The Changing Face of the Chief Financial Office:

The
Changing
Face of the
Chief Financial
Office:
Achieving the
Financial Imperative
Introduction
The spiraling complexity and velocity of doing
business today has dramatically altered the role
of the Chief Financial Officer (CFO). What has
historically been an attractive career destination
and a prestigious senior management position
continues to decline in allure with alarming
speed. Intensifying performance pressure within
both public and private companies is forcing
an evolution of the position, rendering the job
virtually impossible for one person to do.
This white paper is an update to a study originally
published in 2007 that discussed success factors
and models for the CFO role. Our updated
findings indicate continued deterioration of the
career landscape for CFOs. The original study
identified causal factors driving extremely elevated
frustration levels of those leading corporate
America’s financial function. Given these findings,
we developed a second study to further explore
issues previously identified and to determine key
factors influencing success as a CFO.
Today’s high pressure business environment has
driven the evolution of CFO from a finance position
answering to the Chief Executive Officer (CEO)
into a strategic business partner answering to
multiple constituents. Increasingly accountable to
Boards, shareholders, the government and other
executives, the CFO role has become a high-risk
proposition with the responsibility to personally
assure the company’s financial health.
CFOs now must navigate complex market
conditions, meet stringent regulations, mentor
staff, support business lines, satisfy investors
and provide day-to-day financial leadership and
strategic vision. These tasks alone are enough to
tax the most talented financial officers, and yet this
list does not take into account the ongoing need to
provide the CEO and Board with vital information,
insightful analysis and counsel.
Based upon identification of a basic shift in how
CFOs approach their roles, our 2007 white paper
attracted widespread interest among finance
executives, industry experts and the business press,
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CFO Turnover
2500
2300
2301
2100
2329
1900
1700
1500
1717
2005
2006
2007
Source: Liberum Research
including CNBC, The New York Times, The Wall
Street Journal, Newsweek, Fortune, CFO Magazine,
Strategic Finance and many more. Later in 2007
updated research presented new evidence of
challenges CFOs face, as uncovered by a survey
of a cross-section of senior finance executives
conducted by CFO Research Services. The majority
of respondents reported once again a more
demanding and stressful work environment and
significant increases in the number of hours spent
at the office.
We conducted a second round of research in late
2007 and early 2008 to explore critical success
factors required for CFOs to “win” in today’s more
complex environment. This supposition was driven
by statistics indicating an escalation (as opposed
to a decrease) of issues: shorter tenures, troubling
turnover findings and a reported increase in CFO
frustration.
Among the conclusions of the initial 2007 study
were recommendations that a) Directors and
Officers (other than the CFO) become better
educated on the issues challenging the CFO along
with b) a recognition on the part of CFOs that
About the Surveys
CFO Research Services (a unit of CFO
Publishing Corporation) conducted
two surveys among senior finance
executives in North America. The
first study, conducted in early 2007,
examined finance executives’ view
on the scope of their responsibilities,
how the corporate finance profession
has changed in recent years and their
professional and personal satisfaction
with their roles. The 2008 study delved
into the skills that distinguish the most
successful finance leaders from their
peers, and asked respondents to grade
themselves on these critical success
characteristics.
their approach to the job needed to change. Since
the intense media coverage generated by the report
seemed to suggest progress being made on the first,
our focus turned to addressing the lack of progress
on the second. The first survey revealed many CFOs
find the confluence of changes discouraging, if not
downright alarming, leading more than one third of
respondents to say they are not up to the challenge and
are likely to move to another company within the next
year. This is supported by alarming turnover trends, as
the average CFO’s tenure has plummeted to only 30
months, according to Forbes.
Understanding the Landscape
The demands placed on a CFO have never been so
great. Shareholders, feeling cheated by high-profile
ethical scandals, demand more transparency and
reliability in the presentation of financial performance.
Board members, sensing more exposure and
increased liability, demand more extensive reporting
and greater levels of detail, often mistaking more
detail for better insight. CEOs continue to require
operational and strategic support and execution from
their CFOs, yet they often fail to fully understand
the pressures weighing down their financial officers.
CEOs themselves, who also experience stress and high
turnover, expect their CFOs to be miracle workers.
However, they tend to discount the complexity
associated with generating viable/acceptable/pristine
financials these days —preferring instead to focus only
on the CFO’s strategic/analytical contributions.
CFO turnover increased 35% from
2005 to 2007
Adding to the CFO’s burden, heightened capital market
activity requires additional attention (e.g., depth of
insight and research), and increased regulation leads
to more detailed audit documentation and testing.
Layer on additional audit committee demands and the
fact that CFOs are being held to higher standards of
personal accountability and liability, and it is easy to
understand why these oncoming pressure waves are
becoming tsunamis, overwhelming many CFOs. Only 25
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percent of financial officers have been in their jobs
for more than five years. The experience factor is
destined to decline further as studies from Liberum
Research reveals CFO turnover jumped 35 percent
from 2005 to 2007.
The 2007 study demonstrated there are many
factors driving the CFO turnover epidemic. The top
six include:
1. Tightened Regulations | The unprecedented
complexity and overwhelming number of reporting
requirements and changes in today’s regulatory
environment force a CFO to spend more time
focused on compliance. Requirements such
as Sarbanes-Oxley, stock option expensing, as well
as proposed changes such as fair value definitions,
business combination rules and the adoption of
IFRS all pressure a CFO and leave less time for key
functional responsibilities. Compressed reporting
deadlines have created even more pressure. When
combined with limitations placed on permissible
consulting with audit firms and tougher SEC
enforcement, most CFOs feel some level of
discomfort in certifying financial statements. The
increased prevalence of criminal enforcement
actions has further added to CFO anxiety.
2. Financial Market Conditions | More than
just “keeping an eye on the market,” today’s
increasingly volatile economic conditions require
a CFO to understand the intricacies of everything
from IPO activity to hybrid securities, and from
Directors & Officers (D&O) insurance coverage
to off-shoring. These market dynamics require
research and careful consideration. Add in the
current market instability, and day-to-day treasury
management and operations become even more
arduous. The required research to support these
decisions takes more of a CFO’s time, while access
to external auditor guidance has become more
restricted due to potential for accounting conflicts.
The increased risk, which often results in poor
decisions made under pressure, takes more CFOs
away from their jobs. Lack of available information
combined with required speed of decisions has led
to untenable situations.
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3. Audit Committee Demands | Audit committees,
under escalating pressure to more visibly oversee
the financial integrity of a company, also require
more of a CFO’s time and energy. Frequent
meetings, elaborate documentation and the
public’s demand for greater insight and analysis
translate into demands for more attention from
the CFO. However, inadequate training in new
rules and interpretations makes the often-arduous
process even more difficult. Audit committee
members look to the CFO to train them, as well as
report to them. Many audit committee members
themselves are ill-prepared to operate in today’s
Board environments. KPMG’s Audit Committee
Institute reports that “typical” committees now
have six to ten meetings a year lasting one to four
hours each. Required preparation time for these
meetings alone places an enormous burden on the
CFO.
Alvaro G. de Molina, Bank of
America’s CFO, resigned after
just 18 months in the role. Mr. de
Molina, who had been with Bank
of America for 17 years, cited in
an interview with Bloomberg
that among other things, the
regulatory constraints of the
Sarbanes-Oxley Act had made his
job “suffocating”.
4. Peer Group Pressures | The CFO’s peer group
can see that the CFO is stressed and overworked,
frequently missing meetings and becoming less
timely in responding to their requests. But they
often do not comprehend the mounting pressures
on today’s financial executive, who is more likely
to put his or her head down and work harder than
complain and ask for more resources. Consequently,
political jockeying and finger pointing often
center on and around the CFO, as peers not fully
versed in the changing environment have little
insight or empathy. They perceive that the CFO is
“in over his head” and are frustrated that needs
go unapologetically unmet. Often, they choose
to share these perceptions directly with the CEO,
instead of approaching the CFO to discuss their
issues.
5. Staff Support and Management | As demands
on CFOs increase, less time is available to train
and supervise lower and mid-level staff. Fewer
mentoring opportunities often translate to a staff
lacking the business acumen necessary to support
the CFO, not to mention low levels of morale.
Meanwhile, recruiting finance staff has become
more challenging. Respondents to the CFO Research
Services survey indicated that recruiting mid-level
and senior-level finance professionals is more
difficult today than it was five years ago. These
mid-to senior-level finance professionals are the
very people CFOs rely upon to handle specialized
business situations and technical accounting rules,
manage performance and provide sophisticated
analysis. In fact, in the first half of 2008 there was
less than 2% unemployment in accounting and
finance.
6. Lifestyle and Legacy | Widespread media
attention regarding major corporate scandals has
led to increased public scrutiny and mistrust of the
CFO position. Long hours working for superiors,
Board members, shareholders and analysts leave
the CFO serving too many masters, with too little
time. Far from leaving a legacy, most are simply
struggling to keep up with day-to-day demands.
Work/life balance issues and risk/reward issues are
often difficult for a CFO to reconcile.
In the face of these hardships, too many CFOs come
under extreme stress. And, as all people do, CFOs
revert to their behavioral “comfort zone” under
these circumstances. Those who rise through the
finance function ranks tend to have strengths in
analytical thinking, detail orientation, risk aversion,
responsibility and compliance, task orientation
and self-reliance. These are admirable traits and
certainly serve CFOs well on the way ‘up’.
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However, a ‘shadow’ side exists to this profile
and it is often this side that emerges as the CFO
becomes more stressed. By nature, CFOs are
traditionally reluctant to trust, low on empathy
and communication to their staffs and peer group
and highly suspect of change and risk/reward
analyses. Unfortunately in the case of CFOs, their
inherent responses are counter-intuitive to the
situation itself. They simply are “wired” to respond
by working longer hours and delegating less. With
insufficient resources and antiquated financial and
IT systems, their jobs become exponentially harder
instead of manageable.
How can a CFO endure and excel in this highpressure climate? Our second study was completed
in early 2008 to determine which skills and qualities
enable financial leaders to succeed. It revealed that
the technical knowledge which helps accountants
climb the corporate ladder is clearly not the primary
skill required upon reaching the C-Suite. Success is
more likely to stem from a combination
of well-executed technical skills reflecting good
judgment, interpersonal skills and the ability
to enhance velocity. In this day and age, a new
premium applies to communication, trust, reliance
and change—toward creating an effective
environment that can evolve.
A healthy finance function has
become the new imperative for a
competitive advantage.
The Functional Imperative
Despite the current crisis within the financial function,
the reliance and expectations being placed upon a
highly functional finance department continue to
escalate. What fuels this reliance? Factors such as
increased liability, shareholder unrest and regulatory
requirements all play a critical role. However, the
recent subprime crisis, the sagging economy, weakened
corporate earnings and the resultant confounding
movement in standard economic indicators has resulted
in a dramatic change in the management of the finance
function and the emergence of a new economic period
which emphasizes finance.
To fully understand this shift, one must look to
American industrial history. Corporate management
techniques have historically adapted in response to
shifts in the competitive business landscape. During
the late seventies and eighties, General Motors
factory efficiency led the way to operations becoming
the functional imperative; in the eighties and early
nineties, IBM’s branding book demonstrated how sales
and marketing came to dominate as the functional
imperative for success; as we entered the new
Millennium, the dot-com boom brought prominence to
the IT function. Today, the existence and future success
of many businesses certainly hinge on transparent
reporting, solid risk management and quality of
earnings. A healthy finance function has become the
new “functional imperative,” an organization’s direct
link to competitive advantage and profitability.
Put another way, in morphing from an agri-business
economy to a networked information-intensive business
model where risk increases dramatically (and with risk
comes need for control), companies today require a
highly proficient finance function.
Shareholders, analysts, Officers and Directors,
politicians and regulators can all agree on one basic
premise as a result of the global economic meltdown
we are currently experiencing: a fully functioning
finance department—with appropriate leadership
and risk management—is imperative…not only for
performance, but at the core existence.
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Economic Periods
Agricultural
1900
Industrial
1940
Information
1970
Networked
Economy
2000
86 percent of the 2007 survey
respondents reported that the
breadth of the finance function’s
responsibility has increased over
the last five years, while only half
that number reported an increase
in resources.
CFOs must adapt to this new imperative, equipping
themselves with skills needed to tackle the ever
changing roles they play. Research has shown that
a comprehensive approach is most effective —
one that combines the ability to meet multi-level
technical requirements with leadership skills such
as collaboration and communication. For example,
communication skills have been found to be critical
at times when finance is called upon to promote
initiatives to other departments.
When it comes to CFO technical skills, the need
has never been greater. In recent years, Congress
and the FASB intensified regulatory accounting
demands on organizations. Boards have responded
by demanding a higher degree of reporting
sophistication. The sheer volume of technical
requirements has created a natural emphasis on
controllership skills expected of the CFO. Without
commensurate increases in staff, CFOs have
retreated into compliance and education mode,
which detracts from personal interaction time to
exercise organizational leadership. The backlash
associated with this unintended consequence is
a perception that many CFOs are less engaged in
strategic and operational matters of importance to
their Company, and in many cases this perception
has become reality.
Can these vital leadership skills be learned? With
the proper training and on- the job exposure and
practice, decidedly yes. But while CFOs can expand
their skill sets, they cannot realistically expect to
master them all. This idea inspired Tatum to create
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the concept of the “Office of the CFO,” which posits
the idea that the position of CFO is no longer a one
person job. It also calls for a multi-level solution:
the use of flexible, high-level resources such as
executive services to meet specific challenges; the
application of enhanced systems and processes to
support increasing service levels; and a framework
for increased utilization of professional staff
augmentation.
Reaching the new functional imperative is not as
elusive as it may seem. Combining strong technical
skills with well-defined priorities, shrewd use of
“soft skills” and value-add tools can enable a CFO
to literally transform a failing finance department
to achieving its goals. For any organization today,
“getting the job done” links directly, powerfully
and immediately to improved business performance
and long term survival.
A CEO’s fate is linked to his/her
financial executive. A termination
and lengthy search exacerbate
problems.
The Sphere of Influence
CFOs aren’t the only ones suffering from this
perfect storm of pressures, but they are often
the first held accountable for poor results. Surely
there must be alternatives to simply “shooting the
CFO” in response to all manners of organizational
shortcomings?
The reality is that the success of many parties is
inextricably tied to supporting the CFO. In fact, the
new job description for CFOs should include twoway communication with these parties to clarify
objectives and collaborate on challenges.
CFO turnover and pressure directly affects:
1. The CEO | At unprecedented rates, CEOs have
resorted to CFO termination as the solution to their
financial challenges. Unfortunately, this decision
is premature in many cases and misdirected in
others, often addressing the symptom and not
the underlying problems. CFOs can become the
scapegoats for reporting disappointing results—
and too many times Boards of Directors simply go
along with the CEO’s recommendation, without
investing enough time into fully understanding the
circumstances.
In many cases, and several high-profile examples
should come to mind, the CEO’s fate is directly
linked to his or her financial executive. A costly
termination and a lengthy, expensive search often
exacerbate the problems instead of solving them.
This is especially true if the new CFO inherits a
situation identical to the one his or her predecessor
just left. It is often the function itself that is the
problem, not the person, and many good CFOs
have fallen victim to this confusion. In several highprofile companies, the CFO role has turned over
two, three and even four times within one CEO’s
tenure.
A better decision for the CEO to make would be
investing the money and time otherwise spent on
a search and dedicate it to helping the incumbent
CFO implement enhanced systems and create an
environment that enables success. This alternative
increases shareholder value creation and promotes
more effective use of corporate assets for the longterm. Scapegoating the CFO fails to address
a poorly conceived finance function, and shooting
the messenger whenever the numbers disappoint
investors does not resolve the issue of an operating
environment that may lack financial discipline.
2. The Board and Audit Committee | Recent ethical
scandals have focused Board member attention
on the liability associated with their role, and they
in turn insist on a better understanding of the
company’s finances and control systems. Personal
reputations are often riding on how well the
finance function performs in today’s environment.
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While Audit Committee members should have a
strong sense of the regulatory and compliance
challenges faced by their CFO, not all do. They may
be even less aware of the operational, strategic,
management and internal political pressures. In
addition, numerous changes in today’s regulatory
environment drive more frequent Board and
committee meetings to review previously unheardof levels of detail on operations, SEC filings and
internal controls. Many audit committee members
lack training not only on these issues, but also on
their very role. A CFO is then called upon not simply
to present, but also to provide research, perform
training and educate his/her Board.
A recent survey of audit committee members
sought to clarify this apparent disconnect between
audit committees and their CFOs. When asked
what makes a successful CFO, respondents agreed
that follow-through on decisions, communication
and foresight of consequences were the most
critical factors. They also agreed that skills such as
handling criticism and time management were
the least important. Surprisingly, CFOs rate their
performance in most areas much higher than audit
committee members do. The main exception is time
management; audit committee members see CFOs
as managing their time much more effectively than
the CFOs themselves.
And the most often cited barrier to success?
Most agree that personality issues are holding
CFOs back. Overall, CFOs seem to understand
what is important, but they do not seem to be
“connecting” as well as they think. If this is the
case, how effective can they be in meeting the new
functional imperative?
It is critical that both Audit Committee members
and CEOs be attuned to and educated on the
current environment and pressures of the CFO.
Audit tends to “listen” to the CEO. It is important
for Audit Committee members to have an on-going
dialogue and relationship with the CFO as well.
Indeed, a qualified Audit Committee chair should
be, as one aspect of a multi-faceted role, a support
and advocacy champion for resources that enable
and enhance the CFO and in turn support the CEO.
After all, few issues can erode shareholder value
faster than a restatement or a liquidity crisis.
As an elected fiduciary of shareholder interests,
the Audit Committee should look upon effective
CFO support as effective risk management and
stewardship of company assets. Likewise Audit
Committee members should proactively exercise
increased diligence, discernment and involvement
in a company’s finance function well before any
discussion of CFO termination is introduced,
otherwise they are not effectively doing their job.
[The] thankless role has the diciest
risk/reward ratio of any job short
of Navy Seal. Pay has stayed flat
while workload and responsibility
have soared. Work hours allocated
to audit committees alone have
tripled during the last four years.
Forbes: “Surviving America’s Worst Job”
3. Peer Executives | Executives throughout the
company rely on accurate and timely reports from
the finance department to lead their functional
teams. When this flow of pertinent information is
disrupted, less optimal business decisions are often
the result. This fuels resentment and a perception
that the finance department is at best incompetent,
and at worst, sabotaging certain departments.
Since the new millennium and the dot-com boom
and subsequent bust, the days of ‘gut-feel’ or
intuitive decision-making are over. No longer do
CEOs accept business plans that are built on hope —
they want to see detailed analysis, a real business
plan and accompanying sensitivity analyses. Of
course, business units are oftentimes not equipped
themselves to perform these feats,so they come to
finance for help.
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However, finance is often forced to prioritize
requests for peer support behind regulatory
compliance, Board requests and CEO priorities.
Often, trying to avoid conflict and disappointment,
they commit to these with the best of intentions
but do not get the work done, at least not in a
timely manner. Enhanced ability to negotiate
upfront or a simple conversation to explain delays
at a minimum could make a huge difference to all
parties involved. Unfortunately, all too often those
steps are not taken, leaving many disappointed.
4. The Finance Department | Neglecting day-today operations is an obvious recipe for disaster, but
a distracted, overworked and unavailable CFO is
unable to provide necessary supervision and counsel
to department staff.
With less time and energy from the CFO to serve as
a mentor, many in the finance department grow
tired of constant fire drills and crave leadership
from above. The CFO, stretched too thin, misses
more meetings and is less focused on day-to-day
operations and staff support. At the same time the
CFO has delegated the routine aspects of the job
to subordinates often without providing adequate
instruction. Concurrently, these same staffs are
besieged by calls from recruiters due to increased
demand for mid-level finance professionals.
A discouraged and overworked staff leads to
higher turnover, which sets in motion a downward
spiral: higher turnover means more of a CFO’s time
is spent on personnel issues and training of new
staff. But none of this addresses the institutional
problems that precipitated the turnover in the first
place. In addition, the roles and requirements of the
middle-level financial manager are in opposition to
desired work/life balance of the Gen X work pool,
leaving fewer staff members interested in doing
“what it takes.”
Doing What it Takes to Succeed
So how are finance executives navigating this
environment of high demand and scarce resources?
The 2008 survey of CFOs sought to uncover the
right combination of non-technical business
management and leadership skills that finance
executives need to carry out this expanded business
mandate. Breaking down this equation, consider
first the many roles CFOs must play and the multilevel technical requirements they are expected to
meet:
Time Spent
120%
Partnership
100%
Business Support
80%
Core Finance
60%
40%
20%
Partnership
Capitalization
Transactions
Governance
Business Support
Financial
Planning &Analysis
Core Finance
Controllership
Regulatory Compliance
Audit
Department Management
Clearly, an ongoing struggle exists for CFOs
who strive to allocate time among multiple
responsibilities. The majority of their time (over
60%) is generally devoted to core financial
functions, such as controllership issues, compliance,
audit committee demands and general day to
day management. CFOs spend 20% of their time
meeting business support needs, such as financial
planning and analysis and investor relations. Less
time is then left for CFOs to address issues at
the partnership level — strategic issues such as
capitalization, transactions and governance.
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0%
To effectively deal with a myriad of demands
placed on a CFO, what then are the qualities and
characteristics of the ideal financial leader? That
is what we set out to study in our second research
project. We surveyed, with CFO Research Services,
a group of 400 CFOs of various size and profile
companies to obtain insight into qualities essential
for success. As mentioned previously, we also asked
them to rate themselves on those very traits.
Survey results revealed that the most successful
leaders tend to exhibit clarity of thought and
action. Being an effective change agent requires
one to lead, rather than simply doing, and
advocating rather than merely complying. They
also bring a level of adaptability and judgment to
their work that is often the result of experience. An
overlooked attribute we have observed however
is effective communication skills, as CFOs often
assume that their various constituents are always
on the same page. Greater collaboration, both
perceived and practiced, is also important for the
CFO to avoid being branded a “lone ranger.”
An overwhelming majority of survey respondents
recognize the increasing importance of soft skills.
While technical knowledge is still important,
effective CFOs must be able to promote ideas and
get them implemented, which requires knowledge,
vision and significant people skills.
The top three attributes that CFOs see as “critical”
for success:
Follow through on decisions
63%
Clear and effective communication
60%
Ability to foresee future consequences of
current actions
59%
While top-notch technical skills are indisputably
important for finance leadership, companies often
train intensively on these skills at the expense
of broad management training that would help
CFO’s manage and support the business. Career
development at senior levels is always a challenge,
but most finance executives are eager for training
on industry and competitive dynamics, business
management and so-called “soft skills,” such as
collaboration, negotiation and communication.
CFO Survey Results of Critical Success Factors
One of the most interesting aspects of the survey is
what CFOs themselves ranked as least important for
success:
Manage projects effectively
38%
Handle criticism and conflicts effectively
26%
Manage personal time effectively
24%
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Clearly, CFOs are less comfortable with complex,
potentially emotionally charged interactions that
arise in the course of carrying out their duties.
This does not come as a total surprise as some of a
CFO’s natural tendencies, as previously noted, are
to remain risk averse, unemotional, compliant and
task oriented.
However, that is not what we found. Consistently,
the CFOs in the survey rated themselves as
“adequate to excellent” on every measure with
only one exception: the ability to manage their
personal time, where they clearly indicated a level
of struggle.
Given our surprise with how easily they graded
themselves, we decided to solicit additional input
from Audit Committee Members. Interestingly,
Audit Committee members and CFOs described
the critical characteristics almost identically: both
the top three and the bottom three rankings
were the same. However, Audit Committee
members surveyed rated their CFOs differently
than the typical profile of self-assessment by
CFOs themselves. Audit Committee members
cited “understanding of internal politics” as the
only category rated excellent. They also felt CFOs
managed their time much better than CFOs rated
themselves. They simply did not see any level of
struggle that CFOs report, further supporting the
characteristic that CFOs are typically stoic. The
main barrier to success cited by Audit Committee
members as holding CFOs back? “Personality
issues” — ouch!
What can be concluded from these divergent
views? CFOs understand what is important but are
doing a worse job of connecting than they think.
If they are, in fact, perceived to be managing their
time well, too political, poor communicators, less
effective at managing projects and unable to clearly
see the future consequences of current actions,
how effective can they be at meeting the functional
imperative of finance required today? And, doesn’t
this begin to explain the striking prevalence of CFO
terminations (especially the ones that insist they just
didn’t see it coming)?
CFOs Speak Out
I’m personally too
focused on details and
not enough on strategy.
I don’t know how to
overcome this, but I wish
someone would help me
before I lose my mind.
-2008 survey respondent
I’ve found too many
CFOs bogged down
in analysis...this turns
finance activities into
rock-fetching exercises
that have no correlation
to effective decision
making that will move
the business forward.
-2008 survey respondent
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The Solution
CFOs in increasingly untenable situations need relief, and
their key stakeholders inside and outside the organization
need results. The role of Chief Financial Officer needs to be
redefined, requiring a fundamental paradigm shift by the
CFO in the management of the entire financial function.
Last year we said: This “evolution of the CFO” requires five
steps:
1. Continually Reassessing the Organizational Life Stage |
The stage of a company’s lifecycle determines its needs.
A company preparing for a merger and subsequent
integration has very different financial leadership needs
from a business looking for turnaround management or
bankruptcy specialization. Different challenges require
different skill sets and an evolution of the company’s
financial organization and structure. It is up to the CFO to
lead this charge, to diagnose what stage the company is in
and to anticipate the next two stages.
Because forward thinking is an absolute must in today’s
environment, the CFO function needs to lead the way with
strategic plans and vision for the finance function itself, as
well as more broadly organizationally. A CFO’s credibility
is closely tied to a strong focus on strategy, and correctly
diagnosing the stage of the lifecycle guides decisions on
what investments to make and programs to advocate. This
becomes a perfect platform, then, for CFOs to re-establish
themselves as strategic leadership, while simultaneously
preparing the way for organizational requests and changes
to better position the finance department (and the
company) for success.
2. Realizing That Success Means Strong Management
Skills | Managing a function, not just a job, requires a more
sophisticated understanding, deployment and leadership
of limited resources and initiatives. In order for a CFO to
be effective they must adjust quickly, transitioning from
skeptical to open-minded, from compliant to independent
and from risk-averse to risk-manager. The CFO’s platform has
expanded, and a CFO’s success will largely be tied to strong
communications and the ability to work well with others.
A CFO can no longer put his or her head down and plow
through a rough stretch; getting others involved is necessary
for a long-term solution. The more people a CFO can get on
board with any given initiative, the greater the company’s
chances of success will be.
3. Becoming an Advocate for the Financial Health
of the Company | CFOs, often champions of
cost-cutting measures, must embrace a parochial
mandate for investment to support their function.
Going to the CEO and Board and insisting on
additional funding goes against the cost-cutting
tendencies ingrained in many CFOs. Ensuring a
company’s financial health will not happen without
CEO and Board support. First, it is up to CFOs
to sell them on this point. Partnering with the
Audit Committee Chair is an absolute must to be
successful as CFO today. Advocacy must encompass
the entire spectrum of demands, from IT systems
and infrastructure, to added external and internal
resources, to additional training and support. All
are important and interrelated in engineering an
“effective finance function.”
An overwhelming majority of the finance
executives surveyed recognized that timely and
accurate visibility into operation metrics is central to
managing the company’s health. Some 70 percent
of respondents identified financial reporting,
planning and analysis as one of three areas their
companies are most likely to improve in the next
12 months. Meanwhile a staggering 45 percent say
their companies are likely to seek improvements
in corporate performance management and
related executive dashboard capabilities. The
study infers that this may be “a daunting task for
finance executives, however, since they say they
face a shortage of senior technical talent.” An
intermediate solution could be effective use of
project initiatives to shore up a floundering finance
function.
4. Creating Your Own Chief Financial Office (“CFO”)
Suite Featuring External Operational Leadership |
Outsourcing should be geared to senior-level
executives with specific expertise who leverage
their intellectual capital to implement solutions
targeted to the organization’s needs. The Office
of the CFO will morph toward (although not
fully achieve) the model of the General Counsel’s
office—where the use of high-powered outside
legal resources are chosen over building a large
internal department. Long-term annuity contracts
will disappear, because once the work is completed,
the external source disappears.
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Enhanced systems and processes—intelligentlydesigned information flow—can ease regulatory
reporting, audit committee concerns and peer
requirements. “Band-Aid” solutions abound in this
high-pressure business world, and it shouldn’t be a
surprise when a company learns they are disposable
and short-term. Long-term solutions require IT
investment, but making a strong commitment
on the front end will save time, money and
heartache in the long run. These solutions include
ensuring data integrity, developing automated
processes and cross-functional linkages to peer
and day-to-day support of operations. Effective
CFOs have liberated themselves from “Excel
hell” by defining appropriate metrics required to
manage the business and designing management
dashboards that automatically capture meaningful
data at the source. Having one’s “finger on the
pulse” is absolutely critical in today’s fast-paced
environment.
Again, CFOs need to ignore their innate tendency
to minimize costs and instead lobby for support
and funding. In the CFO Research Services survey,
this area drew particular notice from finance
executives. Several respondents noted the impact
of sophisticated IT systems, not only for their
positive effects, but also for the otherwise required
amount of time, attention and resources absorbed
in the implementation and related initiatives.
Many pointed to a lack of IT resources and skill
sets in their own organization as the root cause
of problems, leading many to believe outsourced
operational leadership of the IT initiatives is the
ideal solution.
5. Supplementing Internal Skillsets with Flexible
Staff Augmentation | The CFO Research Services
survey confirms that Finance has a pressing human
capital problem. Only 29 percent of respondents
say they are spending more time on human capital
functions like hiring, training and developing
finance staff. CFOs are staking their organization’s
future, as well as placing themselves at risk, by
attempting to personally guarantee the company’s
financial health without adequate resources to
address fast changing needs.
Fortunately, an entire industry has developed
around staff augmentation. The benefits are
obvious: lower permanent SG&A load, reduced
benefit and training costs and the ability to match
the number of people in the department to the
current work demands. These are not the high-level
experts referred to in step one, these are lower and
middle-level temporary employees who are sourced
at a lower cost and leave when appropriate.
CFOs have perhaps the most experience with this
element of the solution. Consider when SarbanesOxley was enacted and virtually no CFO had
the internal resources to meet the sudden and
overwhelming need. With no time to build internal
resources, most looked to outside resources,
suddenly provided by a cadre of “internal audit”
boutique firms. These firms provided the necessary
resources for flow-charting and testing internal
controls. While CFOs may not have gravitated
this way under normal circumstances, (which
these certainly were not), they quickly became
comfortable with the model and continue to use it
today, at least for SOX testing.
The “Next” Level of Solution
So, while an outsourcing prescription is still very
much recommended, the lack of progress against
CFO termination statistics in the past year would
indicate that embracing this new “vision” has been
anemic. Our research study further indicates that
the lack of ability to advocate, communicate and
essentially SELL this solution to the CEO and Board
appears to be the stumbling block. CFOs simply
do not seem to realize that their performance
is perceived to be weaker than they think, and
therefore CFOs have not fully internalized the need
to change and evolve their management style.
With this in mind—advocating for the Office of
the CFO, now with a heightened sense of urgency
since the financial crisis of autumn 2008, and
understanding that CFOs MUST do something to
stem this tide, we added a middle layer to our
proposed Office of the CFO model. The middle
layer is more tactically oriented; it is the “how to”
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directive as opposed to the “what.” The “how
to” includes the creation of a fully functioning
technical financial practice, supplemented by
tools and products that are increasingly being
developed to augment velocity in attaining results.
But MOST importantly, this HOW TO requires the
development of the emotional quotient element —
the ability to advocate, communicate, sell and lead
the implementation of the solution.
The winners in today’s increasingly fluid
environment are those who adapt to the ebb and
flow of business lifecycles with a flexible approach
to not only their finance and accounting teams,
but the leadership of those teams. Bringing the
right skills to the table in the right increments for
the company is the only way to maintain successful
operations in today’s exceptionally demanding
markets. This, too, is the only way to eliminate the
risk of termination.
The Future
CFOs today fight an uphill battle to achieve
success. Newspaper headlines each week detail
the latest turmoil and announce the casualties. It
is becoming obvious that no one person can go it
alone, as the CFO role has truly become more than
a one-person job regardless of company size. With
market conditions and business cycles changing
so rapidly, even executives who think they are
sailing smoothly now may soon find themselves
struggling to stay afloat in the future. And those
who are already under fire need to quickly get help
before it is too late. The modern day CFO has made
precious little headway in absorbing this truth and
internalizing the need for behavioral changes. Our
research has identified many inherent reasons for
this deficiency. A primary reason is the inability
of CFOs to effectively communicate and advocate
for the higher levels of investment in systems and
resources, both financial and human.
Challenges faced by CFOs today are not
insurmountable. There is a growing list of
resourceful leaders who have made their companies
stronger in these challenging times. The key to
victory is creating an environment that enables
success through an educated and effective system
that functionalizes the job, advocates for changes
and embraces external resources.
About the Author
Cynthia Jamison is a Senior Partner with Tatum,
a Randstad Company. As an expert in the field
of financial management and crisis restructuring
she has been quoted in numerous publications
including the Wall Street Journal, Forbes,
Newsweek, and CFO Magazine. She is a frequent
key-note speaker for various organizations around
the topic of today’s crisis in the CFO Suite.
Ms. Jamison has served as CFO of seven companies
across a variety of industries, a publicly-traded
telecommunications company (successful
turnaround) and as CFO of a software company
in the CRM/ERM space, which was subsequently
sold (start-up with several rounds of successful
fundraising). She then served as CFO with a
privately-held insurance brokerage facing unique
crisis conditions (ultimately dismantled), followed
by a one-year stint heading both finance and
operations for an Internet payroll company. Ms.
Jamison was CFO for a joint venture software/
BPO company owned by KKR and McDonalds.
Most recently, she was CFO for a public restaurant
company, successfully completing a turnaround,
an equity offering and a complete re-start. Ms.
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Jamison sits on the Board of two publicly-traded
companies: Tractor Supply Company (NASDAQ:
TSCO) and B&G Foods (NYSE BGS), serving as Audit
Committee Chairman for each. Ms. Jamison holds a
B.A. in Economics and Political Science from Duke
University, an M.B.A. in finance from the University
of Chicago, and is a Certified Public Accountant in
the State of Illinois.
About Tatum
Tatum is a leading management and advisory
services firm offering hands-on strategic, financial
and technology solutions that measurably improve
business performance. Tatum’s executive leaders
and consultants help companies navigate critical
points in the business life cycle and execute their
strategic initiatives. Our deep management and
operational expertise, keen strategic consultancy
and a focus on follow-through enable our teams
to deliver solutions that drive sustainable impact.
With a national footprint of offices in key markets,
our firm is ready to mobilize locally anywhere in
the country. Tatum is an operating company of
Randstad.
To learn more about Tatum, visit us online at
www.tatum-us.com
About Randstad US
Randstad US is a wholly owned subsidiary
of Randstad Holding nv. As the third largest
staffing organization in the U.S., Randstad
holds top positions in permanent placement,
office and administrative, IT and accounting and
finance. From professional services, commercial
staffing, recruitment process outsourcing, to
managed services and more, Randstad delivers a
comprehensive range of temporary, temporaryto-hire, permanent placement and outsourced
placement services. With its 5,660 employment
experts, Randstad puts an average of nearly
100,000 people to work in the U.S. each week,
through its network of more than 900 branches
and client-dedicated locations.
You may access Randstad’s panoramic U.S.
thought leadership knowledge center through
its Workforce360 site that offers valuable insight
into the latest economic indicators and HR trends
shaping the world of work.
To learn more about Randstad and Workforce360,
please go to www.randstad.com
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