Brad Greve is CFO at BAE Systems, and has previously held a series of roles at Schlumberger. Here, he reflects on major challenges arising in the aftermath of the pandemic, and challenges his peers to look for ways to boost diversity in their organisations. This interview was conducted as part of our research inquiry into the role CFOs will play in creating a fairer future.
What do you think are the major challenges facing CFOs?
One major challenge facing CFOs is navigating the aftermath of the pandemic, which is going to have enduring impact. This is currently manifested in inflation and supply chain challenges; both make it even harder to effectively manage businesses and plan for the future. When you can’t say for sure when you’ll receive, for example, a dependent component for a system integration, it has knock-on effects on the schedule for your customers. It's starting to improve, but I still think it will be a challenge over the next few years.
In many ways, the onset of the pandemic was a wake-up call, especially in how it revealed the relative strength or fragility in supply chains. One thing which has helped here is that we’ve been able to improve our relationships with suppliers through our shared experience of the pandemic, and those deeper relationships have been massively helpful in dealing with the current supply chain uncertainty we’ve experienced since the pandemic subsided.
Inflation also impacts employees, many of whom are facing cost-of-living challenges. On the one hand, you need to be commercially relevant – but you’ve also got to pay fairly and help your people through this crisis. Trying to discern where inflation is transitory and where it is more permanent is difficult, and adds another layer of complexity to this issue.
I think one of the most important factors in determining how well you will cope is the maturity of the leadership team, because that is what really helps you to get to the right decision. Engaging proactively and earnestly with unions and employees is essential, and in our case has helped us effectively manage a difficult situation.
“One of the most important factors in how well you cope is the maturity of the leadership team, because that is what really helps you to get to the right decision.”
As CFO, how do you make sure the business has all the information it needs to make effective decisions?
There will always be an element of uncertainty that plays into the decisions that CFOs and businesses need to make. Where the CFO can make an important impact is in supporting decision-making, by thinking deeply about the ‘what ifs?’, and modelling out the imagined range of outcomes. When thinking through each outcome, considering how the business could benefit or suffer if that outcome materialises. You’re helping to make uncertainty less daunting, and enabling the business to make decisions safe in the knowledge that they have thought carefully and planned appropriately for each eventuality. After that, it’s about influencing to achieve the decision that renders the optimised outcome and ensuring execution is done well.
“As CFO, you’re helping to make uncertainty less daunting.”
I’ve been heavily involved in supporting the business’ thinking about our climate strategy and how we might reach Net Zero by 2030. There’s no perfect answer on this, and we don’t have a crystal ball to tell us what technology will become available in the next few years to help us reach that goal or what the regulatory elements will look like for this in a few years’ time. There’s a huge amount of uncertainty, and we don’t want to rush out and make massive investments in cases where waiting may allow us to leverage more efficient technology that could have a greater impact. There are short-term measures we are taking now, such as buying energy from renewable sources where possible, but some longer-term investments needed may arise with development of new technologies. Some of these our own company is working on, including electrification for air, sea, and land platforms. Naturally, evaluating these investments like any other project from a classic financial and returns perspective is very important.
Overall, our approach to this is something of a broad church – we have relevant goals across the management team that excite dialogue, and business units are thinking about our road to Net Zero too, and that’s been great in stimulating creative thinking on this topic. We also have a member of the executive committee who is dedicated to ESG, and who adds in-house expertise and leadership. We understand the importance that younger populations place on these initiatives and we are excited that what we are doing in this space makes us a place where these gifted new generations entering the workforce want to be a part of.
What are the social or economic issues that keep you awake at night?
Some of the trends in social media and emerging AI technologies are greatly concerning. One of the negative impacts of social media has been the way it has provided a platform and connected those on the fringe who hold extreme views, and in doing so has created an echo chamber in which those views become validated and socially normalised without challenge. To address this, I think more guardrails are needed, as well as education; we need to ensure that students have the skills and knowledge to process information so that they can separate fact from propaganda.
I also worry that AI could act as an accelerant here, and we really need to set up effective guardrails to ensure that it doesn’t exacerbate these negative impacts of social media. We need to ask the companies that create consumer-facing AI models whether or not they can really explain why their model has produced a certain answer. I think it’s incumbent on the companies designing these models – especially as they relate to social media and the internet – to declare the source(s) of their information (or be transparent about the data that the model was trained on) in a way that you can calibrate the output. We are learning more about how this technology can “hallucinate” with false data that reads as fact. You can see the danger if the networking effects of social media amplify messages that are hallucinated at industrial scale. If you add voice and image replication into the mix, it becomes a pretty scary cocktail.
Another concern is the extent to which businesses are taking opportunities to contribute to a fairer society. Looking at the staffing challenges we are facing today, I worry about the attrition we’re seeing in groups that are already unrepresented in our industry. At the moment at BAE Systems, our workforce is 22% women, and we aim to get this to 30% by the end of the decade which frankly isn’t fast enough. We’re never going to get there unless we see broader pools of talented, gender-diverse STEM students – and if those groups are facing higher attrition, then we’re fighting a losing battle. We believe diversity and inclusion are important sources of value creation because it helps lead to more innovation and better decisions, and we can’t lose sight of that value in the rush to hire quickly to support our growing business.
“We believe diversity and inclusion are important sources of value creation because it helps lead to more innovation and better decisions, and we can’t lose sight of that value in the rush to hire quickly to support our growing business.”
We’ve been trying to have an impact on this by joining forces with the Royal Navy and the RAF in visiting over 400 schools every year to get students excited and interested in STEM, and to show them the wealth of options it opens up.
Those initiatives obviously result in longer-term outcomes, and in the short term we are continuing to ramp up our apprenticeships and early career programmes to widen our talent pool and have a positive impact on underserved communities. In 2023, we’re looking to hire somewhere in the range of 2,600 – 3,000 early career profiles, from intermediate apprenticeships to degree programmes. I am always inspired and deeply impressed when I meet these early career colleagues across our many locations. They have tremendous passion, energy, and so much potential and they give us all energy and hope for our future. In carrying out these apprentice and graduate programmes, we’re helping people to get career skills that will serve them well in the future, as well as enabling the long-term careers that are essential to building a stable and thriving society. These decisions are absolutely business-critical, and it fits very much into the traditional CFO role of looking at risk – if we don’t have access to the right talent then we simply won’t be able to deliver our products and services. That’s a risk that has to be mitigated.
How can the CFO make a difference? What is uniquely in your gift?
As a CFO your world intersects with everything the business does, from resource allocation to strategy, marketing, pricing, bidding, human and physical capital, IT, R&D and so on. Essentially everything the company does eventually winds up on a P&L, Balance Sheet, or Cash Flow Statement. So, no other role in the company has a wide-angle lens like the CFO’s. Given this broad and unique exposure, a CFO can make a difference by understanding the keys to driving value, how your company can win in a competitive environment and what it needs to do to deliver all of this.
“No other role in the company has a wide angle lens like the CFO’s.”
At BAE Systems, when I first joined as an industry outsider, I wanted to understand why the company’s shares always traded at such a significant discount to its US competitors. I analysed, researched, and interacted with many experts and formed a view that turned into the “3Ps” theory of turnaround for BAE. The company had a long-running pension deficit which impacted the company in many ways, it had a track record of inconsistent performance delivery which manifested in some of the financial metrics, and it had been fairly static with portfolio moves over the last decade when US peers had been very dynamic. It was a theory that if we could address these 3Ps, we could narrow the valuation discount. As a management team, we started taking actions that were directed at the 3Ps including borrowing money to pay down the pension deficit, making some big moves with acquisitions of high-quality assets in the US, and helping the CEO drive a culture of operational excellence to deliver performance. Today, I’m pleased to say that the pension is in surplus, we have had three straight years of margin expansion and high cash conversion through strong operational performance, and we continue to be more dynamic in shaping the portfolio. Our discount with US peers has narrowed to a historic low and we will certainly not rest there.
The CFO also has the unique gift to help build corporate culture given those broad intersections of responsibility. What questions you ask of your teams, functions, and business units, how you ask them, and what your reactions are to bad news are all things that penetrate deeply into an organization’s culture. Our CEO has been hugely impactful in establishing a culture of trust across the leadership team, wanting to ensure that problems and issues were raised without fear so that they could be solved before they became bigger problems. That culture cascaded throughout the organisation and is a hugely positive force. That’s part of how the performance culture we see today was created. So, the CFO, with those broad intersections across the organisation, can really help be a positive cultural change agent helping the CEO build a strong, supportive and trust-based culture which is not only a better environment in which to work but also drives value creation.
If you could give one challenge to peers, what would it be?
“Ultimately, businesses need talent, communities need fair representation, and everyone needs a chance.”
Find ways to be more meaningful to underrepresented groups – they can be fantastic contributors to your company. Businesses have a unique role in society; although they are not altruistic, they can enable opportunities to create win-wins where everyone benefits. Ultimately, businesses need talent, communities need fair representation, and everyone needs a chance. I think when businesses are able to connect to and be relevant to those underrepresented groups then they can do great things and everyone is lifted.
This interview was conducted by Dr Scarlett Brown, Director of the Board Intelligence Think Tank. If you’d like to nominate a CFO leader to be part of our interview series, get in touch.