They still crunch numbers, but today’s CFOs are increasingly being called on to devise and drive strategy, innovate and build strong teams across the business.
The chief financial officer (CFO) keeps score whilst the chief executive steers the ship, or so the story goes. This type of thinking has been a constant feature of corporate responsibility for decades, but try telling that to a new breed of finance executive KPMG has modishly dubbed “the Renaissance CFO”.
This new-age CFO can produce numbers in the morning, talk operational opportunities over lunch and present strategy to the board come the afternoon. Like the Renaissance man, the Renaissance CFO is well and truly across everything.
“We didn’t come up with the term Renaissance CFO just because we wanted a new, fancy consulting twist that we could market – it actually has meaning behind it,” says KPMG’s Morris Treadway, global head of financial management.
“When you think about the word Renaissance, it involves a cultural rebirth, and the CFO role is changing like no other C-suite role.”
“Renaissance involves a cultural rebirth, and the CFO role is changing like no other C-suite role.” Morris Treadway, KPMG
Conventionally speaking, the CFO’s primary function is the maintenance and improvement of a company’s financial health. Non-negotiable responsibilities include budget formation, tracking revenue and expenses, analysing financial data and reporting those findings to the CEO and board. A CFO also acts as the company’s principal point of contact between banks, investors, lenders and other financial institutions.
Yet any CFO or CEO will tell you that the role has evolved beyond these duties as the nature of business itself has changed. For those companies truly embracing the change, the transformation is profound.
A recent global KPMG report surveyed 549 chief executives about the nature of the job performed by their CFO and revealed that 63 per cent believe the CFO’s role will continue to increase in significance. They named devising strategy, analytics, operational experience and talent management as areas where CFOs will apply their expertise over and above the traditional finance function.
The message is clear: in 2016, the CFO must go beyond the balance sheet to deliver a compelling story – a bestseller with a happy ending – for stakeholders, the marketplace and their careers.
Ayten Saridas CPA is the CFO at ASX-listed upstream energy company AWE. She says the global economy is tight, and trying to extract value out of every dollar that goes into the business is becoming more difficult.
“A traditional CFO will not thrive in this environment,” says Saridas. “A lot more of my focus is drawn towards what’s ahead. We carry out a lot of scenario modelling, we put options on the table and ask questions: what happens if we sell this asset? How can we fund this acquisition?
“Yes, what’s just happened is important and you need that skill set, but most of my time is spent on the future.”
Richard Richards is CFO at Seven Group Holdings, a diversified investment house with interests in media, mining and construction. He says the global business environment has become more dynamic in the past five years, forcing finance teams to keep pace. Forward-thinking by nature, he challenges the notion that CFOs spend most of their time looking back.
“You can’t drive a car looking in the rear-view mirror,” he says pointedly. “Strategically, the CFO role has changed in the sense that people are looking forward more, but the reality is that growth in a lot of industries is very difficult to achieve.”
“You have to make sure you always have different levers you can pull. Fail to do that and you will be punished.” Richard Richards, Seven Group Holdings
Richards says the global financial crisis [GFC] taught CFOs many valuable lessons. “Everyone is managing their balance sheets so that they don’t get caught in a situation where you must do something,” he says. “You have to make sure you always have different levers you can pull. Fail to do that and you will be punished.”
Strategy is crucial
Like most players in the oil and gas sector, AWE – and its CFO Saridas – has been exposed to the sharp downturn in commodity prices. Everyone at the company is mindful of managing the balance sheet wisely, ensuring that unloved assets don’t gather dust. Saridas says reducing operating costs is “par for the course” and “debt has to be manageable or investors will crucify us”.
“If the AWE board wants to aggressively drive growth in this organisation, I’ve got to find a way of doing it in a managed way,” she says.
“Risk management sits comfortably with me, but it’s an area where a lot of CFOs are not well prepped.”
How do you make the leap from CFO to CEO?
Saridas understands that strategy is not every CFO’s strong suit, especially when distracted by the daily demands of different compliance, regulation and reporting regimes. But with the responsibility comes an opportunity to exercise real influence, side by side with the CEO.
A recent survey by executive recruiter Egon Zehnder based on interviews with leading CFOs across the globe confirmed that the CFO was expected to think strategically throughout an organisation – not perform solely in the finance function. Further, CFOs are expected to have skills that complement the leadership demonstrated by the CEO and be able to collaborate and influence the key decision-maker.
Experience in the different divisions of the business, thereby giving the CFO a broader understanding of the company, is increasingly sought after.
“To enjoy real influence with the CEO, the CFO also requires credibility both inside and outside the company,” says Egon Zehnder’s Russell E. Boyle in New York. “This involves building strong relationships with investors and opinion leaders, as well as the CEO’s other direct reports internally.”
Reporting to Seven Group chief executive Ryan Stokes, Richards is a good example of this modern-day CFO. Stokes’ father, executive chairman Kerry Stokes, understandably casts a long shadow throughout the organisation. Richards says the CEO/CFO partnership in all organisations has an “interesting tension”, breaking down his role as equal parts gatekeeper and law enforcer.
“A really good CEO can inspire people to climb out of the trenches, take on risks and drive the business forward, while a really good CFO can balance that by pointing out the risk and managing it,” he says.
CFOs are also partnering with the CEO’s other internal direct reports across an organisation. In the 2013 EY report CFO Partnering for Performance, 70 per cent of CFOs said business relationships had become more collaborative over the previous three years.
“Partnering means driving and enabling collaboration across all the domains,” says KPMG’s Treadway. “That means working with sales, working with marketing and working with operations to drive and enable strategies and execute on them.”
Thinking like a CFO value pack: take your career to the next level and begin to adopt the skills of an aspiring CFO.
To do this, CFOs need more understanding of people management than ever before. Research by executive recruiter Korn Ferry concluded that CFOs need to engage both sides of their brain – not just rely on their technical left-brain skills.
Looking at best-in-class CEO profiles, the firm’s study reveals four additional strengths and desirable attributes that coincide with a strong right-brain orientation:
- social leadership, or the ability to inspire, influence and motivate others
- outside-in thinking (a strong mega-trend and customer focus)
- courage, particularly during adversity and crisis
- optimism that encourages and empowers others
“One of the reasons you move a CFO to a line position is not only to get that experience with customers, but to develop the right-brain skills that are needed to manage people,” says Korn Ferry CEO Gary Burnison.
It’s not just the CEOs who need to inspire their staff and nurture a positive company culture. Attracting, motivating and retaining the best talent has always been a major challenge across the whole C-suite. In the recent KPMG survey, an unequivocal 97 per cent of CEOs said talent management is the most important contributing factor to improve the finance function. However, only 33 per cent of the same CEOs were happy with the way CFOs perform the task.
CFOs are not trained human resources experts, but Saridas says in a smaller company it’s easier for finance heads to take ownership of staffing issues.
“I’m astounded when people say these sorts of things aren’t a finance function,” she says, adding that when she joined AWE in 2011, one of her first initiatives was to introduce engagement surveys.
“The CFO is usually one of the top three people in an organisation and should be working with the CEO to drive culture and talent management. Whether the HR function reports to them or not is irrelevant.”
Innovation, regulation, technology
Technology has been a brutal force for change that has swept across all executive roles. For CFOs, an increasing challenge is coming up to speed with what today’s technology can do for the business: how can it improve efficiency? Can it open up new product or service lines? How does it change the competitive landscape? Even knowing what to instruct the data analysts to look for and what questions to ask of that data has been a huge learning curve for the traditional CFO.
The CEOs surveyed by KPMG said they also expect their CFOs to bring their knowledge of the regulatory environment to strategy development. Some 61 per cent said regulation was a key opportunity to extract a competitive advantage. Other skills increasingly valued in CFOs included global experience and skill and commitment to transformation and innovation.
“Everyone is looking to see how they can participate in innovation,” says Richards. “Do we outsource it? Do we foster innovation internally? Do we set up an incubator? Do we set up a discrete group or set up accountable line management?
“These are important questions that weren’t being asked by CFOs five years ago. Now it’s on everybody’s agenda.”
“What’s happened is important and you need that skill set, but most of my time is spent on the future.” Ayten Saridas, AWE
5 tips to make the leap from CFO to CEO
Get the board on board
“If you’re aspiring to be CEO, it’s not enough to have your peers behind you,” says AWE’s Ayten Saridas. “You need the backing of the board.”
“For a long time, I had the notion that if you work hard, someone will tap you on the shoulder and promote you, but it doesn’t work that way,” says Saridas. “Now, whenever I see a gap, I take ownership and get to work.”
“One of the great things about my job is that I get to play a role across a number of industries,” says Seven Group’s Richard Richards. Gather cross-cultural knowledge and build relationships throughout the organisation to build your leadership credentials.
Reflect before planning
How badly do you want it? All eyes will be on you – in the office, the boardroom, the media and, perhaps, even in your private life. Are you comfortable with being the centre of attention? A CFO has workplace peers, but the CEO position can be a lonely job. Do you have a good support network around you?
Tap into your creative side
A 2015 Korn Ferry study showed left-brain dominant CFOs with their analytical and clinical ways would benefit from a CEO’s creative right-brain capabilities to beef up workplace relationships and drive strategy. Optimistic and empathetic “right-brainers” are also considered more courageous in the face of a challenge.