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Strategy and innovation
Something the CFO can never delegate: leadership.
CFOs have taken on more and more roles and responsibilities in the last decade. Despite the fact that more traditional tasks are increasingly automated, there do not seem to be enough hours in the day. It's time to delegate. But not everything.
In the opinion of many analysts and consultants, CFOs are the new co-pilots and strategic partners of businesses. They work alongside the CEO and each day build more visibility and credibility with investors, customers, shareholders and other stakeholders.
They are under an enormous responsibility: they must simultaneously guarantee the company's good financial health, plan, budget, seek financing, keep the books in order, monitor risks and ensure legal and fiscal compliance. They have to present past figures and think up future hypothetical figures by simulating highly complex simulations.
They are asked to look in the rear view mirror and switch on their main beam headlights at the same time. They need to switch between descriptive and prospective studies and be the influential voice in decision-making. The CFO is the one who presents the scenarios so that the Board or the Management Committee can make their business decisions. Not only do they need to be descriptive, they also have to take a stance.
According to a KPMG and Forbes survey, one in three CEOs feel that their CFO did not measure up to the company's requirements. They were so engrossed in everyday routines, they overlooked their strategic vision. “30% say their CFOs don't understand them or help them enough with the challenges involved in running their organisations,” according to the report, which interviewed 549 CEOs.
Along the same lines, an Accenture survey revealed that CFOs still spend 50% of their time looking in the rear view mirror and only the remaining 50% on focussing on transformation and the future. Currently there is a shifting dynamic towards strategy. The key to achieving this will lie in their ability to delegate.
Delegate hard skills and take on soft skills
According to Steve Jobs: employees need leadership, not someone telling them what to do. “A common vision: that is what leadership is all about. Leadership is having that vision and being able to articulate it to the people around you so that they understand it”, wrote the founder of Apple. It seemed to be defining the new role of the CFO.
This is a role that has radically changed in just a decade- moving towards assuming more strategic tasks and delegating traditional accounting, analytical and descriptive tasks to their teams - and to machines. CFOs are now required to:
- Have communication skills.
- Strategic vision.
- Be able to delegate.
- Be influencers throughout the company.
Let's go back to Cupertino. Debi Coleman, who recently passed away after a successful career in Silicon Valley and Silicon Forest, was personally hired by Steve Jobs. She was a philologist and ended up becoming Apple's CFO. Rachel M. Ruggieri is also a philologist, CFO and executive vice president of Starbucks. This is a different vision of the role of CFO which is embodied in the statement of purpose made by Amy Hood, CFO and executive vice president of Microsoft. “For a company, it is not only key to measure metrics and numbers, but also the degree of satisfaction of the people who work in it.”
The role of CFO first appeared in the United States in 1966. Back then it consisted of an accounting manager who prepared and balanced the books. These days there are awards for the best CFO of the year, like the ones organised by Actualidad Económica and sponsored by Bankinter, and you can buy CFO magazines. Ruth Porat, CFO of Alphabet (Google), leads the annual rankings of the most powerful personalities in the world.
The unique skillset of a modern CFO
- Only the CFO has 360-degree vision
The automation of financial and accounting processes frees up time, improves the CFO's performance and turns him or her into a strategist with a 360° vision. According to an Accenture survey of CFOs, four out of five consider themselves better qualified than other executives to lead the technology transformation or handle cybersecurity. And that is how CFOs are also seen from outside the realm of financial management, according to another McKinsey report.
- Managing risk
If there is one critical function in business management today, it is ability to anticipate the problems that lie ahead. As opposed to the traditional reactive response, the modern CFO must anticipate volatility and know how to navigate uncertainty, as has been the case since 2020, as well as foresee other risks, such as regulatory risks, energy costs or supply problems.
- Cybersecurity and data safeguards
The digital economy comes with new risks that threaten both reputation and business continuity. We are talking about identity theft, anonymous mass attacks or the theft of customer data. 88% of companies admit to having fallen victim to an attack in the last year and often these hostile actions target the company's finances and treasury. CFOs are becoming increasingly involved in operations and IT. Cybersecurity is critical and must ensure that the company is well protected and that outsourcing does not pose a further risk factor.
- Communication
Who would have thought years ago that the best communicators in companies would be the CFOs. Their rigorous handling of information, their mastery of data, their professional reputation and their standing among shareholders and investors make them highly qualified spokespersons for their company. A role they cannot delegate and which CFOs are known to lavish on the media, shareholder meetings and stakeholders in general. “Let the CFO speak”, you will often hear in many companies.
- You cannot delegate a NO
In its famous article“ The Imperial CFO”, The Economist alluded to the new power of CFOs within companies. “They are the only executive, besides the CEO, who everyone fears: A NO from the CFO means that your precious project is dead in the water”. The modern CFO makes strategies possible, makes technology investment finally have a positive RoI, and rather than handing out charts, as was previously the case, now owns Big Data. More than just guardians of the coffers, they are guardians of data. And those are big words in the new economy.
- Working in the field
Spreadsheet management, with the CFO and his staff all locked away in their offices, has given rise to a new profile, who walks the shop floor, visits the factories, sees where and how value is generated and ultimately oversees the financial sustainability of operations.
- External relations
With investors, shareholders' meetings and analysts. Their reputation and the quality of their reports make them indispensable for interacting with the market and even influencing public opinion, as mentioned earlier. They spend more quality time talking to investors, board members, regulators and other stakeholders. Analysts often pay more attention to the views of the CFO.
- Its transformative role
According to a McKinsey study, CFOs are seen as the figures ultimately responsible —alongside the CEOs— for business transformation processes. What specifically do they do, according to this consultancy firm?
- Measuring the effectiveness of change initiatives.
- Monitoring profit margin and cash flow improvements.
- Establishing key performance indicators before the transformation begins.
Consultancy firm Gartner argues that there are three strategic roles that the CFO must always take on, and that require him or her to set aside more tactical functions:
1. A strong customer orientation
As a CFO consulted by Gartner had to say, “You better believe that investors know whether you know and understand what your customers are doing”. Being involved in pricing, maintaining regular and direct contact with customers and working closely with sales managers are all key indicators of improved CFO performance.
2. Constructive and intelligent tension with the CEO and the Board
Here again, the CFO plays an essential role. Their voice is heard above all others within the organisation and they must know how to harness that power and reputation. Empathy and the ability to “wear several hats at once” come into play: thinking like a CEO, like a founder and like a shareholder. Knowing their fears and the lines that should never be crossed.
3. Geared towards results and the company's future
It is unthinkable that the CFO should delegate the company's business strategy, that he or she should ignore the processes of transformation and the search for new business. It is he or she who must lead this process. Here it is essential to build a fluid and trusting relationship with the other executives, so that the CFO is no longer seen as “Mr No”, or as someone who is always wary of new initiatives.
The one mission the CFO can never delegate: merger and acquisition processes
We have seen the missions entrusted to this new breed of CFO. But if there is one function that is absolutely crucial to the life of an organisation, it is their role in leading mergers and acquisitions. In 2020, there were 2,210 mergers in Spain, worth a combined 116 billion euros. And in the first nine months of 2021 alone, they already numbered 1,951, 22% more than in the same period of 2020.
According to a study conducted by McKinsey among more than 200 CFOs, some 40% of them were actively involved in mergers, both in the initial strategy and in the actual execution and transformation following the process.
And that involvement yields results: revenue and cost synergies improved considerably (by 67% and 76%, respectively) when CFOs were heavily involved in the merger. In successful mergers, it was widely agreed that the CFO had designed the company's transformation roadmap and changed the culture of the organisation.
What roles did CFOs play? McKinsey pinpoints the following essential roles:
- Designing the transformation roadmap.
- Leading the integration and unlocking synergies through planning and measurement that anticipates issues before they arise.
- Backing the transformation and leveraging the merger to achieve a culture change at the resulting company.
- Becoming the main communicator by tailoring the message to the stakeholders: from customers and suppliers, through to investors and employees.
The time has come to delegate to both humans and machines
Three years ago, Accenture asked various CFOs about their day-to-day activities. And two out of three were clear in their minds: they had chosen to delegate more run-of-the-mill financial activities, such as budgets, planning, reports and forecasts, to other executives. And what humans couldn't do, machines did. As Halliburton CFO, Cristopher Weber, puts it: “Automation frees us up time to focus on higher value tasks like analysis and prediction”.
Already before the pandemic, 34% of the activities of the Finance area were automated, according to Accenture. And it estimated that 60-80% of a company's financial activity could be done by machine. “If we genuinely believe that 80% of our finance functions can be digitised, CFOs need to ask themselves this question: What's left for us?”, as Athena Reilly, Accenture's Chief Strategy Officer, insightfully puts it, before going on to answer her own question: “They need to reinvent themselves”.
But it is not only machines and Artificial Intelligence, as we recently discussed in another article. It is also people.
A prime example of delegation within the finance department is the legal and fiscal side, otherwise known as compliance. A CFO cannot be on constant lookout for legislative developments. According to 2020 figures for Spain, some 191,776 pages are published annually in the Official State Gazette and a further 753,322 pages in the regional gazettes. New law and regulations emanating from the state increased by 22%, while regional regulatory output was up 7%, according to a CEOE report. Including 39 decree-laws that forced legal and financial services to act diligently in decoding all these emergency regulations in the wake of COVID-19.
If I delegate, I'll need to explain things
“Agility is everything to CFOs”, says technology consultancy Workday. Many CFOs are aware that they do not spend enough time on their most strategic activity, e.g. direct customer insight or investor relations, as they are distracted by internal requests and time-consuming supervisory work.
If we plan to delegate tasks to become more agile and gain business focus, we must tell the entire organisation —and specifically the finance department— about the change:
- Let the teams know that they will need to take over the tasks that the CFO can no longer handle.
- Deploy a cross-cutting culture of delegation within the team.
- Make it clear that he or she should not be interrupted to deal with non-strategic issues.
- Identify the critical aspects of the department's business and functions of which the CFO will need to be informed in due course.
We need to learn to delegate
As discussed at a recent forum, it's all about changing our mindset to stop getting involved in all the details and focus instead on monitoring the results. Not obsessing about everything that happens day in, day out to focus instead on business growth.
