Leadership

The Changing Role of the CFO: New Demands Require New Fundamentals


by FEI Daily Staff

Chief financial officers are in the midst of emerging from a rather grim economic period--one in which cost-cutting dominated financial practices.

Now that the economic tides are changing, companies are focused on growth and the skills most desired to meet their new business strategies. When a company is expanding service offerings or entering into new markets, CFOs need to exercise the skills necessary to deliver expected results.

Turnover Sparks Job Prospects

Korn Ferry recently published The State of Hiring A Year in Review: Chief Financial Officers in the Korn Ferry 1000  (KF1000). This study illustrates that the onset of general economic improvement and a recovery in shareholder value spurred CFO turnover in 2013. The turnover rate among KF1000 CFOs, those in the largest 1,000 U.S.-based companies, reached a four-year high at 16.4 percent. This is a remarkable 36.7 percent increase since 2010.

Company stability allows for smoother CFO transitions, in which planning and resources ease the switch to either an outside or home-grown successor. Additionally, CFOs are likely to be in a more favorable financial position to transition out when stock prices have stabilized or shown sustainable growth. A prominent uptick in CFO retirements for 2013 represented 36 percent of total departures. This is a notable change from the historical average of approximately 23 percent attributable to retirements.

Financial Talent Faces Fundamental Shift

As The Sarbanes–Oxley Act of 2002 moves farther away in the rear view mirror, the pressure for CFOs to drive growth and shareholder value comes more into focus.

While accounting and compliance expertise is still important to a well-rounded and marketable background, the general trend is for CFOs to acquire and cultivate non-technical skills through financial planning and analysis, treasury and capital markets experience. As this shift becomes more pronounced, some job titles, like Chief Accounting Officer or Corporate Controller, arguably have less weight on a resume for an aspiring CFO.

Opportunities and business environments vary by sector The Korn Ferry study showed certain sectors had more prolific hiring at the CFO level than others in 2013.The industrial and financial services sectors led the pack, with a 19.8 percent and 19.6 percent turnover rate, respectively. Other sectors with notably high turnover activity included technology, energy and healthcare/life sciences. The skills needed to be a desirable and effective CFO also vary by industry. For instance, 2013 recorded an unprecedented number of CFOs hired from a general management (or non-accounting/finance) function at 25 percent, up 15 percent from the prior year and up 52 percent from 2010. However, it was noted that two sectors, industrial and technology, drove this trend while others exhibited more traditional hiring behavior.

"Global" is Not Just a Buzzword; But a Long-Term Business Trend

As U.S. multinational companies shift to global management structures and domestic-only companies seek opportunities outside the U.S., international borders (and barriers) are crumbling. Global experience and operational orientation--meaning the ability to cost effectively align the balance sheet to operating the business--become critical skills to success.

International expansion allows companies to tap into new revenue streams through access to a foreign customer base and leverage a larger talent pool. It is a milestone in a company's lifecycle. However, entering new foreign markets is extremely challenging. The CFO and larger financial team must effectively and strategically manage an increasingly complex financial system, regionally dispersed operations, and country-specific tax and regulatory environments--some more arduous than others. In light of this, it is no surprise that one of the most sought-after attributes for CFOs is global expertise and experience. Additionally, many companies that have not quite made the leap to cross-border expansion very likely have international exposures through supply chains and partnerships.

While living and working abroad is the most obvious way to gain "global" experience, it's not the only way. CFOs and financial executives can get necessary exposure through direct oversight of an international business while being based domestically. According to the 2013 Korn Ferry CFO Pulse Survey, 46 percent of the surveyed CFOs gained global experience by being responsible for an international business unit while remaining in the U.S., compared to 54 percent who actually lived and worked abroad.

As the market shifts to the positive and general confidence improves, the role of the CFO once again focuses on driving strategy and leading growth and future prosperity. While turnover activity going forward is expected to stabilize, the CFO and their position in leading the market will continue to evolve.

Bryan Proctor is Global Co-Leader of the Korn Ferry Financial Officer Practice