Make Way for the Virtual CFO

The changing role of the CFO is a subject that has prompted discussion and debate for some time. The introduction of computers from the 1970s onwards heralded the end of manual book-keeping and as a result, more freedom and a changed role for finance staff, including the CFO. Four decades on, what do CFOs do and how do they think that their role may continue to change in the future?

An expanding role

The first thing to say, based upon the research and interviews, is that CFOs don't all do the same job. Yes there is some commonality, at least over the issues for which CFOs have responsibility but the ways in which these are delegated can be very different.

To some extent this may reflect circumstances in a specific company at a point in time – for example, if a company is actively engaged in merger and acquisition activity then it would be likely that the CFO would be closely involved. But increasingly, the way a particular CFO carries out his or her role can be as much a reflection of personal preferences, style and background, as a response to corporate pressures.

One CFO, recruited with a strong treasury management background, emphasised that he saw his new CFO role as an opportunity to focus on a wide range of new and different issues – rather than merely employing his treasury skills in a new environment.

In describing their roles, many CFOs summarise their responsibilities under fairly similar headings such as: strategy development; investor relations; portfolio management; planning; corporate finance and stewardship.

The time spent and emphasis given to activities under each of the headings will vary. But what is common is a desire to focus an increasing proportion of their time on more strategic and forward-looking elements of the role, as opposed to the stewardship activity previously seen as the province of the CFO.

External pressures have also broadened the CFO's role. One of the practical implications of pursuing shareholder value has been that investors and analysts seek a constant flow of information – spawning the development of investor relation departments within quoted companies.

As a result it has become almost obligatory for the investors and analysts appetites to be satisfied at least twice a year – coinciding with the release of both interim and final figures – with lots of 'snacks' being offered in-between. Therefore, it is not surprising that there is a strong involvement of the CFO in such activities.

However, the expectation is not just of a summary of the previous period's figures, but an analysis of future strategy and the way it will be reflected in future earnings, dividends and cashflow performance.

No longer, therefore, can the CFO merely count the beans; they have to be able to explain how they are to be re-planted and nurtured and how the following years' crops will improve. Whilst different companies clearly cultivate their relationships with the investor community in different ways, it is not uncommon to find CFOs spending between 25 to 50% of their time involved with investor relations activities.

However, there is something of a conflict here. CFOs appear keen to pursue a more commercial role, and can be seen to be pulled in that direction by the investment community, yet the growing emphasis on corporate governance issues tend to pull them back towards their monitoring and controlling roots.

Evidence for this view can be found in the words of one CFO who stated in an interview: "If the business goes out of control, the CFO stands to be fired. The lesson I have learnt is that if you want to have the freedom to broaden your role, don't miss your numbers."

There is also a macro-economic perspective that can be brought to bear on this point. In boom times when the economy and share prices are rising, a light hand on the control tiller coupled with a strategic financial role may be welcomed. But if a recession looms, the CFO's focus tends to move away from strategy and much more firmly towards control.

However, as technology allows compilation and reporting to become increasingly automated, the CFO has to either grow their role to encompass more strategic financial issues, or face the prospect of being replaced by a spreadsheet or a web page.

Web reporting

Some company websites contain not only the company's annual report but also a downloadable copy of the presentations to investors and analysts with webcasts of the investor / analyst meetings. Managing the financial content of the organisation's website is an issue that has become increasingly important to all CFOs – or to someone else within the business if CFOs do not grasp the opportunity.

Accounts without accounting

Traditionally, CFOs and their staff have played a key role in analysing the financial implications of outsourcing for their businesses – why undertake activities in-house when they can be done more effectively and economically by others? Having said that, finance departments are beginning to question this school of thought.

An article published on www.businessGreen.com¹ highlights an emerging number of CFOs who have 'changed their departments into value-adding finance functions.' The article draws on the results of a pan-European survey which identifies that, on average, less than 20% of the finance function's time is spent on value adding activities – with most resources being spent on day-to-day accounting operations.

With the advent of shared service centres, linked to the changes in technology and outsourcing already mentioned, an increasing proportion of the finance function's transaction processing activity can be done away from the business.

Whether such change is viewed as an opportunity to release resources and increase the responsibility of the finance function, or to reduce that responsibility, is something that will vary across organisations. Whatever the view, it is an issue that CFOs cannot afford to ignore.

People skills

Not only do CFOs need to add commercial, technological and strategic skills to their technical financial knowledge, they also need to demonstrate softer skills, in areas such as negotiation and teamwork – not only in their relationships with operational management but also in their role as members of the Board. Just as CFOs look to expand their role to cover the ground previously seen as the province of other Board members, their colleagues on the Board look to demonstrate their financial skills, as the boundaries between the roles and responsibilities of individual directors become increasingly blurred.

Evidence for this change in approach is provided by one of the CFOs interviewed, who stressed that the most difficult issue he had faced in the previous month, had been persuading his fellow board members not to go ahead with a potential acquisition – a debate which centred on political and social concerns rather than technical financial matters.

The changing skillset required of accountants is recognised by the professional bodies and indeed can be seen to be a key factor influencing the debate on accountancy training. CFOs need to recognise this not only in terms of their own skills, but also in terms of the people they recruit.

Thinking about the changing role of the CFO is also an international phenomenon. According to PricewaterhouseCoopers in China, "The convergence of regulatory, global and market drivers are requiring CFOs to re-assess the structure of their finance organisations as well as the role they should play. The finance function is often under intense pressure to provide greater transparency and help manage business performance, while reducing the costs of its operations."

So what happens now?

What does this all mean for the CFOs of the new virtual era?

It could indicate that:

• whilst technical skills will remain important, those with more general commercial and people skills, coupled with a sound understanding of business, will be most highly valued
• the role will focus more on planning for the future and making things happen, rather than explaining the past
• understanding and exploiting technology will be critical to both individual and corporate success.

Significantly, all of the above points could be equally applicable for any director – not just the CFO.

Perhaps the pattern for this virtual age is that all directors will need to have broader rather than narrower skills – with real technical expertise residing at lower levels within the organisation, or being 'purchased' externally. As for virtual CFOs – perhaps they are unlikely to materialise in advance of the virtual salary and virtual share options.

Reference

1 www.businessGreen.com: 'Can you really imagine an accounts department that doesn't do accounts?' Peter Williams