The expanding role of the CFO
The expanding role of the CFO means greater leadership, participation in set ting and achieving corporate vision, and driving business change.
“This is a most exciting time for CFOs,” says Thea Voogt, from the Department of Accountancy at the University of Johannesburg. “They’ve found themselves in a pressure cooker situation over the past few years. During the downturn when economies slowed, they attracted greater attention as stakeholders looked more to the credibility of a company’s CFO.
“But their expanding role goes far beyond the recent financial crisis. Their focus has become more outward and they play increasingly broader and more important roles in strategy and vision. This means that communication and leadership skills become key competencies.”
The role of the CFO has changed significantly over time, from a traditional number-crunching function to one encompassing even greater responsibilities. This shifting role has more recently been boosted at regular intervals by corporate collapses and the sharp shocks of economic crises and recessions. The 2007–09 crisis in particular put the CFO position firmly in the spotlight.
Historically, the predominantly supportive CFO role was embedded in accounting, primarily focused on the financial position of a company. And while this finance function remains core to the position, it’s been altered to one that is more strategy orientated.
The CFO is now a key member of the executive team, participating in corporate strategy and vision. This means displaying greater general business acumen and taking on a more prominent role in the operational side of the business. The title has also been elevated by JSE listing requirement changes that compelled the chief financial role to be performed by a board director and not simply a senior officer.
Many surveys conducted pre-, during and post-crisis, across the globe, point to an overwhelming conclusion – that the CFO is now meaningfully involved in the overall business.
A 2010 survey, The Chief Financial Officer of the Future – The Effects of the Global Financial Crisis, commissioned and published by the SA Institute of Chartered Accountants (Saica), concludes that the CFO function is increasingly focused on leadership, planning and strategy.
“CFOs are definitely stepping outside their internal boundaries and playing a growing role outside the organisation,” says survey leader Voogt. “They’re making more meaningful contributions in matters relating to the board, investors and other stakeholders, and have greater interaction with external providers of capital. This means increasingly drawing on skills relating to strategic planning, general business knowledge, trend analysis, leadership and communication.”
The Saica survey highlights the fact that, in the four main duties of a CFO, that of compliance and transaction officer has changed very little. However, the other three roles – as planner and strategist; growth and innovation catalyst; and corporate governance, citizenship and people manager – have increased in importance, with that of planner and strategist being the most notable.
Even though the functions and responsibilities of the CFO have changed dramatically over the past decade, many feel that the crisis has energised that evolution. The survey observes that 64% of CFOs feel that the most recent global financial crisis had affected their roles, with 65% noting that their CEOs rely on them more since the recession. They comment that the key focus area that has increased in importance due to the crisis has been that of planner and strategist. Looking ahead three years, respondents feel their capacity as planners and strategists will remain crucial, but that there will be an greater emphasis on being growth and innovation catalysts.
With the CFO now playing a greater strategic role in a business, the dynamic between CFO and CEO can potentially change. However, Voogt says that in the Top 40 companies surveyed, there has not been any indication that the CFO is usurping the function of CEO or invading such terrain.
“It simply means that the relationship between these two positions is being deepened – as is the case with other key relationships, most notably with the board and various committees. Partnerships between the various roles are now very important, and the global crisis has highlighted that the CFO cannot afford to operate remotely or in a silo.”
An interesting observation in the 2010 Saica survey is that technical knowledge and International Financial Reporting Standards (IFRS) expertise has fallen out of the top five hard skills rated by Top 40 CFOs – being replaced by risk management and business process knowledge. Voogt says that this change is not concerning and is probably due to IFRS now being strongly embedded in the well-resourced finance departments of large companies, handled by technical specialists – and with the CFO comfortable that this capability is entrenched in the company – other priorities move into the radar of this office.
Another noteworthy point is that the 2010 Saica survey observes a drop in CFO focus on sustainability development/reporting and IT governance. This, despite increased emphasis on these issues particularly in the King III Corporate Governance Report.
Saica senior executive of Strategy and Thought Leadership Graham Terry says that this decrease could be due to the crisis in which other issues took priority or because sustainability and IT governance have only recently been given elevated importance in guidelines such as King III.
The survey confirms that CFOs do acknowledge their responsibilities regarding sustainability, but some remain reluctant to participate in IT governance. “As part of the growing strategic role of CFOs, these issues must be embraced,” says Terry. “Historically, they’ve been dealt with by other divisions in a company. Although sustainability and IT responsibilities will always be shared with other senior executives, it’s crucial that they stay well within the sights of the CFO as this role increasingly drives corporate strategy.”
Voogt confirms that CFOs reluctant to become involved in IT will need to rethink their position. “Research shows an increasing international trend for CFOs to take on IT responsibility. For example, research conducted by Gartner projects that by 2013, more chief information officers (CIO) will report to the CFO position, rather than to the CEO.
SA companies may be behind on this trend and it will be interesting to see what is being reported on the position of CIOs going forward. As IT governance is an imperative in King III, the CFO will have to become increasingly involved in this strategic aspect of operations. The CFO should play a role in measuring the return on IT, and ensuring that IT is aligned with business strategy, and that it delivers value. CFOs will have to get involved with IT matters at different levels – and the issue cannot be left on the backburner.”
A crucial outcome from the Saica CFO surveys is that universities and the accountancy profession respond to the noted trends. “Such research conveys to us what the CFO position involves and outlines the skills needed in the future. We can anticipate required skills and react now to appropriately equip current and aspirant CFOs,” says Terry.
“Saica has introduced a competency framework and educational committees (that ensure pre- and post-qualification training) and career development programmes are always relevant. Strategic skills are now very important in the education process of chartered accountants and have led to the inclusion of strategy, risk and governance as a specific competency in the framework for newly qualified chartered accountants.”
Voogt says that the University of Johannesburg uses such research to ensure that its educational offerings match what is happening in the business environment and speaks to the imperative to provide relevant quality education.
“We look to trends in the broader accountancy profession, commerce and industry, and the public sector to ensure that our teaching strategy includes the required hard and soft skills. With an emphasis on leadership and communication, our training includes business writing skills and how to work in groups and manage relationships.”
A 2010 report by Ernst & Young, The DNA of the CFO, highlights that the financial crisis has clearly changed the CFO role. With two thirds of CFOs now acting as the public face of the company, the CFO position is being considered as a career destination of its own, rather than a waiting room to the CEO function.
As the role moves beyond rigid finance fundamentals, and increasingly offers potential to influence corporate strategy and drive business change, a greater level of career satisfaction opens up.
The Ernst & Young survey observes that the majority of CFOs have seen their standing within the organisation elevated in the past three years. They have migrated from scorekeeper to strategic advisor, going beyond their traditional capacity of information provider.
This is due in part to CFOs aligning the finance function closer to the business, but mostly because the financial crisis resulted in an unprecedented demand for the unique perspective and discipline of senior finance professionals to guide business.
The report indicates a significant shift in the perception of the finance function from an outmoded business prevention unit to an enabling partner in the business.
While the responsibility of setting the broader five-year vision remains the domain of the CEO, Ernst & Young reveals that the CFO acts in many cases as the co-pilot, driving the process of setting corporate strategy and bringing that vision to life.
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