The duties of the CFOs have changed dramatically in the post-Sarbanes-Oxley/market-meltdown world. CFOs have emerged as key business partners to the CEO. They have an important role to play in reading and understanding evolving business drivers and helping their companies seize opportunities. The best CFOs balance accountability to shareholders for maintaining the integrity of the financial statements and for applying appropriate risk management while being loyal to the CEO.
From this perspective there is a divide that the CFO must effectively straddle. On the one hand the best CFOs are an integral part of the executive team being accepted as an advisor and change agent. On the other, he/she is a champion of realism on behalf of the shareholders. It is the CFO who has the burden to identify trouble ahead, regardless of how hard the management team is working or the optimism expressed by the CEO.
Achieving the right degree of independence and collaboration is a tough balancing act. Based on our experience with clients across many industries, we have identified three imperatives for CFOs to follow in order to perform at the highest level and to achieve this equilibrium.
Focus Beyond Transactional Activities
For CFOs, boardroom-level strategy is now as much of a focus as the balance sheet. This requires broad knowledge of the organization and of relationships among functions. As a result, CFOs have become a second set of eyes that leaders should use in deliberations over the future course of their companies. CFOs can increase transparency for the board and raise issues that otherwise might go unnoticed. CFOs help clarify business models, draw the maps of activities, and provide a deeper sense of how a business actually works its risks and opportunities.
Collaborate and Guide the CEO
The ability to influence and collaborate with the CEO emerges as a primary skill for any CFO. Assessing personal chemistry or describing the ideal relationship for all circumstances can be difficult, but a simple test can help determine whether the CFO is on the right footing with the CEO. Simply ask whether the CFO is the first person to who the CEO turns to for a second opinion. If the answer is “yes,” the relationship is undoubtedly solid.
To serve as an effective business partner with the CEO, the CFO also requires credibility both inside and outside the company. This involves building strong relationships with investors and opinion-leaders, as well as the CEO’s other direct reports internally. Outstanding CFOs with all of these skills and the right personal chemistry with their CEO have the ability to become agents of change, creating smarter work patterns throughout their organization with insights that drive performance and help achieve better results.
The CFO’s first responsibility is to advise the CEO where performance problems exist and to provide time sensitive advice and decision tradeoffs of potential remedies. At some point, key stakeholders may need to be apprised of a situation. Therefore, despite maintaining a network of close relationships with the CEO and other company executives, objectivity and independence remain core values for CFOs.
As such, it is also their job to troubleshoot and manage the risks inherent in corporate strategies, but guard against the tendency to kill off initiatives just because they are risky. Here are some management solutions for CFOs to consider in helping to support their independence:
- Focus on superior financial reporting and controls
- Rebalance the Finance function, particularly the Controller and Deputy Controller roles
- Communicate actively with the Board and Audit Committee
- Establish and enforce a culture of compliance
- Select the right audit partner
- Redesign work to focus on higher return activities
- Improve understanding of and preparation for business risk
In conclusion, shifting focus from transactional activities to higher value-added activities offers CFOs the opportunity to more effectively support the broader enterprise agenda and deliver performance improvement beyond finance. Today’s CFO will be successful in achieving this role for their company if they understand and practice the three fundamentals of the balancing act.
Article Provided By Kathy Davis, CPA, CGMA MKS&H Managing Partner.
McLean, Koehler, Sparks & Hammond (MKS&H) is a professional service firm with offices in Hunt Valley and Frederick. MKS&H helps owners and organizational leaders become more successful by advising them regarding their financial, technology and human capital management needs.