Evolving role of the CFO

August 2019  |  FEATURE  |  BOARDROOM INTELLIGENCE

Financier Worldwide Magazine

August 2019 Issue


The chief financial officer (CFO) plays a pivotal role in designing and driving company strategy and is responsible for ensuring that a high state of operational resilience and efficiency is maintained. Today, they must be stubborn in the face of ever-evolving challenges. “Many would agree that CFOs thrive on numbers, prudence and rationality,” explains Wendy Wang, group chief financial officer & group chief operating officer at Tricor. “I would add in ‘grit’ and ‘mastery of technology’. The latter helps CFOs to understand the underlying issues, trends and opportunities behind the numbers and their impact on the company’s business, in terms of business growth, new product development, operations, investment needs and many others. Meanwhile, there is no shortcut as a CFO. CFOs need to keep up the effort and make great things happen – which takes grit.”

CFOs are, however, in a period of transition. Traditionally, they were charged with tasks such as safeguarding assets, cash flow management, understanding and managing risk, financial reporting, interpreting performance and general financial planning and analysis. While these tasks are still central to the role, today’s CFOs are assuming new responsibilities. Issues such as technology transformation, talent oversight and outsourcing arrangements, which allow their organisation to be highly efficient and scalable, have diversified the CFO’s job.

CFOs have also spent the last decade dealing with the fallout from the financial crisis, working side-by-side with their CEOs to restructure and refocus the business for sustainable profitability. “Many were successful in implementing cost savings and other measures, setting up their companies for a decade of strong performance as sales recovered, particularly in a sustained period of low interest rates,” says Frank Chaiken, partner and leader of the corporate transactions & securities practice group at Thompson Hine. “CFOs, of course, played a critical role in accomplishing those objectives.”

A number of other developments, in areas such as technology and innovation, are also shifting the parameters of what it means to be an effective CFO. “The role of the CFO has evolved dramatically over the last decade,” says Caroline Hudson, head of CFO practice at Pure Search. “No longer is it enough for the CFO to be the steward of the organisation. They are now firmly established as the right-hand person to the CEO, partnering with the business financially, commercially and strategically.” Indeed, CFOs must continue to foster closer relationships with CEOs. While decision making will ultimately reside with the CEO, the two must share trust, understanding and integrity.

CFOs should also be asking themselves how they can embrace a digital culture to future-proof their business. “In an uncertain economic environment, it is more important than ever that CFOs have the most up to date real-time data on hand to help them make quick, and most importantly, correct decisions about the strategic direction of the business,” says Tim Wakeford, vice president of financials product strategy at Workday. “This ability to access relevant data and react quickly is crucial to mitigating and managing risk, and ultimately delivering business resilience. The short-term future will undoubtedly hold many challenges that will need CFOs to make fast, accurate decisions. While it is natural to want to be defensive and conservative in uncertain times, CFOs will need to be brave in their actions to realise a digital-first future.”

Responding to risk

Expanding regulatory requirements, globalisation and enhanced security risks are among the most pressing issues facing CFOs. “An important development is the rising effort by regulators around the world to hold managers personally responsible for compliance lapses at their companies,” says Mr Chaiken. “Compliance will continue to evolve into a full-time job as boards and C-suites are increasing compliance functions. Accounting, reporting, Know Your Customer and other financial compliance mandates will continue as major areas of direct responsibility for the CFO. These are affected by, and need to be coordinated with, operational, legal and regulatory, and other compliance areas.”

A company’s main risk functions frequently tie into CFO operations. “In a regulatory-driven sector, such as finance, the chief risk officer’s (CRO’s) functions will be closely tied with the CEO, as the CEO will need to drive such risk functions from all business angles,” says Ms Wang. “When it comes down to financial risks in particular, then of course the CFO will have to take up this responsibility. All these risk functions provide CFOs with significant access to business growth insights, investment needs and operational requirements. From there, CFOs often work with senior executives to develop profitable growth objectives, lay out the company’s strategic and execution plans, and create visibility on the progress.”

Embracing technological change

It is imperative that CFOs embrace new digital skills and tools at their disposal. For example, CFOs can utilise advanced analytics when aligning their strategy and risk. According to Accenture, 81 percent of CFOs believe that identifying and targeting areas of new value across the business is one of their main responsibilities. Seventy-seven percent of CFOs believe it is within their remit to drive business-wide operational transformation.

For companies to stay relevant and compete on the global stage, CFOs must be ready to adapt to technological changes. For example, CFOs must be able to use Big Data to their advantage or risk being left behind. Big Data can provide deeper insights into a company’s operations and widen the scope of its vision. Without the ability to analyse and understand vast quantities of data, it is impossible for CFOs to successfully optimise their company’s strategy.

From integrating advanced analytics tools to aligning strategy and risk, the CFO must have the capacity to lead if their companies are to deliver value.

“Digital transformation has undoubtedly shaped the careers of many CFOs,” says Ms Wang. “By streamlining core finance processes through automation and software-as-a-service (SaaS) technologies, finance teams can collaborate with other senior executives to gather comprehensive insights for analysis and identify new business models and growth strategies. In that sense, the CFO’s role in influencing and shaping business strategies through data-driven, technology-empowered decision making has dramatically increased.”

Mr Wakeford belies that once the right technology and teams are in place, the next most important priority for CFOs is collaboration. “For businesses to succeed in the digital-first age, collaboration between finance, human resources and IT is paramount,” he says. “CFOs should also be looking to work more closely with chief information officers (CIOs) to ensure they are speaking the same language to encourage digital innovation.”

According to Accenture, 51 percent of CFOs want their companies to embrace new digital skills. Where employees and senior management may be unwilling or reluctant to embrace change, CFOs can lead the charge.

“CFOs now have more time freed up to push further on insight generation and business partnering, thanks to advances in automation technologies including AI and machine learning,” explains Ms Wang. “These technological breakthroughs have removed repetitive tasks and provided financial professionals with the ability to navigate large and complex data samples much more easily, as well as track and manage the end-to-end process. It is safe to say that CFOs now are increasingly leading teams to not just focus on financial functions, by also partner with cross-functional teams to identify and capitalise on new business growth opportunities.”

Future evolution

Looking ahead, the role and influence of the CFO only will grow in the coming years. Already, many CFOs have assumed some of the responsibilities previously held by chief operating officers (COO), for example. In many large, complex businesses, the CEO and CFO roles are becoming almost interchangeable. “While the skills traditionally associated with the role of the CFO are still relevant and highly sought-after, uncertain times call for an enhanced transformational leadership,” says Ms Hudson. “Commercial mindedness, strategic delivery, delivery of complex transformation, people, processes, systems and structure are all increasingly on the characteristic checklist as businesses seek to remain competitive and grow but with minimal risk. Adding this to the expanding role of the CFO makes for the need to strike a balance of skill, will, proven ability and talent. CFOs with a breadth of cross-discipline coverage, including control, tax advisory, treasury, financial planning and analysis (FP&A), transformation and risk, have a distinct advantage.”

The coming years will present new challenges and complexity with rising international competition, social and political changes, and increasing government regulation. “Changes in capital structures, in particular the rising use of private capital in place of public securities markets, also will have an impact,” says Mr Chaiken. “These developments will put new demands on the CFO and create new opportunities.”

From integrating advanced analytics tools to aligning strategy and risk, the CFO must have the capacity to lead if their companies are to deliver value. As CFOs become more central to companies’ strategies and their sphere of influence continues to grow, the lines will blur between the CFO and other C-suite members, as functions ultimately converge and leaders assume enhanced responsibilities. “We see the role of the CFO continuing to grow in its influence, not diminish,” says Ms Hudson. “However, the CFO’s job will change. Running the finance function of the future with data at its very core will mean the shape and responsibilities will evolve. How the CFO leads a multi-generational workplace will also continue to present new challenges. Technology will no doubt continue to drive efficiencies, but should leave behind deep centres of excellence.”

CFOs need to show companies the way forward and help generate opportunities, while overseeing some of the company’s more mundane tasks. They must protect and preserve the company’s critical assets and ensure that reporting is accurate. They must also provide financial leadership in determining the organisation’s overall direction and create a risk-intelligent culture with a positive impact on employees.

There is also a human element to consider. While implementing new technologies to gain a competitive advantage is essential for business, having the right technology is ultimately worthless if CFOs do not have the right talent in place to use it. “The shift to a digital-first, data-driven finance team will not happen overnight, but it will require a rethink of what types of talent need to be attracted into the finance function,” says Mr Wakeford. “As technology and the need for increased data analysis come to the forefront, CFOs will need to consider how they can attract and recruit candidates from a data science and analysis background. These will need to be candidates who hail from a business rather than a traditional finance background and can understand the technology and data – all while translating this into meaningful information for the business. In addition to recruitment, existing teams need to be re-skilled and re-engaged in the digital aspects of their current and future roles.”

There has been a pronounced shift in recent years as CFOs have moved beyond their traditional duties to guide company strategy. They have also become a key source of quality data for decision-making purposes, not just at board level but throughout the business. As a result, CFOs must manage vast quantities of data and present it in a real time, clear, accessible and understandable way. By leveraging their CFO’s financial expertise, deep knowledge of data and strategic approach to innovation, companies will continue to generate value and long-term growth.

© Financier Worldwide


BY

Richard Summerfield


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