“The CFO of tomorrow should be a big-picture thinker, rather than detail-oriented, outspoken rather than reserved, prefer to delegate rather than be hands-on, emphasize what gets done rather than how things are done, and make collaborative rather than unilateral decisions.”
The ongoing instability of the global economy has seen widespread review of board and executive positions as organisations seek to mitigate the risks of potential governance failures.
The CFO must serve as the financial authority in the organization, ensuring the integrity of fiscal data and modeling transparency and accountability. The CFO is as much a part of governance and oversight as the Chief Executive Officer (CEO), playing a fundamental role in the development and critique of strategic choices. The CFO is now expected to be a key player in stakeholder education and communication and is clearly seen as a leader and team builder who sets the finance agenda for the organisation, supports the CEO directly and provides timely advice to the board of directors.
The focus of the CFO’s role is moving much more towards that of a key strategic executive and valued advisor to the CEO and the board.
The Changing Nature of the Position
Traditional perceptions of the CFO function now hold limited relevance. High profile corporate collapses, the GFC, Sarbanes-Oxley, ASX Corporate Governance Guidelines and other market reforms have renewed calls for accountability within organizations, particularly at the board and executive management levels.
It is important to note that despite increasing expectations and re-classification of the role, a standard definition of the CFO position is difficult to establish as the requirements will vary considerably across organizations. In smaller organizations for example, the CFO may be working with limited resource capabilities and be restricted in the amount of delegation that can be exercised. In larger organizations, the CFO may have an abundance of resources at his or her disposal and therefore will have greater need for leadership and team-building skills to motivate those who support the finance function. The challenge for the modern CFO lies in meeting the varied expectations of the role.
Board Dependence upon the CFO
Boards depend upon their CFO to provide financial stewardship, compliance expertise, risk management direction, strategy advice, leadership development, executive partnership, strong communication and educational skills, not only to the board but across the organization. Having the ability and skills in each of these areas has seen the evolution of the CFO of today.
Across areas of financial, tax and IT strategy, accounting practice, financial analysis, funding, IPOs, securities listing, reporting and risk management the board expects the CFO will develop applicable methodologies and openly communicate strategic and operational advice.
Compliance – Compliance has become a holistic imperative for today’s CFO. The CFO is no longer merely responsible for ensuring compliance with regards to the financial operations of the organisation. The modern CFO is expected to demonstrate leadership in ensuring compliance across the entire operation.
Risk Management – Boards now expect their CFOs to be an active part of the risk management approach across the whole organization. The Canadian Institute of Chartered Accountants (CICA) highlights the framing questions shown at Figure 1 as central to the risk management role of the CFO.
Boards expect their CFO will support the risk management practices of the organization, whilst providing a critical voice to board and management, regularly questioning assumptions, quantifying risk outcomes and proposing informed courses of action.
Strategy – Boards expect the CFO to be an active player in determining the strategic direction of the organization. Boards are increasingly aware that their CFO can:
• Contribute important financial information and expertise to the development of the strategic plan;
• Bring their broad knowledge of the organization and analytical skills to the process of evaluating the strategic plan’s quality and viability;
• Understand capital markets and the business and economic environments in which the organization operates; and
• Play a critical role in determining the organization’s capacity to deal with risks related to strategic objectives. IX
The CFO will provide key direction and test the financial viability of organizational strategic imperatives, and will, in conjunction with the CEO, drive the planning process, coordinating those identified imperatives.
Leadership – The increased prominence of the CFO has brought with it heightened leadership expectations. These expectations transcend the finance function and are more broadly embedded in an increased demand for organizational leadership.
Boards expect the CFO to provide:
• leadership directed at the financial culture of the organisation, particularly in delivering a sustainable and profitable business;
• transformational leadership designed to change behaviours and cultures and deliver market value;
• strategic leadership, particularly in providing strategic advice to the board; and
• closely managing the physical and human resources leading to continual efficiency gains.
Executive Partnership – The relationship between the CFO and other executive members is critical. The position requires intense collaboration with key stakeholders within and external to the organisation (such as investment partners, shareholders etc.). Boards recognise that partnerships with the executive team, the CEO in particular, are critical to the effective execution of the CFO’s core functions.
To foster effective executive partnerships, today’s CFO is expected to:
• become a partner in initiatives outside the finance function;
• hold regular informal meetings with executives outside of the boardroom (CEO, CIO etc); and
• be aligned with the direction and outlook set by the CEO.
Communication and Education – The CFO must work to meet this obligation by developing relationships, educating stakeholders and concisely relaying information to the board and management.
The CFO’s role in the company has changed, such that the CFO is now an important player in communicating with the company’s stakeholders (the creditors, shareholders and others) not only the financial condition and operating performance of the company, but the risks and strategies of the company.