The role of the CFO in the modern board

By Anastasios Rodopoulos, IAFEI Area President for Europe and the Middle East. From IAFEI Quarterly Bulletin June 2020

The tone has got to come from the top , from the CEO and the board general guidelines.

But if that isn’t happening the next person down and probably the only person who can influence the CEO is the CFO.

There are 9 main sections that a CFO has a great influence being a member of the board of directors.

  1. Regulation

CFO’s now have an increasing personal stake in , and accountability for, regulatory adherence and compliance. They invest more personal resource dealing with regulatory matters an engaging policy makers to ensure new regulatory requirements provide benefits to business.

Tomorrow CFO’s will need to play a role in preventing overly onerous and burdensome regulation. They will need to lobby on behalf of the business, put in place business processes and protocols that negate the need for more regulation, and influence relevant policy development. They will also need to ensure that the finance function has specialized expertise to resolve regulatory challenges.

The level of compliance we need to deal with is a killer, both the small and larger companies.

  1. Globalization

The globalization of businesses has had a significant impact on the role of the CFO and physical setup of the finance function. This will be compounded in the future. Tomorrow’s CFO relationships will be global, and often virtual. The days of off-the-record conversations in the corridor are diminishing.

Expansion places new strains on the business, such as how to access finance in markets and ensuring adherence to additional local regulatory frameworks and requirements. The finance function will need to be adaptable as it streamlines different rules and regulations into business as usual finance activity and CFO’s will need to establish how business expansion into new markets can be best supported by the finance function.

Tactical issues are one thing – culture and cross-border working relationships are quite another. With finance responsibilities increasingly crossing borders, the CFO needs to navigate through, and embrace a vision for, the finance function that cuts across different cultures, working practices, and beliefs, languages and time zones. Global leadership will be the cornerstone of the future CFO role.

Serving global clients means we have to integrate more with our foreign partners in different countries it brings a much greater level of complexity to the work we do.

  1. Technology

At the moment, a key challenge for CFO’s is that data systems and their hierarchies often do not reflect business structures or reporting needs. At the same time, the business continues to change, which means that technology plays catch up and finance spend significant time reworking data in spreadsheets.

Technological developments will serve to help gather, organized, standardize and make data timely. This will drive more effective business intelligence for identifying new market and profit opportunities, measuring and managing business performance, running simulations, or bringing customer insights.

Tomorrow CFO’s and their finance functions will need to be very adept in leveraging this technology. In theory this means less time on recording and verifying the numbers, and more time making the data connections and explaining the number implications to the business – applying the finance lens on decision making.

A big challenge right now is business restructuring and changes, and having to still rework the data to match those changes.

There is also the question of who owns responsibility for this great opportunity? Business intelligence and its successor, analytics, initially developed in the domains of computer science, information systems and marketing. Finance professionals are the businesses natural analysts. To this end, we would expect analytics increasingly to fall within the remit and ownership of the CFR.

We need to be able to rely on our data to a much greater extent, to get out of it insights to really take our conversations to the next level. Especially in an increasingly global and competitive environment.

  1. Risk

The risks are now on a much, much higher level and yet we still get requests from the business to focus on cost savings through things like headcount reduction. It doesn’t make sense.

For tomorrow’s CFO, there will be greater scrutiny of the effectiveness of risk management processes, and much higher expectations on the adequacy of longer term financial plans from the board. Investors and other stakeholders with a vested interest will also look for greater assurances over the financial viability of the businesses strategy for delivering longer term financial success and growth.

The tone has got to come from the top, from the CEO. But if that isn’t happening the next person down and probably the only person who can influence the CEO is the CFO.

The consequential relationship between poor corporate behavior and risk is all too familiar.

Tomorrow’s CFO will be seen as the internal safeguard to a better corporate ethos. This does not mean to suggest sole ownership and responsibility belongs to the CFO.

The rest of the board must also play their role and set the tone from the top , but ultimately it is the CFO who is the guardian of the organization’s assets and who should recognize that poor behavior can lead to value erosion.

Access to capital markets will also become an even greater priority for CFO’s in the future. In a more volatile environment, and a more uncertain investment climate, ensuring the right balance of business funding will provide finance leaders with increasingly significant challenges.

Future CFO’s will need, more than ever, to ensure appropriate policies in relation to capital investment, cash availability and shareholder return, balancing risk and reward effectively will be critical

One of the key challenges for the modern CFO is risk management. Avoiding risks is not an option. You have to be proactive and be prepared to take risks.

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