The Changing World of the CFO
16 March 2021 - By Clive Webb, Head of Business Management at ACCA
The role of the chief financial officer (CFO) has long been an important one for organisations. Maintaining fiscal integrity and governance in ever changing business environments has been fundamental to success. A robust sense of ethics and integrity, developed from the professional qualification, have ensured that investors have confidence in the measurement of the performance.
Like many things in business, the pandemic has heightened changes that were already starting to occur. The role of the CFO has not been exempted from this. In their report published in September 2020 ACCA and IMA considered this trend and suggested nine dimensions that were increasingly important to the successful delivery of the role.
Financial acumen remains at the core of the CFO role. The clear expectation from all the stakeholders that the incumbent of the role has the financial integrity and prudence at the core of what they do is accepted by all. However, the range of stakeholders in organisations has grown and their needs widened. Organisations are increasingly appreciating how they utilise other forms of capital provided by other stakeholders. Ability to recognise how the broader environment, natural, human and social capitals are fundamental to performance is now an essential part of the role. To embrace these dimensions requires strong strategic skills, leadership, communications and consulting skills.
The relationship between the chief executive officer and the CFO is also key. For many organisations the ability to ride the economic storm associated with the pandemic has relied, in a significant part, upon the strength of the relationship between these two individuals. The CFO is often the critical friend, the wise counsel.
A data-driven insight revolution
In riding that storm, the pandemic has confirmed the accelerated process of digital transformation for many. Organisations have needed to adopt rapid digital programmes in short spaces of time. These programmes are often tactical, but part of a wider strategy. What they deliver is the ability to interact with customers and suppliers more efficiently, whilst improving the quality and depth of data that the organisation needs to make decisions. CFOs are at the heart of this data driven insight revolution. The ability to offer credible scenarios upon which executive teams can take decisions has been key to addressing the current circumstances. CFOs were already fundamental to digital transformation; they are now essential players. As custodians of ‘one version of the truth’ for many organisations, the CFOs need to appreciate that financial data is no longer enough, the convergence of operational and financial data, the ability to understand customer sentiment from unstructured data, and present it in ways that are relevant to decision making are essential. This requires the use of predictive analytical tools.
In modelling the potential scenarios there is a need to calibrate the risks that the organisation faces. CFOs need to maintain their focus on risk and control, evaluating how the risks identified can impact the outcomes of the scenarios modelled, as well as identifying potential new and emerging risks, especially those from the expanding range of stakeholders.
Whilst the pandemic has had a significant impact on all organisations, in particular the conversation on environmental, social and governance (so termed ESG) risks cannot be ignored. As the impact of the pandemic continues to be felt globally, these risks will continue to evolve. Organisations have been required to understand their social policies more. Regulators, such as the SEC, are taking an increasing interested in the reporting of human capital and in the financial impacts of climate change and other ESG topics.
ACCA research suggests that finance teams are not fully appreciative of the risks of natural capital on either their reporting or their internal decision making. Today, the climate emergency must be at the core of successful organisations. This means that CFOs and finance teams must be fully literate in what the impacts – and potential opportunities – could be. Investors, from whatever form of capital they represent, are increasingly challenging not just how ethically sound the organisation is before they interact but how effective their management of ESG risks are. As consumers we may be willing to excuse some of this in the current circumstances, yet that ethical and governance lens will return stronger, and CFOs will be at the heart of that.
The role of the CFO is clearly developing. Developing in ways that are beneficial for their organisations and for themselves and the profession that they are members of.
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