The role of the CFO has mutated into a job that puts roots in a higher number of daily enterprise situations. How the CFOs of the future will be leaders in driving and implementing the strategies emerging from the economic downturn?
STEERING PERFORMANCE IN THE WAKE OF THE FINANCIAL CRISIS CFOS AT THE FOREFRONT
“Leaders keep their eyes on the horizon, not just on the bottom line.” (Werren G. Bennis) And that is what is required of CFOs in the heat of the global crisis, according to a recent report from Deloitte on the Recession. This report highlights how CFOs will have to address two distinct challenges. They must manage their short-term credit, cash and performance needs – despite receding pricing power. At the same time, they must position and utilize assets with an eye toward post-recession growth. Even if executive search firms report that companies’ precise requirements depend on how the crisis is affecting them, one thing has become clear: the CFOs of the future will be leaders in driving and implementing the strategies stemming from the economic turmoil.
THE ERNST&YOUNG SURVEY
Confirm of this comes in a new report from Ernst & Young titled “The DNA of the CFO”. Based around a survey of 699 CFOs in Europe, Middle East, Africa and Asia, the report challenges the assumption that all Chief Financial Officers aspire to be Chief Executive Officers. In fact, it finds that 73% would like to remain in their role. The majority of respondents confirm their leading strategic contribution is in providing insight and analysis to support the CEO and the senior management team. In addition, over 60% of CFOs have seen a rise in their standing within the organization during the past three years. This is largely because the financial crisis has led to unprecedented demand for the unique perspective and discipline proper to senior finance professionals. The CFO role is thus broadening far beyond its technical heartland. It is now evolving into a role geared to guiding the business going forward. Moreover, almost two-thirds of those interviewed said they are often asked to act as the public face of their company on all financial matters and performance. A similar proportion agreed that, since the financial crisis, the CFO’s key priority is to build trust with stakeholders such as investors, analysts and the media. But this is exactly where CFOs see a need to improve their skills. Indeed, our experi ence in writing this article attests to how difficult it is having a talk with them sometimes.
CFO EUROPEAN SUMMIT
Shaping solid relationships with stakeholders (both internal and external) is one of the areas where CFOs are expected to focus their attention. This view is confirmed by the annual CFO European summit in London. At the last meeting, emphasis was laid on the challenges CFOs are called to face, and the priorities they consequently need to set. CFOs need to shift resources and capital to faster-growing markets, rather than seeing developed markets as core and emerging markets as destinations for incremental investments. M&As might seem appealing, but companies should consider the fit of company cultures, so as to avoid destroying those special characteristics that created the asset’s value in the first place. Cash management needs to come to the fore, both as a discipline and in financial reporting; investors are paying much greater attention to the balance sheet as a way to assess financial health. In their relationship with investment banks, CFOs should consider the relevance of an independent view and whether the same institutions that are providing brokerage services should also be providing capital. Risk management should not only be considered a function that protects the organization, but also as a means to create added value for the business. The aim should be for business units to behave automatically in a risk-aware manner. Companies do not need more rules. They need a return to ethics.
Les Clifford, Chairman of the Ernst & Young CFO Program in the UK and Ireland
twsm What precise contribution does a CFO make to strategy?
lc And what about traditional core responsibilities, such as attention to cash, and cost management.Core competencies such as cash management, cost reduction, fund-raising effectiveness and efficiency of finance, still remain core competencies for CFOs. I think that what you’ve seen in many organizations is a clearer strategic direction being created. When companies are growing, it’s quite easy to find investments and try to make good return on investments. But, in tough financial markets, you really need to make sure that all business decisions are really grounded on sound financial criteria. Here is where CFOs play a key role.
twsm Is this why CFOs are increasingly gaining operational responsibilities for functions such as IT or property?
lc In larger organizations, what you often see now is that, aside from the CFO, there’s a very strong Number Two finance person. This enables the CFO by title to have more responsibility for areas such as IT or risk management or looking at meetings, doing the rules of the CDO in business development, corporate development, as well as the finance. And often you will have those functions, such as IT, reporting to the individual CFO.
twsm When talking about recovery, different scenarios are likely. Reading the signals and discerning the shape and structure of the recovery is a challenge for CFOs. How do they address this issue?
lc Because of the uncertainties of these days, people can’t be really sure to understand when things happen: if it is a trend, or a real change. Building strong financial foundations gives them the possibility to weather the storm if things don’t happen in accordance with plans, or trends aren’t identified. Companies are going through efficiency programs, cost reduction programs, outsourcing, off-shoring – just to cite some – looking for that margin management that ensures they have strong foundations to build on if growth is there. And, if it is not, to manage through until growth finally happens.
twsmThe role of CFOs has evidently evolved since the financial crisis. Is the pattern the same both in big and medium-small sized enterprises?
lc The issues pertaining to any business are the same. But, depending on the size of the company, they are higher or lower priorities. In larger organizations, this often means looking at off- shoring, outsourcing, share service centers, whereas small-medium sized companies are looking more on automation and better controls. Financial transformation is an issue they face, but the response depends on the size of the company. Capital management for larger organizations means, for example, that CFOs are spending their time going to the market, with bonds, fund raising, while medium-sized company are more likely to make sure they have backing facilities in place, so as to secure the next years.
Words of 4 CFOs from the DNA of the CFO report:
- “It’s increasingly the case that finance directors, because of their skills, are put in charge of areas like IT, property and logistics” (Ian Dyson CFO of Marks & Spencer)
- “The people who are best positioned to help form the strategy of the business are people who are in the finance area” (Andy Halford CFO of Vodafone)
- “It’s still really important that people have good, old-fashioned basic finance. We’ve seen what can happen if you don’t” (Robin J. Stalker CFO of Adidas)
- “Your up-and-coming, aspiring CFO needs to get themselves around a bit and get themselves on some interesting strategic projects” (Evelyn Bourke CFO of Friends Provident)
Published in the hard-copy of Work Style Magazine, Fall 2010