“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 organizations in the Americas and around the world. In particular, the role of the chief financial officer has evolved–and expanded–as the finance function has come to the fore.
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. “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,” says Andy Campion, CFO of The Nike Brand.
Campion was one of 19 leading CFOs at companies in the Americas interviewed as part of Ernst & Young’s ongoing research into the role of the CFO worldwide. The results from this in-depth discussions show that as the CFO’s job has evolved, so has its shape.
We have depicted that shape in a graphic illustrating the work of today’s CFO. Our interviews –along with our earlier surveys of more than 900 CFOs globally — show substantial agreement among top finance executives in all regions that while their roles and responsibilities vary by organization, six principal activities fairly represent their contribution:
- Ensuring business decisions are grounded in solid financial criteria.
- Providing insight and analysis to support the CEO and other senior managers.
- Leading key initiatives in finance that support overall strategic goals.
- Funding, enabling and executing the strategy set by the CEO.
- Developing and defining the overall strategy for the organization.
- Representing the organization’s progress on strategic goals to external stakeholders.
The wheel graphic shows the interdependency of these activities: 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. CFOs worldwide agreed that although the makeup of the wheel remains consistent, how individuals allocate their time across each segment remains fluid, varying over time.
Bill Douglas, CFO of Coca-Cola Enterprises, is one of many financial executives who support the above view of the job. “Different people and different organizations slice the pie differently,” Douglas says. “How you allocate your time is going to vary year to year to year, based on the challenges that your organization is facing. But if you averaged it over a three-year period, it would probably be balanced.”
Taking a More Strategic Role
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 position to offer this level of strategic counsel because of their ability to gather information from disparate parts of the company. “As CFO, I’m in a unique position within the organization at the center of the universe,” says Bruce Besanko, CFO of office supply company OfficeMax. “I have the opportunity to interact [with] and have a point of view on every element of our business.”
Tracey Travis, CFO at Ralph Lauren, says that she now helps to “identify areas of growth that the company may not have thought about” and to “prioritize what should be accelerated.” She says that 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 job, CFOs must 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,” Travis adds. As Xerox CFO Luca Maestri also explains, “Core skills in finance are the foundation. They are non-negotiable … If you’re no good at financial analysis, you cannot be the CFO.”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 W.W. Grainger’s CFO Ron Jadin explains, 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. When the guardrails are clear, growth can happen quickly.”
However, as the CFO’s role expands, so must his or her skill set. Ernst & Young’s research shows that CFOs in the Americas agree with their counterparts in other regions that they and their successors must develop “softer” skills, including communications and leadership.
In the current environment, with its volatile markets and regulatory demands for financial transparency, CFOs have taken on more responsibility for stakeholder communications. Survey respondents in the Americas and worldwide say they believe CFOs are expected to provide stakeholders accurate guidance on the organization’s financial performance. OfficeMax’s Besanko contends that investors prefer to spend most of their time with the CFO because “they get more of the numbers story for their models.”
Besanko notes that CFOs must be able to 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 that’s absolutely essential and one that can be developed — but it takes practice,” he says.
CFOs also rate good leadership as highly important. Since the financial crisis, survey respondents say, a key priority is to increase stakeholder trust in the financial health of the business. 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–contribute to creating this trust.
Colleen Johnston, CFO of Canada’s TD Bank Group, notes the importance of being an internal leader. “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.”
The continuing evolution of their role contributes to high job satisfaction for CFOs in the Americas and worldwide. In most of the world, the majority of CFOs see the role as a destination in itself. Xerox’s Maestri notes, “The CFO job in general is very fulfilling because it provides an incredible amount of intellectual challenge and an incredible amount of autonomy. Those are two huge aspects of job satisfaction.”
Kent Potter, now retired as the CFO of LyondellBasell after a career at Royal Dutch Shell, notes that CFOs can depend on being able to architect their own career – and, as a corollary, can create their own degree of satisfaction: “Everybody can define the CFO’s role as broadly as [their] capabilities permit,” Potter says. “I’ve seen CFOs within their own discipline do things that I’ve found truly amazing and other CFOs that are content to limit their scope. … You can define the role as broadly as you want.”
In the Americas, however, the trend of CFOs who do look toward the top job is somewhat higher than in other regions based on our interviews. Baker Hughes’ Peter Ragauss shares his views on where CFO and CEO roles intersect. “Many do see it [the CFO job] as a final career position, but I think that your viewpoint and your input to the business is not that dissimilar from what a CEO does.” Ragauss does not rule out that CFOs are well suited to the CEO role, adding, “I’m more optimistic about the transition potential. The roles are not that dissimilar, and if you gain experience as a CFO, and you are somewhat strategic, and you are visible to the organization, then it is natural that the organization would view you as a potential candidate.”
Whether CFOs are satisfied in their current role, or looking to advance, all of them regard themselves as part of a team, working in tandem with the CEO to keep the organization moving forward. As Darwin so aptly put it, “In the long history of humankind … those who learned to collaborate and improvise most effectively have prevailed.”
Myles Corson is markets leader, Financial Accounting Advisory Services with Ernst & Young LLP.