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With more chief financial officers acting as strategists and risk managers, boards should work closely with them and plan their succession
Spencer Stuart recently conducted a study to learn how chief financial officers see their roles which revealed that the duties of CFOs have changed dramatically in the post-Sarbanes-Oxley/market-meltdown world. As a result, boards need to adjust their views of the CFO function and should be pushing for succession planning for CFOs as much as they do for CEOs. Here is what directors should be thinking about vis-à-vis the changing role of the CFO.
CFOs have emerged as key business partners to the CEO.
CFOs' responsibilities go well beyond finance into balancing compliance and risk management with business-performance goals. They have an important role to play in reading and understanding evolving business drivers and helping their companies seize opportunities. The best CFOs balance accountability to the board and shareholders for maintaining the integrity of the financials and appropriate risk management with loyalty to the CEO.
CFOs now spend more time on strategy and operating issues and less on budgeting and accounting.
This requires broad knowledge of the organization and of relationships among functions. As a result, CFOs have become a second set of eyes that directors should use in deliberations over the future course of their companies. CFOs can increase transparency for the board and raise issues that otherwise might go unnoticed. Especially in companies with international operations, it is hard for directors to grasp component parts and how they interrelate. CFOs help clarify business models, draw the maps of activities, and provide a deeper sense of how a business actually works, its risks and opportunities.
Directors should work with CFOs more closely.
CFOs are now risk managers, not just risk controllers. Risk management has emerged in the past year as one of the critical board-level issues, according to another Spencer Stuart study. Directors should expect CFOs to provide an organizational view of risk and how to manage it, especially at a time of heightened risk in the marketplace. However, rather than saying no to proposals to avoid risk, CFOs need to find solutions that better balance risks with rewards.
CFOs are a bridge to investors that directors need.
CFOs have become key contacts for the investment community, auditors, and ratings agencies, and are the day-to-day access to shareholders that directors do not have. Directors should expect them to stay close to these audiences, to know what is on their minds and to report their concerns to the board. Neither directors nor CEOs like surprises: Especially with greater shareholder activism and involvement in corporate policy, CFOs need to track investment community concerns closely and report on them regularly.
Because of the new demands they face, CFOs have had to become strong leaders rather than technical experts. A CFO needs deep bench strength in the key areas of budgeting, forecasting, and control to allow the CFO to devote time to business activities. Directors, especially those on the audit committee, should take the time to get to know the CFO's team and understand its strengths and weaknesses.
Directors should make sure there is agreement among the management team about the most appropriate measures to gauge a CFO's success. Incompatible expectations can strain relationships within the management team and derail progress on business objectives. CFOs today evaluate themselves on both quantitative and qualitative terms. CFOs argue that the effectiveness of their organizations also should be judged on the basis of contributions to strategic decisions, credibility with top management and with investors and analysts. Boards should make sure that CEOs see a CFO's success in the same way.
Directors are finding themselves leaning on CFOs' skills and insights more than in the past. They look to their CFOs to take a leading role in shaping strategy, improving operations, and driving bottom-line results while managing reporting and regulatory responsibilities. To be an effective business partner to the CEO and resource to the board, CFOs must have broad-based business and finance experience and build exceptional teams on whom they can rely unconditionally. Finally, the CFOs of today and tomorrow must be as comfortable in the boardroom as they are in the management suite, identifying and addressing the challenges and opportunities of their companies.