Dangers of ‘beefing up’ the CFO role

The role of the chief finan­cial offi­cer (CFO), or finance direc­tor in old mon­ey, is sub­ject to intim­i­dat­ing infla­tion. Hav­ing com­mand of a company’s finances, it seems, is no longer suf­fi­cient.

They must also “dri­ve busi­ness change”, “influ­ence cor­po­rate strat­e­gy” as their job “aligns more close­ly with oth­er C‑suite lead­ers”, accord­ing to Robert Half, the recruiters.

In its recent sur­vey of 200 CFOs, the com­pa­ny found increas­ing prof­itabil­i­ty and “dri­ving over­all com­pa­ny growth” were the two most com­mon respon­si­bil­i­ties being added to their to-do list.

“Busi­ness mod­el­ling, data analy­sis and tech­nol­o­gy will play a cru­cial part of the CFO role in the future,” says Simon Bit­tle­stone, man­ag­ing direc­tor of Metaprax­is, a finan­cial ana­lyt­ics busi­ness.

There are undoubt­ed­ly ben­e­fits in hav­ing a more round­ed CFO along these lines, but stu­dents of com­pa­nies’ long and dis­hon­ourable ten­den­cy towards self-delu­sion will also sense cause for alarm.

A CFO should be a voice of real­ism and restraint in the board­room, yet the new vision of their role empha­sis­es only the neg­a­tive con­no­ta­tions of their tra­di­tion­al rep­u­ta­tion as being hold­ers of the purse strings.

As Michael Izza, chief exec­u­tive of the Insti­tute of Char­tered Accoun­tants in Eng­land and Wales, puts it: “They can often be seen as a block­er for change if they do not green-light projects of oth­er mem­bers of the C‑suite.”

The prob­lem is some­times block­ing change is exact­ly the right thing to do. Now that CFOs are being pulled in new direc­tions, mov­ing towards a more “strate­gic busi­ness part­ner” role that empha­sis­es clos­er ties to the chief exec­u­tive, who will be there to rein in over-ambi­tious, over-aggres­sive and hubris­tic man­age­ment teams?

In an envi­ron­ment where CFOs are sup­posed to have twin objec­tives, growth and finan­cial con­trol, it’s easy to imag­ine which might win out in the name of prag­ma­tism when, say, a swash­buck­ling deal is on the line.

Those talk­ing up the ben­e­fits of CFOs wear­ing two hats are fail­ing to recog­nise the obvi­ous con­flicts of inter­est that are being cre­at­ed as more com­mer­cial respon­si­bil­i­ties are piled on.

The dangers

There should be no short­age of cau­tion­ary tales for what hap­pens when the warn­ings of the finance func­tion are over­looked or sim­ply when it proved to be the watch­dog that didn’t bark.

We need look no fur­ther than Roy­al Bank of Scot­land to see what hap­pens when group think infects a board­room and a ram­pag­ing chief exec­u­tive goes unchecked.

“I think we’re good for it” was Fred Goodwin’s mem­o­rable retort when the wis­dom of the bank’s dis­as­trous takeover of ABN Amro was ques­tioned at the time. That the bank wasn’t “good for it”, along with the mad­ness of allow­ing the lender to expand to the point where the val­ue of its loan book was larg­er than the entire UK econ­o­my, offers an extreme exam­ple of a neutered risk and finance func­tion.

Stu­dents of com­pa­nies’ long and dis­hon­ourable ten­den­cy towards self-delu­sion will sense cause for alarm

The demise of HBOS at the hands of an over-con­fi­dent man­age­ment team offers anoth­er dra­mat­ic case in point.

It’s remark­able, then, that the wis­dom of dilut­ing the CFO’s role in the name of com­mer­cial expe­di­en­cy is being expound­ed only a decade on from the start of the glob­al finan­cial cri­sis.

It has already got to the stage where those who have a more tra­di­tion­al view of the role can strug­gle to find the best work.

Mr Izza says: “In the case of small­er com­pa­nies, the CFO can still be lim­it­ed to the finance func­tion and this might pose chal­lenges. It can be hard to attract the best can­di­dates if they could fur­ther their careers by work­ing in a more strate­gic role else­where. Equal­ly, more expe­ri­enced CFOs may find, while they have exper­tise in finance, they don’t have the oth­er skills now need­ed in the mod­ern busi­ness world.”

War­wick Hunt, chief oper­at­ing offi­cer of PwC UK says: “If a CFO now focus­es only on their team and the tra­di­tion­al role they played, they’re nev­er going to be cred­it­ed with adding real val­ue to the wider busi­ness.”

An enhanced role where finance direc­tors move “beyond  inter­nal­ly focused score­keep­ing” to advise on broad­er trends, includ­ing “eco­nom­ic risks and the geopo­lit­i­cal envi­ron­ment”, as Mr Hunt puts it, can of course have its ben­e­fits.

But it’s vital that in becom­ing the co-pilot of the chief exec­u­tive, CFOs don’t lose their inde­pen­dence and the abil­i­ty to tell their boss that he’s in dan­ger of stalling.

“As a strate­gic part­ner, CFOs need to have the vision to see how projects fit into the business’s over­all mis­sion. But they are also about mea­sure­ment and man­age­ment, and this means remain­ing a voice of rea­son,” con­cludes Mr Izza.

The dangers