It is not the strongest of the species that survives, nor the most intelligent ... it is the one that is the most adaptable to change. Charles Darwin's famous dictum has long applied not only in the natural world but also in the corporate one. As the financial crisis and economic challenges of the past five years have reshaped the global business environment, they have spurred profound changes in organisations around the world.
In the current business environment, financial executives encounter tough challenges in reforming their organisations; without compromising on the critical business functions and ensuring capital and operating expenses yield the intended results by assessing the efforts of other areas of the organization (operations, sales, marketing, and engineering, information technology). The PAIB Committee works to achieve global recognition of professional accountants as business leaders and strategic partners in building long-term sustainable organisational success by supporting the development of these professionals -CFOs.
In addition to overseeing the company's financial health, CFOs are increasingly involved in setting operational and commercial strategy, navigating their companies safely through tighter credit markets, more complex regulation and unstable trading conditions.
There are two priorities in the role of a CFO:
-- developing the strategy for the organization as a partner/ member of the executive leadership team, and
-- funding and executing that strategy.
In particular, the role of the chief financial officer has evolved--and expanded--as the finance function has come to the fore. Statistics globally show substantial agreement among top finance executives that while their roles and responsibilities vary by organization, six principal activities fairly represent their contribution:
1. Ensuring business decisions are grounded in solid financial criteria.
2. Providing insight and analysis to support the CEO and other senior managers.
3. Leading key initiatives in finance that support overall strategic goals.
4. Funding, enabling and executing the strategy set by the CEO.
5. Developing and defining the overall strategy for the organization.
6. Representing the organisation's progress on strategic goals to external stakeholders.
CFOs execute and support company strategy using their financial expertise; enable that strategy by funding growth or leading key initiatives; and develop and communicate overall strategy along with their organization's CEO and board of directors.
Although the roles remained consistent worldwide; the variance is created by the time allocation across segments. Different people and different organisations slice the roles differently as how to allocate the time which will vary year to year to year, based on the challenges that the organization is facing. However, if averaged it over a three-year period, would probably be balanced.
Increased Compliance Growing regulation and compliance have put considerable burden on business in the last few years and the finance function has been stretched to the limit to absorb the changes without adding to headcount. Statutory and regulatory reporting have become more complex and, regulators have accelerated reporting deadlines and imposed mandatory reporting in extensible Business Reporting Lanuage (XBRL)adding to the pressure on the finance function. Due to the growing transaction volumes and business complexity, the finance function is becoming almost totally reliant on technology to deliver business insight and process efficiency as well as compliance and control.
CFOs satisfying objectives around the process of efficiency control and compliance require a more broad-based approach than just collaborating with IT. CFOs are extending their reach deeply into the business and this is defining a new way of working, especially provided they are not spread too thinly. Multidisciplinary teams built around shared services or even individual processes chaired by the CFO are becoming more commonplace.
Risk Intelligence
The CFO has always played a big powerful role notably in the area of risk. Finance chiefs frequently took charge of assessing and guarding against risk during the financial crisis, and as the economy has recovered, few have relinquished the task. CFOs have increased the amount of time and resources devoted to risk management. For a CFO stakeholders demand and profitability tops the list, as one of their biggest areas of concern.
CFOs are there to play their central executive role in building and maintaining an effective risk-management approach. Although the nature and extent of their role varies, CFOs are uniquely situated to build and communicate an integrated risk view, optimise business decisions, and build a strong risk culture.
CFO and the chief risk officer must be closely aligned to provide solid direction to boards and senior management who are struggling to understand risk.
The CFO's financial-reporting role provides natural insight into the universe of risks across various business units and the impact that those risks, either alone or in combination, can have on the corporation as a whole.
Pragmatism of Technology in Finance
IT is often an underleveraged asset, and a leader who can tap its full potential is the one to make a major contribution to the business. Despite the complexities, CFOs seem to welcome the role. CFOs are interested in technology and eager to get involved in it, as working with the latest technology is part of what keeps them motivated. The CFO will have attested to the adequacy of controls, but the IT-oversight role can provide a platform for a more informed view.
For CFOs there is a lot more to IT than financial systems, yet a finance bias may still creep in when it comes to prioritisation as the focus tipping too far toward finance. CFOs feel comfortable with his or her grasp of IT and has a high-performance IT capability in place with their company's needs. That means creating a platform and policies that allow business leaders to fulfil their day-to-day technology needs on their own.
Taking a More Strategic Role
As organisations continue to adjust to market volatility and economic uncertainty, CFOs must increasingly provide expert advice to support boardroom decisions. In fact, many CFOs are in an exceptional position to offer this level of strategic counsel because of their ability to gather information from disparate parts of the company.
CFO helps to identify areas of growth that the company may not have thought about and to prioritise what should be accelerated. A CFO's contribution to the strategy discussion often concerns the company's capital structure, particularly redeploying cash generated overseas.
Despite this expansion of the role, CFOs should nonetheless maintain a laser focus on vital finance responsibilities, which remain particularly essential in the wake of the financial crisis. Ensuring business decisions are grounded in sound financial criteria is a key role that CFOs must put first. Core skills in finance are the foundation. They are non-negotiable.
In fact, the market cataclysm highlighted the need for CFOs to monitor closely core financials such as managing liquidity and the capital agenda, controlling costs, maintaining internal controls and delivering robust financial information. As CFO works closely with the CEO to figure out where the company wants to set the guardrails around, how fast the company should grow, how much the company should invest, and how far to the left and right of those guardrails of the company is allowed to operate. When the guardrails are clear, growth can happen quickly.
Cultivating New Skills
As the CFO's role expands, so does the skill set. Ernst & Young's research shows that most CFOs believe as well as their counterparts that they and their successors must develop "softer" skills, including communications and leadership.
In the current environment of volatile markets and regulatory demands for financial transparency, CFOs have taken on more responsibility for stakeholder communications. CFOs are expected to provide stakeholders accurate guidance on the organisation's financial performance. Investors prefer to spend most of their time with the CFO because they get more of the numbers story for their models.
CFOs translate complex information and communicate it simply and effectively to internal and external audiences, including vendors, investors and leaders of other business units. That's a skill which is absolutely essential but also that can be developed through time.
CFOs good leadership is highly important. Since the global financial crisis, a key priority among firms is to increase stakeholder trust in the financial health of the business. As having a well-functioning and valued finance function is critical; CFOs believe that their own ability to attract, retain and develop talent as well as their personal reputations as financial managers also contributes towards creating this trust.
Globalisation brings the importance for the CFOs of being an internal leader. Increasingly, leadership skills are really important in managing a finance function because organisations are large and complex. And they need to make sure that they have the right people on the ground doing a great job.
Looking Ahead
The continuing evolution of CFOs role contributes to high firm satisfaction worldwide. Majority of the CFOs believe the role as a destination in itself. The CFO role in general is very fulfilling because it provides an incredible amount of intellectual challenge and an incredible amount of autonomy. CFOs can architect their own role and, as a corollary, can create their own degree of satisfaction. Everybody can define the CFO's role as broadly as their capabilities permit.
It is often felt that the two roles are not making difference from each other and only few management know where CFO and CEO roles intersect. Seeing the CFO as a final career position does not mean that CFOs are well suited to the CEO role, but more optimistic about the transition potential. The CFO is often the output to be the next in line for CEO in some organisations.
CFOs and CEOs need to drive culture change in their companies to really boost performance. Sometimes they may not have the right tools and background to do this. Culture is the pattern of shared beliefs across the organization. CFOs can help CEOs drive culture change by helping them diagnose what beliefs work well or do not serve the organization well, and by helping CEOs frame and reinforce a narrative for changing beliefs.
The CFOs role is becoming more multi-faceted with every passing day, and more complicated by a regulatory environment that many CFOs view as stifling and excessive. The new-found visibility and expanding responsibility of the CFO means it's a more dynamic position than ever before. And it's a role that requires an increasing amount of attributes as well as a need to think broadly and holistically across organisations. Business environment requires an unprecedented amount of agility and acumen, and a breadth of experience. The sky is the limit now for the CFO, who reaps true, meaningful, personal and professional satisfaction from their role and will undoubtedly be the ones who lead the business in adapting to whatever changes lie ahead.
As Darwin so aptly put it, "In the long history of humankind... those who learned to collaborate and improvise most effectively have prevailed."
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