Evolution of a CFO

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The Information Age that exists today has given us a fresh new perspective on the role of financial management and finance managers. As we head towards the Knowledge Age, this call cannot be ignored. Infact, re-orienting an organisation for the advent of the professional Chief Financial Officer (CFO) is a necessity as is for other functions. The traditional boundaries of finance management, where role of the finance manager was limited to overseeing daily transactions for the company along with the odd analogy, have to be overstepped.

Today, the requirements from a CFO are much more. The term CFO refers to a professional who is required to understand Markets and Growth imperatives , economics of globalisation, analyse competitors , manage cash flows and mitigate risk. With the shift in the paradigm it is imperative that the impending role of a CFO will change from a controller to a facilitator. One of the primary responsibilities of a CFO is to maximize shareholder value as well as protect the interest of other stakeholders; and act as a catalyst to facilitate change in an environment where the organisation succeeds through self disciplined teams.

Typically, this would mean that the CFO must transform himself from a back office manager where he would be untangling the financial mess that often exists in a corporation and controlling cash flow and budgets, to a front end organizer and leader who spends more time in networking, analyzing the external environment, making strategic decisions and managing and protecting cash flows. In due course of time, the role of the CFO shall shift from an operational to a strategic level. However, the transition of a CFO in any company will not be simple. On an operational level, the CFO cannot be excused from his back end duties. Therefore, a self disciplined team comprising of accountants can support the CFO in developing a Management Information System which shall induce the CFO to review the back end work from time to time as operational function shall gain less weightage in the CFO’s schedule. The knowledge requirements for the evolution of a CFO extend from being aware about capital productivity and cost of capital to human resource initiatives and competitive environment analysis.

CFO Role
AdvisorAnalystNegotiatorNetworkerRisk MitigatorPlannerSyst. & Legal Compliance
1Financial & Economic Developments
2Maximise Shareholder Value
3Strategic Decision Making
4Business Transformation (Change Agent)
5Business Finance Restructuring
6Risk Management & Predictability of Cash Flows
7Corporate Finance (Diversification and Expansion)
8Alliances & Relationship Building
1Budget Formulation, Performance Review & MIS
2Cash Flow Management
3Profit Improvement Initiatives
4Working Capital Management
5Capital Expenditure Monitoring
6Forex Risk Management
7System Review
8Accounting Policies
9Legal Compliance & Secretariat
10Corporate Tax Planning
12Accounting & Auditing
Refers to the three most important roles relevant to the activities are not in order of priority

The Chart represents a concise list of all the important activities that we believe a CFO may encounter while at a strategic level and those at the operational level, which in due course of his evolution he shall delegate to a self disciplined team which he may create. This transformation or systemization of tasks performed both at the front and back end by the CFO, cannot be instigated without a road-map or an action plan. Moreover, the various roles that a CFO plays at an executive level have to be demarcated for the benefit of the senior management and clearly understood by the teams the CFO may create. The roles that the CFO now plays may be associated closely with those of being the finance team leader and an advisor to the board , besides acting as a facilitating agent for integration with other departmental heads in monitoring the health of the corporation . The CFO must also create a repository of knowledge.

Traditionally it was believed that the work of a finance manager began and ended with operational jobs such as accounts, legal compliance and fund management. CFO’s do have to know what finance is all about; however a shift in the paradigm for general management calls for a wider focus encompassing all aspects of business. CFO must be seen to be fair and transparent by all the stakeholders, including the customers and investors. In light of the recent developments and statements by the various schools of thought, today’s finance manager has to view himself as tomorrow’s CFO conducting both traditional and emerging roles. Although the transition is not simple, its effectiveness can be measured through value addition metrics together with the metrics for the overall financial health of the corporation. In conclusion, the acceptance of the emerging role of a CFO has to be both multifunctional and cross operational, and it is essential that the culture as well as the CEO and the Board of the company allow it. There is little choice but to accept and embrace this emerging role.

Rohit Chanana
Jan, 1999