Governance and risk rise up the ladder of priorities for CFOs.
CFO India recently concluded the 5th edition of its Annual CFO Leadership Conclave. Anniversaries have a way of nudging us to ask pertinent questions. You can ignore them as just another number – or use them to find answers and as an excuse to reflect, reconsider, recalibrate. Doing the latter, is often more meaningful. So here we go.
It was 1996. The Economist Intelligence Unit published a report titled ‘The Evolving Role of Finance’ – the genesis of today’s vibrant community of CFOs in India – and perhaps the world over. The report, based on how businesses were expected to grow, spoke about the need for a CFO to become ‘strategic’, partner the CEO and ensure that they reduce time spent on the ‘mundane’ and make themselves available for more ‘important’ matters.
In some ways, this seminal piece of work has shaped the role of the CFO over the last decade. If anything, there is often a need, to pull a CFO’s attention back to what might be mundane but is absolutely critical to the safe and sane functioning of the finance function. Many senior finance professionals say that, for a CFO, the devil will always lie in the detail – ignoring this basic hygiene undermines the role, the organisation and governance at large. Andersen, Enron, and Satyam among others only go to prove the point.
Basis the 1996 report, many who have assumed CFO responsibilities only in the last decade only know this new definition – ‘strategic partnership with the CEO’. Conversations that begin with ‘the CFO needs to move beyond being a bean counter, naysayer, gatekeeper…’ etc are alien to this segment. I was struck by this shift when on our recent 5th anniversary, someone asked for a discussion around the strategic CFO and weneeded to craft the content. All the inputs seemed passé – automate, move beyond transaction processing, understand what drives the business, partner the CEO, use technology, and so on. Most CFOs already do this. So what next? What will the strategic CFO do in the future?
Borrowing from the wisdom of those who have witnessed change in the responsibilities for the finance function over the years, here is what we discovered. The looming preoccupations in the foreseeable future will be managing risks and enhanced governance. In a world where everything is more uncertain, CFOs must focus on identifying and controlling enterprise-wide risks, both the known and the unknown. There is, in fact, room for a chief risk officer in companies – a role that will lend itself well to the skill sets of a CFO. Governance, which so far has often been a matter of choice, will become necessary for survival. Setting benchmarks for governance and adhering to them will therefore occupy increased mindshare, time and resources.
Automation, the accepted tool for releasing time to address strategic matters, must now be applied to risk and governance related transactions. And what will the CFO do with the time at hand? The wise ones say – that the strategic CFO of the future will do two other new things. The first will be increased external orientation including regular interface with customers. In a celebrated HBR article titled ‘What Only the CEO Can Do’, A G Lafley talks about the importance of being connected to the outside world. It offers cues into the demands of senior leadership – something the CFO of the future must embrace. And the second is strong leadership skills at large including a focus on building internal capabilities and teams to take on the demands of the coming years.
No ask of the CFO has been a simple one. Going forward the complexity and the criticality will only grow and the strategic CFO will have four main priorities - risk, governance, an external focus and leadership.
Sounds about right to me. But what do you think?