CFO perspective: Agility, trust, and the energy transition

In this podcast, Heidrick & Struggles’ Peter Behncke sits down with Michael Pontzen, the CFO of German chemicals company Lanxess, to discuss the challenges of the last few years, what lessons Pontzen learned from them, and how he plans to help Lanxess meet the continuing challenges of climate change, the war in Ukraine, and economic uncertainty. Lanxess aspires to be climate-neutral by 2040, and Pontzen shares how this will impact the organization’s workforce and how he is preparing the finance department for the energy transition. He also shares what leadership skills CFOs should develop in order to meet the challenges ahead and discusses what makes the CFO role such good experience for future CEOs.

Some key questions answered in this podcast include:

• (3:09) Lanxess aspires to be climate-neutral by 2040. What impact will your sustainability strategy have on your workforce?
• (5:54) As a CFO, from a functional perspective, what are you doing to prepare your finance department for the energy transition?
• (9:53) What leadership skills should CFOs develop in order to embrace and thrive in the challenges to come?
• (13:52) What challenges do you foresee for CFOs in the next five years and how can CFOs prepare to face them?
• (16:24) One traditional path to the CEO role is by serving first as a CFO. What makes the CFO background a critical experience for a CEO role?

Below is a full transcript of the episode, which has been edited for clarity.

Welcome to the Heidrick & Struggles Leadership Podcast. Heidrick is the premier global provider of senior-level executive search and leadership consulting services. Diversity and inclusion, leading through tumultuous times, and building thriving teams and organizations are among the core issues we talk with leaders about every day, including in our podcasts. Thank you for joining the conversation.

Peter Behncke: Hi, I'm Peter Behncke, partner at Heidrick & Struggles and member of the Corporate Officers Practice. In today's podcast, I'm talking to Michael Pontzen, CFO of Lanxess, a leading specialty chemicals company based in Cologne, Germany. Michael joined Lanxess in 2004, holding several senior positions. He also sits on the board of Deutsches Aktieninstitut, the German body representing the interests of listed companies on the capital markets since 1953. 

Michael, welcome, and thank you for taking the time to speak with us today.

Michael Pontzen: Peter, thank you for giving me the opportunity.

Peter Behncke: Michael, can you tell us about your career journey and what aspects of leadership helped you succeed and get where you are today? 

Michael Pontzen: I started the journey here at Lanxess about 17 or 18 years ago. We spun off from Bayer, and we were a fairly new management team. In the very early days, the company was regarded as kind of the ugly duckling, and that created a passion for the business and for the company in me, which is probably the foundation of where it all started from and how I developed over the years, because it clearly showed me that you have to have passion for what you do; you have to like what you do. That is what I tell my kids, as well.   

On the other hand, a second element of my journey, one I regard as an important leadership skill, is to take ownership. In the very early days, there were so many things [in the works] and it wasn’t always clear where to go or what to do at what point. But we simply did it. We could not wait for somebody else to do things, it was just do it, get it done, keep it simple, take ownership.  And taking ownership also means trusting other people, because I can't do it all on my own. It’s a kind of balance between on the one hand side taking ownership and going for things, and on the other hand granting trust to your team. These are probably the two or three most important elements when it comes to leadership skills.

Peter Behncke: Lanxess’s aspiration is to be climate-neutral by 2040. What impact will your sustainability strategy have on your workforce?  

Michael Pontzen:  We’re a chemicals company and therefore we have a very high responsibility when it comes to our corporate citizenship. We were and are embedded in global development with regards to ESG targets, which will be the future license to operate, as I always say. So, we started to put ESG targets into our system, starting with management incentivization, for example. Since a couple of years ago, the board has been incentivized by ESG targets, which means CO2 reduction, and that holds true for the next level down as well. In the finance department, we decided about three years ago to put ESG criteria into our revolving credit facility. At the end of last year, we initiated our first sustainability-linked bonds. So, it does have an impact on the overall workforce because more and more people in the organization are being measured from a financial point of view or are being asked to look into options with regards to ESG, be it on social criteria, diversity, the gender balance, or flexible work—there are so many aspects we are addressing in the organization in order to change the overall way we work. And that needs to be done not only at the board level; it starts from the board but has to be implemented throughout the organization.

Peter Behncke: How about the goal’s impact on your talent and retention strategy? 

Michael Pontzen: We want to attract talent, and there is no doubt that we are in an environment where there is a need for talent. If you, as an employer, do not fulfill the expectations of young talent, you will not get young talent. Therefore, it is very clear that we as an organization have to adapt and we are adapting when it comes to the home office and the flexible work models we’re offering. The work–life balance is changing. It’s different now than it was when I started working some 25 or 30 years ago.

Peter Behncke: From a functional perspective, as a CFO, what are you doing to prepare your finance department for the energy transition?

Michael Pontzen: It starts from the top. As the head of the finance department, I have to lead by example, so that means I have to sit together with my colleagues and discuss what I said earlier: that the world is changing, no doubt about it. And if we, as a chemicals company, especially today, look at the current environment of energy and fossil-based energy, it is clear that we have to change, due to sustainability concerns. It will affect our license to operate. 

The chemicals industry is very much energy-driven; it has a very high energy consumption. And now the war in the Ukraine forced by Russia is driving up fossil energy. And so, we have to change. That means that the finance department has to adapt. I mentioned a sustainability-linked bond—there are a couple of bonds we initiated, the CO2 targets we put in our revolving credit facility. When we talk to students, we of course display our ESG strategy. We just got the approval from SBTI that we are in line with the 1.5-degree Celsius roadmap of the Paris Commission. On a very wide basis, that’s where we need to look into the details and make everybody aware of it, and that is linked to the finance department in particular.   

As of today, we are the front runner: we have a very sophisticated ESG equity story. But that is something the whole organization [contributed to]; we installed a sustainability committee in the organization. And finance is, obviously, a vital part because finance is responsible for the overall financial reporting as well as integrated reporting, which is a newer trend we’re seeing. More non-financial elements will be part of the financial reporting or legal reporting, and we need to adapt to that, to be prepared, and we're well on track to do so.

Peter Behncke: Michael, what has been the biggest learning so far for you?

Michael Pontzen: The lesson learned is that you always have to prepare for the worst, especially as the finance department; we don't want to be dependent on access to capital markets. That is something I learned in the 2008-09 financial crisis, when I was heading corporate finance and when access to the market was closed. We had to recall and adapt the lessons learned in that time at the beginning of this year, because I think we are now in a very challenging environment. We knew we had to secure enough liquidity—and that is, from a financial perspective, one of the most important lessons we continue to apply again, because none of us know what the future will bring. But I would rather be prepared and think about what to do if there will be a crisis, a deep crisis, out there. And there’s a chance that we will see that.

Peter Behncke: Absolutely. Michael, in your opinion, what leadership skills should CFOs develop in order to embrace and thrive in the challenges to come? 

Michael Pontzen: I think that the role of the CFO today—and it has been for some years now—is no longer just to take care of the tax report and the financial reporting. I regard the CFO as kind of an independent opinion leader on the board—independent because I don't have a responsibility for a business function, so I can judge very independently. For example, I [am a neutral party] when it comes to investing in growth CapEx or M&A. But I have to have an opinion, which means I am digging into the businesses as well as I can. Of course, there are limits to it, but this is kind of what I want to do: dig into the businesses, understand the businesses. 

On the other hand, of course, I have to prepare for the worst. I sat down with my treasury team.  I’ll put it like this: for me, it was a learning journey to listen to the teams, to give trust to the teams, to put the right thing in place. Because, especially in times like these with so many crises out there, energy prices going through the roof, and high uncertainty, you have to be transparent with your workforce, as well as with your clients and customers. And I think these are major elements of leadership skills for a CFO, along with the normal duties of putting financial accounts in place and having tax reports in a proper manner.

Peter Behncke: How did the role of the CFO change in the last two years and which changes do you expect to last?

Michael Pontzen: Yes, Peter, I think especially in the past two years with the COVID crisis and now having the war in Ukraine and the overall economic crisis, I think the role is more and more in need of someone who understands the business and not only the financials in order to have the exchange with the operational colleagues. I just discussed with my colleague what to expect when it comes to energy and raw material prices next year. I mean, I could lay back and basically say, “Yes, give me a number and we will put it into the system for the budget.” But I would much rather have a say when it comes to deciding what numbers are right and know what impact it will have on our business. 

On the other hand, you have to trust your people, listen to your people, especially in times like these. The way we worked did change, yes. So, prior to COVID, working from home was not a major part of day-to-day work. Today, it is a vital element, and we have to accept that and we have to make sure we are not losing efficiencies. It is my personal opinion that there are limits to it, because I still think there are benefits to of meeting in person on a regular basis. But we, on the other hand, have to adapt to it and grant freedom and trust to the people that if they work from home, they are as efficient as they are when they’re in the office, and that is probably a learning curve for the overall organization.

Peter Behncke: Michael, what challenges do you foresee for CFOs in the next five years and how can CFOs prepare to face them?

Michael Pontzen: If I take a look at the actual geopolitical situation—and nobody knows where and how long the war will still last—I think the world changed some years ago already. We see more and more protectionism in the different regions of the globe, and I believe the world is changing dramatically. I think it will accelerate in the years to come, and that means capital markets will change, access to liquidity will change. Next to the geopolitical situation here in Germany or in Europe, I must say I think taxonomy will change as well as the access to capital markets and the pricing of liquidity. So, that is clearly something to which we have to adapt. CFOs have to adapt in their treasury departments. ESG taxonomy will not only have an impact on the liquidity or on interactions with the capital markets, but with internal organizational structures. You have to make sure that your financial reporting will adapt to it.

Communication challenges go along with that, especially for a listed company. I said earlier that more and more elements of our ESG strategy are part of the discussions we have with investors on the equity side, on the debt side, and with our rating agencies. And that is clearly something a CFO has to adapt to. When it comes to the interactions, that has changed completely. Looking at the spending of the states and the development we see in the different jurisdictions, I am sure that the tax regimes will change over the years. So there are many challenges out there for all the different finance departments, and therefore the CFO has to adapt and make sure that the teams are right in place, that the teams have the right topics on the agenda, and get out of their comfort zone.

Peter Behncke: Michael, one traditional path to the CEO role is by serving first as a CFO. What makes the CFO background a critical experience for a CEO role?

Michael Pontzen: Looking at my company here, we have a very good example because the former CFO of ours is the CEO, and I’m very happy to have Matthias around. I think he’s truly an excellent CEO. And I think that the years of experience as a CFO did help him entering the CEO role, because when I was mentioning the changes and challenges the finance department will face in the years to come, these are clearly challenges for the overall organization, and therefore the CEO. And one major element, too, for the role of the CEO is, of course, the communication. But if you understand the role of the CFO—that the CFO understands the business, has an opinion on the business, digs into the business, and is in interaction with the business next to his overall finance duties, it’s clear (and I think there are good examples of this) that a CFO can step up to the CEO, especially when it comes to having an understanding of the business of finance and then the skills to interact with capital markets.

Peter Behncke: Looking ahead, are there any additional specific leadership skills or capabilities you would say will be the most important for your company to meet its strategic goals over the next three to five years?

Michael Pontzen: We are facing a very challenging environment and our culture is embedded in a performance-driven approach. So, we must and will make sure that this company will be successful maneuvering through whatever comes in the years to come. We are a listed company focusing on generating and creating value not only for the shareholders but for our employees and customers, and that means we have to focus on financials, when it comes to cash management, for example. Therefore, we have to train the organization, we have to interact with the organization, make the organization understand what is needed to generate value to perform on a financial basis, especially in times like these. And these are elements of values we have such as respect and professionalism. Especially in times like these, you have to trust—and I'm coming back the people—to give respect to the people and act professionally. Because we have to make professional decisions to make sure that this company is successful and that we are maneuvering the company and steering the company through the difficult times ahead.

Peter Behncke: Michael, thank you very much for making the time to speak with us today.

Michael Pontzen: Thank you, Peter, it was a pleasure. All the best to you and everybody.

Thanks for listening to the Heidrick & Struggles Leadership Podcast. To make sure you don’t miss more future-shaping ideas and conversations, please subscribe to our channel on the podcast app. And if you’re listening via LinkedIn, Twitter, or YouTube, why not share this with your connections? Until next time.

About the interviewer

Peter Behncke (pbehncke@heidrick.com) is a partner in the Heidrick & Struggles’ Frankfurt office and a member of the Industrial and Financial Officers practices.