Among all the characteristics you would
look for in a CFO, clearly the most
important is integrity and honesty.
Little can disable a company faster than a dishonest
CFO. But be careful, the accounting
profession is a little odd when it comes to
integrity; an accountant can stick purely to
accounting standards and rules to a fault, fail to
provide a company important internal decision
support information that can promote greater
profitability, and still have high professional
integrity. I like to think of the key responsibilities
of a CFO as a simple matrix ( see image).
External stakeholders are particularly important
to public companies. Private companies
also pay taxes, have regulators, and probably
creditors that require some form of regulated
financial reporting. The CFO must ensure the
company’s credibility and reputation is strong
with external audiences. Information presented
must be highly credible and meet the specifications
required. Mistakes can lead to loss of
reputation, criminal indictments and fines, and
loss of financing. External reporting is the area
of greatest educational focus for accountants
and where expert assistance is most available.
The CEO and board are very interested in
high quality external reporting and the company’s
reputation, and they are responsible for
strategic planning and management requiring a
wider range of information to guide the company
to long-term profitability and viability.
Regulated external reporting presents a version
of profitability, but it tends to have a short-term
focus and be oriented toward short-term
market expectations which can distort longer
term strategic considerations. An example is
offshoring manufacturing to improve the return
on investment metric by shrinking investment
rather than improving return and injecting huge
quality and supply chain risks. A CFO must be
able to look at company performance and organizational
incentives from multiple financial
perspectives, including external reporting and
internal decision support. This is a challenging
realm for an innovative CFO because individual
and organizational performance incentives have
long been based on external reporting metrics
and most executives are very skilled at gaming
those metrics to their short-term advantage—even when it may disadvantage the organization
in the longer term.
The skill set in shortest supply among CFOs
is internal decision support. This area is the
most difficult to assess because the knowledge
and skills are not widely taught in accounting
curriculum. Managers and employees benefit
greatly, in terms of innovation and process
improvement, from financial information that
clearly reflects and directly applies to the operations,
resources, and decisions they use and
make daily. A few examples:
- Overhead allocations should be replaced
with strong causal assignments showing
fixed and proportional costs that reflect
the resources used in processes.
- Selling costs, collection costs, and other
cause and effect related costs should be
causally modeled into product and/or customer
costs.
- Depreciation should be based on use and
actual longevity periods.
How do you evaluate the internal decision
support capability in a CFO? First, you want a
CFO with a proven track record of creating a
collaborative work environment and culture, not
just in the finance space, but across a broader
part of the organization. Second, a clear record
on innovation within finance and the broader
organization. Experience with Lean, Six Sigma,
agile, and scrum techniques are good indicators
of an innovative mindset. Third, a genuine
interest in your business from production to
sales and logistics to strategic planning, as well
as evidence that they have engaged functionally
in other businesses beyond finance. Finally,
all business requires taking risks to advance
and improve. Yes, a risk-supporting CFO is
essential. The CFO you want must enable the
risk profile needed to achieve your organization’s
strategy. A CFO that will venture aggressively
into internal decision support information
projects will rapidly gain an understanding and
effectively communicate what is needed for
success in your organization.
