Perceptions of the modern CFO, and the role itself, are changing – as are the times, with unprecedented upheaval in recent years. We wanted to find out how CFOs have been handling this period of transition and so conducted a survey, speaking to CFOs, MDs, CEOs and other senior leaders. Our subsequent report, “Today’s CFO: Financial steward, business leader, value creator”, which you can read here, digs into the issues.
During the course of our research for the report, we discovered that boards and CFOs have differing opinions of how CFOs can create value in the business, with two thirds of boards ranking strategic acumen in the CFO most highly, and CFOs themselves prioritising commercial and operational decisions.
To explore this further, Amy Luke, a Senior Director within BIE's Finance Search Practice, sat down with Steve Callaghan, Chairman at Marston Holdings Limited, to get his perspective on the role of the modern CFO, what has changed over the course of his career and what advice he’d give for aspiring CFOs.
The role has started to evolve in recent years. Regulators have sharpened their teeth over the past decade. So CFOs need to keep their eyes open. Same goes for ESG. It’s not just something CEOs need to be mindful of anymore – CFOs are expected to play a more active role in the ESG agenda.
CFOs also need to be extremely commercially minded. It’s not just a numbers game anymore. CFOs, just like CEOs, need to have a good grip on the underlying dynamics of the operating business. It’s not good enough to show up with the numbers alone. Boards today want CFo’s to understand the commercial, operational and strategic drivers in their business. CFO’s today are expected to be in the operational and commercial detail……What's your market share? How many of your major contracts are going to renew in the next 12 months? What's the win rate? How big is your backlog? Can you talk to the dynamics of the deferred revenue on the balance sheet? These aren’t just technical accounting questions. You need a real grip on the underlying trading performance and the dynamics of the business today.
I’ve worked as a CEO in three public companies and five private equity-owned businesses, and I’d say that I think the role of the CFO has evolved more in private equity. In private equity the CFO takes on more of a strategic role in the business. This is partly because they are only accountable to one shareholder, rather than the multiple shareholders to whom a public CFO is accountable.
I think there’s also been an overall increase in the breadth and depth of requirements for a public company CFO. It’s not that those requirements don’t exist for a private equity CFO, but it’s perhaps less formally scrutinised. I think where governance has a capital G for public companies, it’s more of a lowercase g for some private equity firms. Of course, there are things like the Walker Report, where public company reporting standards are echoed in those for private equity firms of a certain size… It’s just that that “certain size” doesn’t kick in until a few hundreds of millions in revenue and some tens of millions of EBITA.
The CFO and CEO have to be more hand-in-glove than ever before. At some point in time, the CFO and CEO will be individually questioned on matters and there can’t be a cigarette paper in between them when it comes to strategy or commentary on performance with regards to likely market evolution or development, or matters regarding the Three Cs of colleagues, customers, and the company.
Absolutely. When I took on my first CEO role in 1996, the CFO was just there to do the numbers and give a high level summary of strategy. That doesn’t cover half of what’s required today.
Today, the scrutiny from investors and lenders means that CEOs and CFOs spend a lot of their time reporting and explaining performance, rather than getting on with the job of strategically, commercially, and operationally growing the business. I’ve actually spent a lot of my time as Chairman providing air cover to CFOs and CEOs to try and help them with this, and give them the freedom to do their job.
It’s more a question of how far can it go? We’ve already seen the COO and CFO role almost merged into the role of the modern CFO. Areas like HR, risk and compliance, and even legal come into the CFO role. Is it too much for CFOs? Should they be responsible for all of that? Or should the additional responsibilities be more diffused, with the COO stepping in and shouldering some of it?
I think for now, we’ll see evolution along the same commercially-driven track, and I expect more CFOs will build solid finance functions around them to give them more space to be able to think, and keep an eye on things externally. You need to have that wide-angled view to stay relevant and ahead of the competition, after all. And that is part of the CFO’s function – to help their businesses survive and thrive. For me the modern CFO should spend about 20% of their time thinking about the future of the business.
I think so, and the businesses themselves need to be able to evolve as well. If you’re doing the same things and losing market share, you need to do things differently and innovate – sell through different channels, penetrate different geographies and invent new products! I think this is also where the CFO will have a role to play. Often, as CFOs evolve commercially, they are able to challenge old business models and help create new ones, particularly under the new accounting standards.
Put yourself in a difficult operational role and meet your customers. Talk to the people who interact with your business, listen to what they have to say and use everything you learn to make those relationships more profitable in the long-term.
You simply won’t get that kind of exposure if you go through the standard accounting technician (CIMA or ACA) route. I’m not saying you won’t learn a lot that way, but will you be as adept and prepared for the moment your CEO or Executive Chairman asks you to talk them through your business model or how it’s going across the wider business? Those questions can only be answered if you have experience with colleagues, customers and the company – not to mention a deep understanding of the company’s potential. You won’t get that with completely siloed experience in finance.
To read more about the evolving role of the modern CFO, our latest report, “Today’s CFO: Financial steward, business leader, value creator” can be found here.