From number-crunching CFO to strategic CFO
The days of fiddling with an abacus are over according to David Chancellor, partner at Tyzack Partners, who says that the role of the CFO has changed dramatically.
Even before the current global recession, changes to the role of the chief financial officer (CFO) had already commenced – some thirty years earlier in fact.
In the late 1970s when financial markets started to become increasingly global and transactional, followed by the unprecedented period of corporate mega-mergers and aggressive dealmaking in the 1980s and 1990s, CFOs were being asked to deliver on a much wider range of tasks.
With the volatility and uncertainty in the current global marketplace, those changes are continuing. From a role that was primarily responsible for the organisation’s accounting and internal reporting functions, the demands now being placed on CFOs are increasing and extending well beyond the boundaries of traditional financial management.
CFOs are expected to analyse the financial impact of a company’s objectives and strategies while they’re still in the planning stages, not after the moves have been made as was traditionally the case. They are emerging not only as the key business partners to the CEOs, but also as the CEOs ‘right-hand man’ in the boardroom.
Strategy over numeracy
These changes have also resulted in a major change to the recruitment process of the head of finance, strongly suggesting that it is now more about hiring someone with strategic and commercial business focus rather than someone who has an excellent track record as an accountant.
For those aspiring to be CFOs, candidates must be able to clearly demonstrate that they can handle a potential conflict of being conservative on one hand – presenting a balance sheet that honestly and accurately reflects the company’s net worth – and on the other hand being creative in finding innovative ways to raise capital and make an impact with analysts.
Whilst unquestionable integrity alongside formal training and experience in hardcore accounting, financial reporting and risk-management are still prerequisites, CEOs are looking to recruit CFOs who have a much broader range of expertise.
They are expecting their head of finance to be actively involved in identifying strategic value. This includes the identification and financial feasibility of potential acquisitions, product lines to expand (in collaboration with the marketing teams), and new markets to enter. Experience must also include a deep understanding of business processes, competitor, customer and supplier environments, and the financial impact of industry trends.
Internally, in addition to heading the finance department, the CFO is expected to have an in-depth understanding of technology as the IT/finance alliance is another area that is increasingly falling under their control.
Many CEOs see the functions of IT and finance converging because virtually their entire organisation relies on IT in one form or another. Today, IT is seen as a strategic function rather than as a utility. CFOs are expected to use IT in a way that allows them to analyse critical parts of the business and evaluate key performance indicators that measure the effectiveness of the company’s operations.
Furthermore, there is a growing number of organisations where the chief technology officer (CTO) reports directly to the CFO. And where the CTO is not a board-level function, the CFO becomes the voice of the IT division in the boardroom.
Ahead of the game
However, the IT/Finance alliance is not simply a means of integrating the organisation’s IT systems. CEOs are expecting their CFOs to ensure that the fundamental business processes are fully examined, and that future strategic requirements of the organisation are formulated and closely analysed. With the speed of change in technology, failure to do so may result in the company continuing to do things that could become detrimental to the organisation’s future, but doing them twice as fast.
Externally, CFOs are also becoming the key contact for the investment community, and the questions coming from the equity research firms are getting much tougher and more searching than in the past. Where the company’s share price remains high relative to earnings, and expectations of future cash flows being a major driver of the share price, the CFO must be able to effectively articulate these forecasts with complete knowledge of how they will occur. This will require them to have not only a clear understanding of every segment of the organisation and their respective business plans, but also their individual values. Equal to all other competencies, they must be very effective communicators.
Where they were at one time considered an individual business-prevention department, someone who was completely ignorant of ‘risk and reward’, CFOs are now being welcomed to strategy discussions. The new breed of CFO has a skill set that provides valuable insight to the viability of corporate initiatives.
CFOs will spend more time on strategy and operating issues and less on budgeting and accounting. Nevertheless, companies must maintain strong compliance and internal controls for which the CFO will have ultimate control and be held accountable. But whereas the accounting function would traditionally look at historical issues, strategy is about looking forward and working out how to create additional shareholder value; a new role for the CFO.
The position of CFO has grown in scope and responsibility, and whilst incumbents are now subject to greater scrutiny and even greater expectations, there are greater opportunities for those with the right skills. The career possibilities have never been better.