CFO Role Changing - Growing Challenges Demand it

The business world is well aware that the role of the CFO generally has broadened over the past decade. Beyond the core responsibilities of financial reporting, audit and compliance, planning, treasury, and capital structure, many CFOs are playing a stronger role in corporate portfolio management and capital allocation. Others have become prominent as the voice of the company in investor relations and in communications to the board, as leaders in performance management, and as exporters of finance-experienced personnel to the rest of the organization.

In recent years, CFOs have assumed increasingly complex, strategic roles focused on driving the creation of value across the entire business. Growing shareholder expectations and activism, more intense M&A, mounting regulatory scrutiny over corporate conduct and compliance, and evolving expectations for the finance function have put CFOs in the middle of many corporate decisions—and made them more directly accountable for the performance of companies.

 Also in recent years quite a few of the high-profile CFOs became CEOs in recent years. Even though most CFOs don’t get tapped to lead their organizations, those who do, are part of a growing trend that is seeing the role of the Chief Financial Officer move from numbers-only to becoming a key strategic partner.

 Companies with a disproportionate share of leaders with a few areas of deep expertise—so-called spiky leaders—tend to outperform those whose leaders have a broad range of more general skills. This requires members of the top-management team to build on one another’s strengths and compensate for one another’s shortfalls. A company with a visionary CEO may require a CFO with a firm grasp of the economics of the business and enough influence capital inside the organization to provide a counterbalance against potentially risky moves. Or a company that recently hired a CEO from outside the organization may require a CFO with deep company expertise and a firm grasp of the numbers, such as a person who fits the finance-expert or generalist profile.

The CFO function originated as part of the conglomerate ideal to handle the funding of diversifying acquisitions. In response to an ambiguous regulatory change in accounting rules in 1979, which threatened to reduce reported earnings further at a time when corporate earnings already were under great strain, corporate leaders and finance professionals reconstructed the CFO as a solution. The CFO's popularity quickly surged as a result, and the role kept expanding in the following years to focus on managing shareholders and stock prices. 

“CFOs are not just managing internal reporting systems for financial reporting anymore,” says Wharton finance professor David Wessels. “More operating data is available than ever before. It can have enormous strategic importance, but it needs someone to make sense out of it. CFOs are getting pressured to take on that role. The CEO, the board, and other leaders are looking for CFOs who can assess disparate data from many areas of the firm and create a long-term path forward.” 

Today's CFOs must still attend closely to cash flows, controls, costs and risk. At the same time, they continue to seek profitable growth — both in mature markets and in those that hold the promise of rapid growth.

CFOs must be versatile individuals with the talent to meet a continually changing set of circumstances. The mood in today's markets may be more optimistic than it was in the past, but it is certainly not carefree.

 During the economic downturn, CFOs were given strategy and crisis management responsibilities that were new to many of them. The role of the CFO grew as a result in ways that have yet to recede, even as businesses recovered. 

Experienced CFOs not only understand and try to drive the CEO’s agenda, but also know they must help to shape it. CFOs often begin aligning themselves with the CEO and board members well before taking office. During the recruiting process, most CFOs we interviewed received very explicit guidance from them about the issues they considered important, as well as where the CFO would have to assume a leadership role. Similarly, nearly four-fifths of the CFOs in our survey reported that the CEO explained what was expected from them—particularly that they serve as active members of the senior-management team, contribute to the company’s performance, and make the finance organization efficient. When one new CFO asked the CEO what he expected at the one-year mark, the response was, “When you’re able to finish my sentences, you’ll know you’re on the right track.” 

One important challenge involves skills and experience. Today, organizations face increasingly complex, ambiguous challenges — and the data they have to address them is often incomplete or even contradictory. Problems are often complex, and they require creativity to solve them. 

The CEO, the board, and other leaders are looking for CFOs who can assess disparate data from many areas of the firm and create a long-term path forward. If you are continually being caught by surprise, you need to think and plan more strategically, with an eye on the long term.  Today, you have to think through the implications of every action and prepare to be on multiple path.

CFOs take a seat at the strategy planning table and help influence the future direction of the company. They are vital in providing financial leadership and aligning business and finance strategy to grow the business. In addition to M&A and capital market financing strategies, they can play an integral role in supporting other long-term investments of the company.

The rest of the C-suite and other stakeholders now expect this from their CFO.

Attributed to: https://www.mckinsey.com/insightshttps://executiveeducation.wharton.upenn.edu/https://asr.sagepub.com/contenthttps://www.ey.com/GL/en/Issueshttps://www.forbes.com/https://www2.deloitte.com/