even if they don’t have overseas background, they can get small or medium size CFO positions.”

In terms of pay, the CFO title in China doesn’t guarantee a large salary, except in certain industries that require specialist knowledge. Increasingly, CFOs are expected to demonstrate a record of success. Ambition reports that corporate governance concerns have led to a general scrutiny of CFO pay packages, with compensation trending toward performance based incentives.

Retention

Churn at the CFO level remains relatively low. According to Zhou, “Turnover rate at the CFO level is not that high. I won’t say that’s a problem in China. I would say that’s a stable position.” The Ambition recruiters concur, especially for non-Chinese speaking CFOs who may be reluctant to move on because they see the “dwindling demand for non-Chinese speakers.