Are CFOs equipped for evolving role?

Extracted from Business Times online edition
Published May 21, 2008
Are CFOs equipped for evolving role?
By MICHELLE QUAH

FACT: The role of the chief financial officer (CFO) has expanded greatly in recent decades. Fiction: All CFOs are necessarily equipped for such a change.

Fact: CFOs want to be business partners, not just bookkeepers. Fiction: Participating in the management of business risks and strategy is a natural extension of a CFO's traditional responsibilities and does not conflict with his compliance and corporate governance duties.

Evolving role
Much has been said in recent weeks about the growing responsibilities of CFOs around the world. The issue took on a local focus when Monetary Authority of Singapore's (MAS) executive director of insurance supervision, Low Kwok Mun, touched on it earlier this month.

He said CFOs not only have a responsibility for financial soundness and cost control, but also have to provide financial leadership in determining strategic business direction and aligning financial strategies. He also said CFOs have to be agents for change, stimulating the right behaviours across the organisation to achieve its strategic and financial objectives.

The evolving role of the CFO - from being mere bookkeepers to becoming more of business partners of CEOs in a company - was recognised in Ernst & Young's global study, released yesterday.

It found that companies and practitioners alike believed CFOs should be more actively engaged in the strategic direction and management of the business, in addition to their traditional compliance and corporate governance duties.

Critically, though, the study found that not all CFOs are necessarily equipped to handle such new responsibilities. Of the 251 C-suite and board-level executives interviewed - from the US, Europe and Asia - a sizeable 31 per cent of them said that CFOs do not have enough understanding of the wider issues their businesses face.

While companies may want their finance chiefs to become actively engaged in the strategic direction of the business, participate in strategy development, lead M&A activity and provide leading indicators for business performance, the reality is that most CFOs are still far too distracted by the demands of compliance and corporate governance.

E&Y's study found that while CFOs were good at managing financial information, they were not as capable when it came to thinking strategically. Respondents said CFOs were better at analysing past data than predicting future performance, and were not very good at integrating non-financials into the business.

Respondents also found that CFOs lacked key people management skills - such as the ability to move talent through an organisation in a way that motivates and keeps that talent.

Conflicting duties

The capability of individual CFOs aside, there's also the issue of whether such increased responsibilities conflict with their traditional duties.

By its very nature, the need to think strategically, invest in the company's future and spearhead M&A opportunities conflicts with a CFO's need to be financially prudent. Being a strategic partner to the board and to the CEO could also leave a CFO with precious little time to maintain the company's internal controls and to meet its compliance and regulatory obligations - and could conflict with his corporate governance duties.

Such concerns were also cited by MAS's Mr Low, who pointed out that a CFO who does not handle investment decisions will have greater independence to report any adverse developments promptly to the board.

While it's undeniable - amidst the growing complexities of the business world - that CFOs can no longer remain mere bookkeepers, companies also need to ensure that their finance chiefs aren't overloaded in their new responsibilities beyond their skills set, and to the detriment of the company's financial integrity.