As role changes, finance chiefs must master new languages
The CFO’s role is ever-evolving.
Need proof? An annual survey by The CFO Alliance shows that 72% of finance chiefs expect their role to expand in 2013. That’s on par with last year’s number, when 71% expected a growing role.
However, the specific priorities are also changing, said The CFO Alliance’s Nick Araco.
Araco is the CEO of The CFO Alliance, an organisation of about 4,000 US members, which is hosting a round-table discussion at the AICPA CFO Conference in Marina del Rey, Calif., this week.
CGMA Magazine talked with Araco before the round table to discuss the survey and the transformation of the finance chief. Here’s an edited transcript of the discussion.
CGMA Magazine: Your survey showed that 72% of CFOs expect their role to expand in 2013. But you said the focus of the specific role changes has shifted toward more strategy. When did you see that shift begin to happen?
Araco: Beginning in the fourth quarter of 2012, and most certainly in the first quarter of 2013, the discussions have shifted to where else CFOs can create value and where else can they make investments, both organic growth and M&A-related, that will accelerate performance in terms of top and bottom line.
CGMA Magazine: What do you attribute that to?
Araco: I can attribute it to two things. There’s been an acceptance of a new norm that uncertainty will continue to temper confidence and decision-making, but there’s a reluctance to let it paralyse or halt decision-making. So CFOs are thinking, “If this is the new climate where we have to identify, assess and manage against risks that are many times outside our control, then we’re going to have to adapt and not let it prevent us from thinking long term and thinking bigger.” That’s No. 1.
No. 2 is there’s a real willingness and ability given the current state of their companies and their financial structures to think about M&A as a strategy for growth. You’ve got the private-equity community needing to divest themselves of or do something with a lot of the companies that they’ve invested in. But you’ve got companies flush with cash, so the strategic and financial buyers and sellers are going head-to-head with more of a rigorous pace.
CGMA Magazine: Is there a sense that there was some certainty after the US presidential election and after the January 1st agreement on the fiscal cliff?
Araco: Honestly, there’s very much an attitude within our community that, “I’m not going to be able to wait around for what goes on inside the Beltway to resolve itself or trickle down to me.” These issues may or may not resolve themselves. And even when they, quote, “get resolved,” like the fiscal cliff did, it still seems like there’s more to come, more to follow, and uncertainty still tempering what came out of what was supposed to be resolution.
There’s an increased volume, but also an increased level of confidence coming out of our members, even as they say they have to deal with very difficult issues, such as the impact of the Affordable Care Act, an increasing regulatory – and compliance-related – culture and additional economic and business risks popping up outside the US that influence them. There’s just not an interest in seeing all of that collectively paralyse the strategies and the execution behind these strategies around corporate growth.
CGMA Magazine: Going back to the role change, seeing that more than 70% see it changing and that they see it expanding beyond the finance role, how are CFOs adapting?
Araco: They’re trying to better understand the demographics within the workforce to understand what drives, what motivates and what are the best ways to communicate with those individuals. Because you can imagine, as their responsibility increases, their visibility and opportunity to create and leverage relationships within their companies and also outside their companies, with those in their value chains – their customers, their suppliers, their competitors, their industry relationships – provides them an opportunity to develop and utilise relationships. That visibility factor is very different than how they typically were trained and developed to become finance leaders. It was all about how effective they were at understanding, analysing, reporting and attempting to influence or make decisions with the numbers. So it was “master the language.” In this case, many of our members are spending time to not only master the language but master the ways to communicate what they know in the most effective way.
That’s not just a demographic issue but a functional one. I’ll give you two examples. We’ve had numerous discussions within our community that will relate. It’s not just about teaching the CTO or CIO how to better understand numbers to make impactful decisions within their functional areas. It’s a responsibility the CFO has to gain an understanding about how technology and people drive shareholder value and company performance. So there’s a real willingness not just to attempt, as their visibility increases, to open up their mouths, but to open up their ears.
And to respect that these individuals, either because of demographic differences, or maybe the functional areas in which they’ve been trained, they may think and approach things differently, and CFOs must understand and respect that. They believe that that’s the only way finance is going to gain credibility inside the company and outside.
CGMA Magazine: So, it’s not going to be a quick change for CFOs, is it?
Araco: No, it’s not, but I think many of our members view it as an opportunity. Rather than position themselves with ever-increasing responsibility as a threat to other C-suite members, they want those members from other functional areas to view it as an opportunity to work with finance.
It’s much more collaborative than many had expected. You don’t have a lot of chest-pounding by the CFO community saying, “Now we’re involved in human capital, now we’re involved in technology. We’ve moved beyond being the ones who simply capture reports and analyse the numbers.” Rather than position themselves as a threat, they’re attempting to position themselves as a partner.
CGMA Magazine: In discussions you’ve had with CFOs, what’s the vibe amongst that group?
Araco: Two words that are filtering into all of our discussions: talent and innovation. There are major efforts being undertaken individually and collectively to best find ways to develop the key talent that they have in place. It’s not even about talent acquisition; it’s about talent retention and development. Beyond the compensation discussions, it’s about culture, it’s about environment, and it’s about leading by example. How do we take an “A” player and get them to share with us, on an ongoing basis, what they need to be successful, and how do they define success in their role? There’s an increased dialogue and an increased effort there.
The second is innovation. When we talk about corporate growth now, there is a lot of time and effort being spent to define and at least trigger internal discussion about innovation. How can we provide greater value? Are there other areas where we can be creating value, are there relationships we can leverage that we’re not, and how will that impact our strategy and plan?
CGMA Magazine: What are the barriers to developing talent?
Araco: It’s a willingness and ability to understand how to best communicate with the individual about what drives them in the short and long term. And a willingness to learn how that “A” talent can drive performance and value but still meet the individual’s needs.
Some members shared that a couple of their “A” players, during a discussion or a review, have said, “My aspirations and desires are to develop outside the traditional career path of finance and to consider sales and marketing, or technology.” Rather than see that talent leave, the CFOs did their part to better understand and ultimately move that talent along on a path where they could consider that. What I have found interesting is they’ve not only said, “We’re going to put you on this path,” they also said, “It’s safe to fail,” meaning, “if you get there and it’s not the right place for you, we’ll bring you back to finance because there’s a home for you here.”
They said that was a mistake that many companies had made in the past when their “A” talent wanted to try something different. They opened the door, let the person walk in, and they shut the door behind them. A lot of times, that desire to move doesn’t end up being the most successful or desired place. They said, “You’ve got to keep that door open.” That finance area needed to still be open to them.
Related CGMA Magazine content
“Why CFOs’ Roles Are Shifting”: Amongst CFOs in the United States, 72% expect their role to expand in the next year. That’s similar to last year’s numbers in an annual survey by The CFO Alliance. The priorities involved in that role change are also shifting.
“CFOs Overwhelmingly Happy With Their Jobs, Survey Shows”: Many finance workers spend their careers trying to become a CFO. According to a survey, they are usually happy after landing that job. A survey of more than 2,000 US CFOs showed that 57% are satisfied with their current role. Also, 18% say they hope their next move is retirement.
—Neil Amato (namato@aicpa.org) is a CGMA Magazine senior editor.