Strategy

Global CFO From Scorekeeper to Strategist


by FEI Daily Staff

Whether in Tokyo, New York, London or Sydney, chief financial officers the world over are dealing with enormous challenges as the complexity of their jobs expand and their roles and expectations change and evolve before their very eyes.

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In the corporate world, as in the natural world, environmental change leads to evolutionary change in its citizens. Over the past several years, the increasingly challenging and uncertain business environment has spurred the evolution — and expansion — of the chief financial officer’s role in organizations around the globe. CFOs are increasingly involved in setting the strategy to safely navigate their organizations through tighter credit markets, more complex regulation and unstable trading conditions.

As part of its ongoing research into the CFO role worldwide, Ernst & Young has surveyed more than 900 leading CFOs and finance directors and conducted a series of in-depth, follow-up interviews. One of the main findings is that as the CFO’s job has evolved, so has its shape.

How has it changed? There is substantial agreement among CFOs in all regions that while their roles and responsibilities vary by organization, six principal activities fairly represent the contribution of today’s top finance executives. (The graphic on page 18 depicts the interdependency of the responsibilities and the way they feed into one another over time.) The six are:

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; and 6. Representing the organization’s progress on strategic goals to external stakeholders.

Setting Corporate Strategy

In the wake of the financial crisis, a CFO’s finance skills remain absolutely essential. If anything, the crisis has reinforced the need for CFOs to pay close attention to core factors: managing liquidity and the capital agenda, controlling cost, maintaining internal control and delivering robust financial information.

As explained by Xerox Corp.’s CFO Luca Maestri: “Core skills in finance are the foundation. They are non-negotiable. Together with the core financial skills, companies are looking for operational experience, strategic experience and people management. But if you’re no good at financial analysis, you cannot be the CFO. That goes without saying.”

However, even though the CFO must maintain a laser focus on vital finance responsibilities, many are filling an increasingly larger role in setting corporate strategy. The research confirms that 75 percent of respondents from Europe, the Middle East, India and Africa (EMEIA) say that they spend at least half of their time on strategic aspects of their role. In Asia-Pacific, one-quarter of CFOs spend more time — about 60 percent — on broader strategic issues than on financial management. In both geographies, those surveyed expect the trend toward an increasing focus on strategy to continue.

And the trend is similar in the Americas. Andy Campion, CFO of The Nike Brand at Nike Inc., says: “The two priorities for me as a CFO are developing the strategy for the organization as a partner to and member of the executive leadership team, and then funding and executing that strategy through financial planning and performance management.”

Other CFOs are busy strategizing how to carefully grow their companies without taking on too much risk. Ron Jadin, CFO of global industrial supplies distributor and marketer W.W. Grainger Inc., explains that he works closely with the CEO “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 [the company is] 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.”

As organizations continue to adjust to market volatility and economic uncertainty, CFOs must increasingly provide expert advice to support boardroom decisions. In fact, many CFOs feel that they are in an exceptional situation to offer this level of strategic counsel because of their ability to connect with and gather information from various business lines and corporate silos.“As CFO, I’m in a unique position within the organization, at the absolute center of the universe,” says Bruce Besanko, CFO of OfficeMax Inc.

“The only other executive besides me that has that same presence at the center is the CEO. So I have the opportunity to interact and have a point of view on every element of our business,” says Besanko.

Helping a leadership team to steer a course in times of uncertainty requires CFOs to think and act beyond the financial metrics. They must also be involved in making forecasts, managing risks and offering insights into issues ranging from pricing to production.

Fareed Khan, CFO of United Stationers Inc., a North American distributer of office products, concentrates on more than “just the financial and operational metrics that must be there.” He and his team also focus on “the big milestones along the way that track strategy. “You can look at revenue. You can look at EBIT margins, etc. But to prove the strategy is working, maybe there are other metrics, like the number of customers acquired, share-of-wallet metrics, program adoption and many others that directly tie to strategy outcomes and give earlier or better feedback,” says Kahn.

Similarly, in EMEIA, some two-thirds (67 percent) of CFOs strongly agree or agree that metrics beyond financials are becoming increasingly important. In Asia-Pacific, some 76 percent of the region’s CFOs say the same, even though they must maintain a laser focus on core finance responsibilities.

In the Americas, the results reveal a fact that is also evident around the world — a reality that cannot be ignored: no two CFO jobs are created equal. Recently retired CFO of Delta Air Lines Inc. Hank Halter notes in the study that CFOs “must find a balance between where one can and cannot exert control, which can be a challenging task.”

He adds: “[I]t’s tough as a CFO. In some ways you are a record-keeper; in some ways you are a strategic thinker … I can’t be the first point of contact to save money or spend money … [but] I can affect the results of the company and the cash flow generation through things that I do in a corporate role, through the treasury function, for example.

But it’s interesting, Halter says, “The CFO in some ways has to sit with his hands tied, because he or she can’t directly impact those divisions that spend the money and generate the money. It’s a unique dilemma.”

Sharpening ‘Softer’ Skills

To succeed in their now larger strategic role, CFOs in Asia-Pacific and elsewhere agree that they, and their future successors, must develop new, “softer” skills — while never losing sight of the CFO’s table stakes — their fundamental financial management expertise. These additional skills include communications and leadership.

In the current environment, managing market expectations is critical, but earnings volatility and requirements for greater transparency add extra layers of complexity to this sensitive task. Survey respondents say they now see stakeholder communications as a joint CEO/ CFO responsibility.

A full 69 percent of CFOs worldwide believe they are better placed than CEOs to provide stakeholders with accurate guidance on the organization’s financial performance. However, communicating with — and influencing — both internal and external stakeholders is not easy for a large proportion of CFOs, whose traditional skill sets have historically been grounded in finance. Building good relationships with external stakeholders — including those in government and the media — seems to be the most difficult challenge.

CFOs worldwide also rate good leadership as highly important, believing that their own ability to attract, retain and develop talent contributes to a well-functioning and valued finance function. As leaders of this function, CFOs are concerned with the quality of their personal reputations as financial managers, both within their organizations and across the market.

In the Americas, Colleen Johnston, CFO of Canada’s TD Bank Group, also notes the importance of internal leadership. “Increasingly, leadership skills are really important in managing a finance function because organizations are large and complex,” she says. “You need to make sure that you have the right people on the ground doing a great job. It’s no longer the CFO rolling up the sleeves and doing all of the heavy lifting. A huge part of it is about leadership.”

Around the world, the majority of survey respondents suggest that the CFO position is now so valued and rewarding that they consider it a final career destination. In EMEIA, 73 percent of CFOs see their role as a destination in its own right. Overall in Asia-Pacific, 64 percent of CFOs want to stay in their position or seek a larger finance role. In fact, across the board, many CFOs report excellent job satisfaction.

For the most part, the research contradicts the assumption that most CFOs aspire to become a CEO. But there are regional differences in CFOs’ ambitions with CFOs in the Americas and Asia expressing a stronger aspiration for the top spot than those in EMEIA, Australia and New Zealand.

Different governance and reporting structures may account in part for these regional differences. For instance, where the chairman and CEO roles are separated, the CFO has more opportunities to share power with the CEO, working closely with the chairman and the other board members.

Overall, the surveys and interviews have established that though some regional and cultural differences remain, CFOs worldwide have broadly similar views on their organizational role, what it entails and how this role has evolved. In effect, as the economy and companies have globalized — so has the job of the CFO. In the face of market volatility and economic uncertainty in many regions, the role of the CFO has had to transform. As noted by Nike’s Campion, today’s strategic CFO has “developed the leadership attributes, intuition and skill set” to be a true cross-functional leader.

Myles Corson ([email protected]) is Ernst & Young LLP’s market leader, Financial Accounting Advisory Services in its New York City office. Tomohiro Miyagawa ([email protected]) is a partner with Ernst & Young ShinNihon who serves as area leader of the firm’s Financial Accounting Advisory Services practice in Tokyo. For more on the research, visit www.ey/com/cfo.
This article was originally published in the Fall 2012 edition of Financial Executive Japan.