Money Advice

6 Responsibilities & Duties of a Modern Chief Financial Officer (CFO)

Over the previous couple of a long time, the position of the fashionable CFO has been, and continues to be, redefined. The creation of new technology permitting for enhanced knowledge assortment and evaluation instruments – in addition to working administration’s calls for for dependable real-time data – has prolonged the CFO’s accountability to all points of the company.

International commerce and expanded regulatory oversight in culturally numerous buyer and worker bases complicates choices and will increase danger. As a end result, the CFO’s authority and tasks over conventional finance, accounting, and treasury capabilities has intensified and expanded to fulfill an exhaustive listing of inside, exterior, and regulatory stakeholders, many of whom have conflicting pursuits.

Just as companies have turn out to be extra complicated, subtle, and topic to larger dangers – many of that are unidentified – the CFO operate has developed into a multi-focused position with unprecedented necessities for responsiveness and accuracy. Yesterday’s bean counters are as passé in a trendy public company as Ford’s Model T on the freeway.

Best Practices of the Modern CFO

In a 2013 report coauthored by the Association of Chartered Certified Financial Accountants (ACCA) and the Institute of Management Accountants (IMA), Jeff Thomson, president and CEO of IMA, detailed numerous components which have modified the CFO operate. In addition to conventional finance duties, trendy CFOs are anticipated to work in collaboration with others all through the group, direct integration of key business processes, stimulate change and business transformation, and be trusted business advisors to CEOs and boards of administrators.

The report identifies a number of priorities trendy CFOs have that their predecessors didn’t. These are the consequence of elevated laws, globalization, trade and business transformations, aggressive stakeholders, and the adoption of sophisticated monetary and working reporting necessities. While the precise duties of a CFO range in keeping with trade, company dynamics, and historic precedents, an efficient CFO within the twenty first century should excel in every of the next practices.

1. Communications

Whether speaking to the board of administrators, delivering monetary knowledge to stock analysts, funding managers, and regulators, or detailing efficiency metrics to fellow officers and staff, the significance of clear, crisp, and related data delivered in an comprehensible format can’t be overstated. Knowing what to say, when to say it, and how one can current it has turn out to be a important element of a CFO’s accountability.

As Robert Hoglund, CFO of Consolidated Edison, acknowledges, “Communication is essential in every aspect of the business…ultimately I need to persuade people to my point of view.” While CEOs can expound upon such nebulous topics as mission, imaginative and prescient, objectives, and tradition, CFOs are anticipated to deliver actual knowledge to the desk, to place the “meat on the bones” for gimlet-eyed regulators and anxious money managers.

A January 2013 report by McKinsey & Company suggests there are 4 profitable fashions of CFOs:

  • Finance Expert: CFOs with years of expertise within the finance capabilities of firms and specialists in monetary laws, worldwide accounting, and capital structure are particularly well-suited for extremely decentralized companies or startups.
  • Generalist: CFOs with expertise exterior finance and engaged closely in business operations and technique are sometimes being groomed for a CEO position.
  • Performance Leader: CFOs who focus on business transformations work effectively in extremely diversified firms that want to match efficiency throughout totally different companies, have aggressive progress or price targets, or whose restricted resources require cautious allocation.
  • Growth Champion: CFOs with expertise in mergers and acquisitions and divestitures – typically with Wall Street expertise and intensive personal networks – now account for 25% of new CFO hires, in keeping with McKinsey.

Whatever their model, CFOs should excel in all points of communications. The mixture of activist buyers, new legal guidelines such because the Sarbanes-Oxley Act and the Dodd Frank Wall Street Reform and Consumer Protection Act, and new or expanded interpretations of laws by businesses such because the SEC have made the CFO’s job tougher. The stress is unlikely to ease within the near- or medium-term.

According to the SEC, since 2009, CFOs of public firms have been required to file monetary data via the U.S. Securities and Exchange Commission’s Electronic Data Gathering and Retrieval system (EDGAR) in an interactive knowledge format utilizing the eXtensible Business Reporting Language (XBRL). The mixture of XBRL and EDGAR is meant to facilitate understanding of the company’s monetary outcomes and situation. The similar knowledge and format are required for company web sites. Even although computer programming, web site improvement and upkeep, and information of esoteric programming language could seem past the purview of the CFO, it’s clearly inside the realm of what, how, and when monetary data is introduced.

2. Anticipation

In an interview with Ernst & Young in 2011, OfficeMax CFO Bruce Besanko stated, “As CFO, I’m in a unique position within the organization, at the absolute center of the universe. The only other executive besides me that has that same presence at the center is the CEO…and I have a unique perspective because of being at that intersection… and seeing the numbers coming in at all times.”

The trendy CFO is akin to the 18th century frontier scout who guided wagon trains of settlers to the brand new lands of the West. Always holding an ear to the bottom and eyes on the horizon, these scouts and their trendy counterparts should always weigh necessary questions: What is going on? What does it imply? What will occur subsequent?

The standing of CFOs as “masters of numbers” requires them to supply foresight and perception to the CEO and board of administrators. Andrew Campion, CFO of Nike, describes his position as a collaborative associate in serving to navigate the longer term from a business technique perspective: “As a finance executive, you have to be able to incorporate the collective intuition of general management, as well as your own intuition, as to which business strategies are more likely than not to cut through from a consumer perspective.”

Insight – what some name instinct – is more and more necessary to the fashionable CFO, as is a willingness to problem standard pondering when vital. Drinking one’s personal tub water just isn’t a good prescription for precisely projecting the longer term. CFOs want to know not solely the place the business has been, however the place it’s headed.

Modern Cfo Best Practices

3. Sustainable Growth Strategy

In years previous, the CFO has extra typically acted because the scorekeeper, the guardian of the purse strings whose main position was to guard the business from extreme exuberance and risk-taking. In good instances, the CFO was anticipated to be the voice of warning and, when fortunes faltered, the disciplinarian who ensured that executives stored strict deal with the underside line. Not surprisingly, CFOs have historically had larger affect on price management and reducing than on advertising and rising the business.

With elevated competitors from present rivals and new entrants searching for to disintermediate long-established markets, senior executives (in addition to CFOs) agree that attaining sustainable progress is the most urgent downside firms face at present. A McKinsey & Company 2013 survey experiences that just about half of non-CFO executives are dissatisfied with their firms’ effectiveness at processes that drive mergers and acquisitions, growth into new markets, and natural progress (new product improvement and growth of adjoining services). These are additionally areas the place the non-CFOs consider their CFO colleagues may most successfully spend their time.

The trendy CFO is breaking the established paradigm of number-crunching to turn out to be a strategic business asset, and within the course of is creating actual worth within the enterprise. The pattern in giant firms has been the CFO’s transfer into the quantity two position, supplanting the chief working officer (COO) in some instances. As a consequence, many present CFOs wouldn’t have finance backgrounds, reflecting their want – and the wants of administration – for a broader understanding of the enterprise than numbers alone. According to Sanjay Uppal, CEO of StraitsBridge Advisors, the CFO on this new position is answerable for creating and managing core components of the business, performing as “deputy CEO” and board member, and utilizing monetary instruments to achieve strategic benefit.

4. Business Integration

Business executives, particularly CFOs, incessantly discover themselves managing unrelated, incompatible, even conflicting enterprise objectives. This lack of alignment – or misalignment – of monetary and working targets invariably produces inefficiency, excessive price, and frustration. Along with the CEO, the CFO has the broadest view throughout the group as a complete and is greatest positioned to make sure that the strategic plan, budgets, and monetary reporting methods are absolutely built-in in all points of business operations.

The CFO is uniquely positioned within the group to establish issues once they seem and work with line officers all through the enterprise to enhance effectivity, standardization, high quality, and operational agility. With an emphasis on short-term outcomes, firms might focus on cost-reduction (decreasing head rely, for instance) and overlook alternatives for longer-term progress. Integrated business planning coordinated by the CFO can be sure that outcomes meet expectations with minimal surprises.

In instances of mergers, acquisitions, divestitures, restructuring, outsourcing, and different transformational actions, CFOs need to ship correct, real-time monetary projections, processes, and experiences to business models. This is important in order that managers can maximize effectivity whereas minimizing organizational conflicts, duplication, and waste.

An efficient CFO is important to tighter coordination, significant communications, and environment friendly cross-functionality to all components of a company. At the identical time, many firms count on their CFOs to be catalysts for change, driving outcomes that may have an effect on long-term efficiency of the company. In different phrases, they may turn out to be more and more proactive, reasonably than reactive, to the occasions round them.

Change all the time locations stress on a business. CFOs have to be versatile as they outline and implement guidelines and measures whilst they proceed to supply different finance providers in a business-as-usual mode.

5. New Metrics

According to Karen dela Torre, vp of Oracle Corporation, “The embedding of business intelligence and predictive analytics in transaction systems, combined with hardware that is 20 times more powerful than even a year ago, allows the finance function to churn large volumes of data at levels of granularity that were previously unattainable.” Modern CFOs have to be competent in situation evaluation and projections, in addition to in predictive analytics and stress testing in the event that they are to guide their organizations within the subsequent degree of international competitors. While the gathering, verification, and manipulation of knowledge has turn out to be inexpensive and obtainable to organizations of all sizes, the necessity to perceive the info factors and supply significant data to the suitable viewers has by no means been larger.

Nike’s Campion agrees with Ms. dela Torre, however says the CFO’s accountability consists of not solely gathering and analyzing the info, however making it comprehensible and actionable: “One of the things finance can do is try to make what is complex and somewhat esoteric more simple and intuitive, to facilitate cross-functional decision-making around investment and prioritization.” This accountability additionally requires an ongoing information of altering technology and balancing the joint calls for of safety and comfort.

Understanding the underlying fundamentals of the business – together with the complicated, ever-changing dynamics between clients, opponents, and company processes and tradition – is important if organizations are to establish potential progress alternatives, shield present markets, and preserve a safe monetary base. The CFO who possesses a sensible understanding of the numbers and their relationships must be a trusted business advisor to the CEO and board, in addition to an environment friendly conduit to the surface world relating to the path and outcomes of the business operation.

Transaction Systems Predictive Analytics

6. Risk Management

Every enterprise faces dangers of some type and magnitude, some of that are manageable and a few of which might probably destroy the business. Disaster outcomes from a failure to acknowledge a danger, in addition to misunderstanding the implications and making the incorrect choices in an effort to handle that danger. The failure of the mortgage safety market, the following financial recession, and the sluggish recovery lately has sensitized CEOs and boards of administrators to the fixed uncertainties that face each business – one motive Fortune 500 firms are sitting on extraordinary money reserves presently.

It can also be the explanation CFOs are more and more answerable for danger administration of their organizations. Kent Potter, former CFO of the multinational chemical company LyondellBasell, is blunt in regards to the significance of the CFO and danger administration: “Every company’s experience over the last three years highlights a role of the CFO that needs continually to be emphasized: the identification of risk.”

Karen Mikells, CFO of safety providers company ADT, explains that danger administration dovetails with company technique, in addition to with monetary controls, since “part of what you are deciding is what risks you want to own and really want to self-manage versus which risks you don’t want to own and you want to off-load in some way.”

Final Word

Today’s CFO have to be a true Renaissance man or lady, possessing core monetary abilities in addition to operational expertise, strategic experience, and other people administration. CFOs can’t be inhibited by organizational charts. They are more and more wanted to work throughout inter- and intra-organizational boundaries to tell, self-discipline, and inspire managers, employers, clients, suppliers, and regulators. The position is equally demanding and encompassing, however might be exceptionally rewarding. How the position will evolve sooner or later is unsure, however it’s extra prone to broaden than to shrink.

What do you take into account to be crucial greatest practices for CFOs?

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