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How to get the best out of the CFO’s office: A guide for owner managers appointing a CFO for the first time

Many years back, I was lunching with an Owner-CEO and he told me that if the CFO is a nice guy then you have a problem at hand. At that time, I was startled but his remark hit home. On my way back, I reflected a lot and continued to do so even after all those years. Surely, he can’t be your regular Joe or Janardan and he need not be dour-faced but the question remains – can he afford to be a friendly guy?

In the last three decades, the CFO’s role has undergone a great transformation. While the fundamental responsibility of financial reporting and statutory compliance remain, but as Deloitte puts it effectively, there are four buckets.

Catalyst

The objective is to stimulate certain behavior and practices across the organization which will lead to the achievement of strategic goals and financial objectives. This is based on the presumption that strategic choices have already been made and it now requires disciplined execution. An organization will have diverse SBUs and to get them aligned is not an easy task. It calls for a high degree of conflict management to drive accountability.

Steward

In the role of a Steward, the CFO protects and preserves the assets. Financial reporting, statutory compliance, risk mitigation, adhering to regulatory and legal requirements, are all functions that comprise Steward’s role. Well, this has always been the traditional standpoint and technical competence comes into play. Arguably, this is why a majority of CFOs have strong professional accounting/financial qualifications.

Operator

As an Operator, the CFO balances capabilities, talent, costs and service levels. To be sure, it can’t only be about compliance any longer. It has to be about value creation as well. For instance, are the operations running efficiently and effectively to drive optimum output? This calls for a very deep understanding of the business model, the associated risks, the allied networks, the competition and various other factors that are both internal and external. This is where the CFO has a major step-up role, well beyond the traditional purview of a number-cruncher.

Strategist

This is about the future and direction-setting, an area where the CEO, the board and the investor/(s) needs valuable inputs so that informed decision-making is possible. Decisions such as M&A - whether to go in or not? Whether to make, buy or outsource, new market forays, product line expansion, etc. are all impacted by the financial health of the organization. The CFO needs to work closely with various functional heads to ensure a smooth roll-out in each of these areas.

Analysts and consultants like to draw up definitive structures and approaches but from a practical standpoint these roles are fluid and there’s very high interdependency. In reality, these roles cannot be performed in isolation. But yes, it does help to have a clearer understanding of what the Owner Manager can/should expect from the CFO.

The Behavioural Shift

There was a time when CFOs were chiefly entrusted with the task of number-crunching and were often prone to be risk-averse. This now seems a very long time ago and owner-driven businesses were probably averse to handing over the reins to professionals. In an environment limited in scope, relatively lower risks and geographic spread, it may be argued that it had its merits too and served its purpose. Then, the inevitable happened. Markets opened up, global competition intensified, technology’s impact grew manifold and the regulatory environment became more stringent, complex and punitive.

If the finance function was specialized earlier, then it became even more so with the passage of time. By then, the CFO had earned a rightful place on the Board. The world had also shifted to “soft power” as opposed to hard power and leadership became all about “influencing” stakeholders and not merely forcing down decisions. This was a major shift and owner-driven businesses had to bring in professional managers, the CFO being a case in point.

It reads easily in theory (perhaps) but if you consider from an owner’s standpoint, it may be very difficult to adapt to this change. First, he/she has to hire a CFO and then, be prepared to accept the professional as an equal partner in strategic decision making. A “seat at the table” is an aspirational goal but it can only be achieved by massive behavioural shifts. A leader once said, “It’s not sufficient for a finance professional to produce a static snapshot of the company's financial health”. To add, the CFO has to be dynamic in his/her approach and move confidently from being merely predictive to be proactively prescriptive. Well, it’s a massive jump and not something one can achieve in a short span of time. It calls for tremendous business acumen with an even higher degree of credibility.

Gut-feeling is passe

It’s a data-driven world that we live in. For decades, theorists have argued whether management is an art or science? Finally, it has been answered – Science! Particularly when it comes to finance as a function. There are advanced tools available that can perform all the number-crunching to throw up deep insights, that were hitherto impossible. Here, we go back to the CFO’s role as a Catalyst. Based on what the data throws up, does the CFO have the leadership capability to drive change and deliver desirable outcomes? Is the CFO also willing to break down informational silos and align opposing forces towards serving the company’s overall vision? Automation is an integral part of Finance. It has been there for quite a while but now with intelligent automation, a whole new window of opportunity has opened. On a lighter vein, after all this, it’ll be nothing short of a miracle if the CFO is able to retain a friendly demeanour, frankly.

The Future

It may be worthwhile for owner managers to look at the following traits before they place their bets on a CFO:

  • Gaining a breadth of finance experience – depending upon the industry.
  • Exposure in emerging markets is recommended – particularly in Asia because that’s where high-growth is likely to be.
  • Gaining leadership experience by leading transformational projects within the organization. Digital transformation is a case in point.
  • Finally, adopting best-in-class technology and hiring great talent. CFOs can be instrumental in mentoring human takent and nurturing them for bigger roles within the finance function.