Views. Vision. Insights. The evolving role of today's CFO
The CFO's contribution
The results of our wider surveys in EMEIA and the feedback from interviews conducted afterwards together confirm that today's top finance executives have a broad range of responsibilities.
"How you allocate your time is going to vary year to year, based on the business challenges that your organization is facing."Bill Douglas,
The degree of emphasis on different activities varies by organization — and depends on factors such as the organization's competitive position and the prevailing economic environment. But our research highlighted six principal activities that fairly represent the contribution of today's top finance executives.
|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 your organization|
|6.||Representing the organization's progress on strategic goals to external stakeholders|
These activities collectively represent the broader mandate now borne by executives in the top finance role. While several of them can be managed discretely and represent different ongoing functions within finance, they are interdependent and mutually supportive.
The CFO's roles×
Our first topic of discussion with our interviewees in the Americas concerned the relative priority of three different areas of focus:
- Executing through financial analysis
- Enabling business strategy by leading key initiatives
- Developing organizational strategy
Controls remain critical
Unsurprisingly, given that Sarbanes-Oxley has been in effect for almost a decade, while being attentive to costs, CFO interviewees in the US explicitly emphasize the importance of controls and risk management in their responsibilities.
This includes an ongoing attention to maintaining a strong controls environment and financial reporting processes, and extends to compliance with the Foreign Corrupt Practices Act (FCPA).
On a traditional model, the CFO position might have been considered to be solely focused on past performance, on the numbers, and on financial reporting.
But today that mandate seems almost universally to have been exceeded, with the CFO providing not only financial planning and analysis, but information about where the business is going and how quickly it is getting there.
In the Americas, the indication from our interviews is that the percentage of CFOs involved in actually defining organizational strategy is higher than in EMEIA.
Almost all our interviewees attest to being deeply involved in supporting and enabling strategy, but a good number of them suggest they are developing and setting it outright.
And most work side-by-side with the CEO. Involvement in corporate strategy has become an integral part of the job. CFOs now have the ability and the mandate to contribute directly to the direction of the business as well as reviewing and reporting on its performance.
It seems only logical that since CFOs now contribute much more significantly to organizational strategy and operational success, these top-level executives rely not only on financial analytics but on a degree of reflection and insight as well — to understand not only where the business has been, but where it's heading.
Ron Jadin, CFO of global industrial supplies distributor and marketer W.W. Grainger, addressed how a CFO can enable business strategy while also setting reasonable controls:
“For me, it's more enablement, development and the strategic aspects than the execution…. We have someone running our US business, and someone running our international business. Those two people are chartered with delivering the sales and earnings for the business while the CEO and I work with them to figure out where we want to set the guardrails around how fast we should grow, how much we should invest, and how far to the left and right of those guardrails they're allowed to operate.
[W]hen the guardrails are clear, growth can happen quickly. When the guardrails aren't clear, we get bogged down and decisions take a long time.
Our job is to help the group focus on managing within the guardrails. Those guardrails aren't just financial; for example, they're where in the world we want to be and why. We spend a lot of time on it, and to me that's the “enablement and development”stages. How do I enable people to go fast, how do I enable people to execute well?”×
Today's top financial executive is a vitally important business enabler for operational departments.
This is true for several reasons, according to our respondents:
- The CFO can act as a touchstone for financial analysis, planning and insight on performance.
- As an individual who can bring the independent perspective of one who talks frequently to the C-suite and to investors, the CFO is a conduit for information about organizational strategy.
- The CFO can bring a critical lens to bear on the underlying dynamics of the business.
Finance still fundamental
Today's companies see the strategic and operational contribution of the CFO as desirable if not indispensable. That said, it is impossible to overlook the necessity of the core skills in finance that are fundamental to the CFO's role.
Almost universally, our participants point out that any responsibility to assist in developing strategy or enabling operations must be leavened by the recognition that financial results enable strategy, that overseeing risk management and controls remains the fundamental responsibility of the CFO, and that core skills in finance remain of paramount importance.
“If you're no good at financial analysis, you cannot be the CFO. That goes without saying,” said Luca Maestri, CFO, Xerox.
Ralph Lauren's Tracey Travis strongly emphasizes the importance of the CFO's input into strategic decision-making:
“What short-term strategies are going to yield good results for the organization?” and “What are the longer-term ones, and how do you resource those appropriately?”
Helping to identify areas of growth that the company may not have thought about. Helping to prioritize what should be accelerated …[H]ow do we align resources and prioritize to make sure that we can capitalize on those nearer-term opportunities that will yield more profitable results? The other part of the strategy discussion is capital structure...Many companies now are sitting on a fair amount of cash — much of that cash being overseas. What does that mean for companies in terms of utilization of the cash?
How do you get the best shareholder return from your strategic plan? … [H]ow you redeploy that cash from an investment standpoint is something I think the CFO plays a much heavier role in, as part of the strategy discussions, than perhaps other members of the team.”×