The CFO is the custodian of the financial reputation of the company.
Even as you start your career as a chartered accountant and take up entry-level assignments in the finance sector, you are perhaps thinking of that day sometime in the future when you will rise to the top and head the finance function of a large corporation as Chief Financial Officer (CFO).
It’s great to harbour such progressive thoughts and lofty ambitions, but it’s also necessary to set out on the right path early in your career and understand exactly what it will take to get you to your destination. Indeed, the role of the CFO has expanded over the years and today requires a range of qualities and skills that you need to master, if you wish to transform your aspirations into reality.
It is obvious that a strong foundation in accounting procedures and finance concepts is a prerequisite for any finance professional. But a few years ago, when the ET Intelligence group of The Economic Times did a survey in corporate India, the results revealed that functional and operational roles of the CFO were considered to be of secondary importance, and one-third of the companies surveyed said that corporate governance was the foremost CFO responsibility. Evidently, the discovery of finance-related irregularities at global corporations such as Enron and Worldcom during that time had hit home the realisation that good corporate governance was key to maximising shareholder returns. This is perhaps even more relevant in India, where family-run businesses still hold sway and transparency in operations is rare.
Thus, a good CFO needs to have in-depth knowledge of regulatory and compliance requirements, and also the will to implement them regardless of internal or external obstacles to doing so. In essence, the CFO is the custodian of the financial reputation of the company.
The role of the CEO has evolved beyond this too. Nowadays, in most organisations the CFO’s role has a significant strategic slant. The CFO reports to the CEO, and in many companies works closely with the CEO and other members of the Board in determining the roadmap for the company and future strategy. Responsibilities may include smoothening of mergers & acquisitions activity and also expansion into new markets.
Ernst & Young conducted a study in 2011 titled “The evolving role of today’s CFO”, covering top finance executives in Europe, the Middle East, India and Africa. According to the report, CFOs recognise that they continue to be responsible for cost control and risk as well as maintaining liquidity for the organisation, all of which require solid finance skills. But they are aware too that they need to be involved in financial planning and analysis in order to provide information on where the business is headed and how quickly it will get there. As the CFO needs to convey complex financial results and the organisation’s progress on strategic goals, good communication skills are also of importance.
Consulting firm Deloitte avers that today’s CEO needs to play four diverse roles. The two traditional roles are that of “steward” and operator”. These involve keeping risk at a minimum and getting the books right within a tight finance operation that is efficient and effective, while ensuring full regulatory compliance. Then there are the two newer roles, that of a “strategist” and a “catalyst”. As a strategist the CFO puts a financial perspective on growth and innovation. As a catalyst the CFO fosters a culture of financial discipline and a sense of value throughout the organisation enabling all departments to perform more efficiently, accountably and profitably.
Of course it is not possible for any one person to be perfect in all roles, so individual CFOs may focus on one or more areas depending on the needs of the organization and personal proficiencies. Regardless, it is evident that CFOs today must have a combination of core finance knowledge, deep understanding of the business, analytical prowess, leadership skills and superior communication abilities, if they are to do justice to the challenging demands of this important job function. Have you got what it takes?