As the cash flow and financial management of all listed companies are being subjected to the most intense investor scrutiny for a decade, leading City analysts are calling on construction bosses to give their FDs a bigger role in the boardroom.
But industry still views its top number-crunchers with a suspicious eye. This becomes immediately obvious if you consider the former Laing employees who complain that the company is "run by accountants these days rather than engineers", or the outcry caused by Railtrack's decision to replace its troubled chief executive Gerald Corbett with the company finance director.
The task facing the new pack – to repair construction's badly tarnished reputation in the Square Mile – will be a tough one. Their tenures are likely to be fraught with City inquisitions, boardroom run-ins and, as the pressure to squeeze costs continues, staff resentment.
At the same time, the role of the group finance director is changing "enormously", according to Andrew Sawers, editor of Financial Director magazine. "The FD is increasingly involved in setting corporate strategy. More and more companies recognise that he is no longer just a bean counter or the guy who says 'no' when it comes to budget time." Perhaps the most significant change for construction's FDs has been the need to satisfy an increasingly sophisticated investor audience. "Ten years ago contractors were large companies in the universe and investors would follow them because they had to," says JP Morgan analyst Mike Betts. "Now they have to try much harder to generate interest, and if they don't, their ability to access the equity markets is reduced." Thus the ability to communicate numbers, rather than just add up, has become a key skill, and it is rare for chief executives to brief analysts without their FDs beside them. "In every industry, investors want more communication," says Mike Roberts, who recently joined Costain as FD. "But construction has got more explaining to do than most. It is marked down because it is highly fragmented and there is a lack of liquidity. To add to that, people don't understand the industry's advanced payments, huge turnover, tiny profits, and the fact that it is highly variable." Clients' increasingly sophisticated procurement techniques are also creating headaches that the finance department feels it is best suited to tackle. "The timing of the capital expenditure on a project can significantly affect our clients' tax charge," says Roberts. "Structuring projects in a way that will help them do that means that finance comes in far more widely than it ever did before." In recent years, contractors that invest in PFI projects have had to learn to cope with both aggressive bankers and huge amounts of off-balance-sheet debt. But just as the mathematics of construction has grown in complexity, the problem of attracting appropriate people to the sector has become more acute. Contractor Jarvis and housebuilder Berkeley are both hunting for new finance chiefs after making appointments that lasted only a few months.
These twin debacles had different causes but they highlight the fact that a job in the construction sector is not at the top of most accountants' wishlists. This is not solely because unemployment is historically low and most trained professionals are operating in a sellers' market. For the FD of a contracting company, the stakes are higher than in most sectors because valuing work in progress is fraught with difficulty. "If you sell a tonne of cement or a pint of beer you know exactly what profit you have made on it," says a leading banker. "With construction contracts you don't really know the profit until the contract is finally settled, which can be many years afterwards. If you are an FD, you are relying on all the inputs from the site, from the QS, and your accountants in the various divisions. And as we have seen with classic cases like the Cardiff stadium [where Laing lost £26m], you can't always rely on that." Not only can you lose your shirt, but the rewards are relatively low. At board level, construction pays worse than other sectors, and construction's finance bosses are usually paid less than its top operations directors. And while FDs in other sectors enjoy sizeable profiles in the City and industry, construction's finance chiefs have tended to be eclipsed by the cult of personality nurtured by its high-profile chief executives.
Finance chiefs who have shone in construction have tended to leave for bigger companies in different sectors because the promotion prospects of someone with little or no site experience were appalling. Corbett, for instance, made his name as FD of materials giant Redland, but left to join drinks group Grand Metropolitan before eventually getting the top job at Railtrack. E E "If you try hard enough you can think of two or three examples over the years where non-construction people, non-engineers if you like, have tried to run contracting businesses," comments the chief executive of one major building materials firm. "By and large they have not done very well." All this could be about to change as a growing number of City analysts and commentators are calling for the FDs of the building sector to start punching their weight. "I'd like to see the FD taking on a much more powerful position on the board," says JP Morgan's Betts. "The seniority of FDs needs to be much more consistent with other industries where the finance director is ideally number two, or at worst number three, and works very closely with the chief executive." Sawers agrees: "As the nature of the construction industry becomes more complex, and issues such as risk management and appraisal come to the fore, the FD needs to be much more involved in determining long-term strategy and the risk implications of those new trading relationships." Peter Mason, Amec's chief executive, recently lost his highly-rated FD Simon Batey to United Utilities, a larger company in a different sector, and replaced him with a former Balfour Beatty colleague Stuart Sidall.
If one believes Mason's claims about the way his company has transformed, the march of the coin-counters into construction's boardroom has just begun. "The industry is changing and that change will further enhance the prospects for accountants in this industry," he says. "I don't think it's impossible now for an accountant to run Amec. And that's because running Amec is no longer about second-guessing guys on projects."