Finance as a team sport
ED LAM CFO of the Year – regional
If he were not in finance, you could almost see Ed Lam on the football pitch pushing players to pass and move as they direct the ball towards the goal. One player cannot win the game Lam says, using football as an analogy to describe his approach to finance.
As the CFO of Li & Fung, the global supply chain manager to well-known US and EU brands, Lam led his team of over 500 on a journey of transformation over the past three years. It was a journey under some of the toughest conditions as declining sales, margin pressures and lower profitability depressed the company’s share price.
And it is not just the deflationary environment that is behind the subdued demand – especially for general apparel – technology is changing the global retail and sourcing landscape rapidly. The advent of e-commerce is challenging the traditional role of the middleman; retailers are adopting a multi-channel sourcing strategy.
For the 110-year-old trading group, which had its beginnings in what is today’s Guangzhou trading porcelain, antiques, handicrafts and fireworks with the West, it means that playing the conventional game isn’t going to clinch the victory. “Running faster is no longer a viable option,” Lam says. “It is about doing something completely different by looking at what we have today. We need to find a different way to continue to grow and to excel.”
The process has been painstaking. But as 2016 came to a close, Li & Fung was well on its way to achieving two important objectives as part of its three-year strategic plan: to simplify the business and to build a sustainable enterprise. A much-needed victory was when US$1 billion was raised for the group last year, providing respite amid adversity.
The first deal was in May 2016 when Li & Fung sold to Dah Chong Hong a non-core business, LF Asia Distribution, for US$350 million. The transaction took a lot of work, Lam recalls, but it allowed the group to redeploy the capital.
In the second half of the year, Lam took advantage of a funding window to raise US$650 million of perpetual bonds. It achieved a number of firsts, including the first deal in Asia wherein the perpetual securities formed part of a medium-term note programme, which was also completed in 10 days. “I give full credit to my team for the innovation,” he shares.
Indeed, it also was a fixed-for-life transaction that secured the lowest coupon for a corporate issuer. “It was 7x oversubscribed initially, and despite being priced at the tight end at 5.25%, it was still 4x to 5x oversubscribed taken up by institutional investors in addition to the private banks,” he adds.
Expanding through acquisitions, Li & Fung has been adding companies with different systems, cultures, personalities, finance teams and accounting standards. The finance transformation is to bring alignment and to standardize.
That has been the hardest part, says Lam. “We have been doing it step-by-step. We did not bring in a whole army of consultants; we have done it on our own. We add in outsiders on a one-on-one basis to build up our platform. It is not the old versus new – we don’t do that.”
As Lam sees it, finance encompasses the front, middle and back-end functions of an organization. “It is about working with the business team to tackle and handle customer challenges; in helping to select customers and how to sell them more; it is about having a month’s end target on the budget and how to hit that; it is about cashflow and managing working capital – account receivables, inventory management, accounts payable and individual customer profitability.”
The finance team organizes regular meetings as part of a monthly problem-solving series lasting two to three hours. “I have my top 20 guys in a video conference. We pick one region and they present what problems they may have and how we are able to help them. It is sometimes that other people in the organization are not aware of the issue. These sessions also get people to understand what other people do.”
Operating in 40 countries, finance is present in 19 of them. Last year, Li & Fung started to encourage rotations at the junior level – short assignments to go to the UK, Germany and across different operating groups. “This allows us to create stickiness and a deeper bench of talent,” he says. “It is also a great way to build their resume, which is something I want to do for those who perform.”
Lam’s goal is to make everyone in finance feel that they contribute to the outcome rather than just processing reimbursement or expenses or doing capex or doing reporting. “There is no big job or small job. It is everyone moving in one direction and making sure that our company is more competitive to be able to produce a better result.”
For the finance team in 2016, Lam sees the achievement at three levels. “Strategically, we helped the company to be better prepared for the bumpy ride; at the finance department level, people are a lot closer and the processes are more aligned; at the personal level, it is the individual leadership development – helping people to grow and become stronger.”
This is the foundation, he believes, in order for Li & Fung to be able to move to the next phase that will focus on digitization and innovation. “When businesses face pressures, it is also the time when you can really shine and show what could be done through innovation and new ideas.”
He believes Li & Fung has considerable value that has not yet been utilized. “We have thousands of customers and tens of thousands of vendors. We operate in a wide geographic region. With all these long-term relationships and a diversified product offering from a few thousand dollars to a few dollars, the key is to digitize the supply chain. Accounting and finance will play a key role.”