The new role of an experienced CFO in 2023
Today’s CFO is busy in ways that previous generations of finance leaders could not have anticipated, with more responsibility for corporate strategy, board engagement, digital initiatives and financial performance and management across the whole company.
According to a recent McKinsey article: “One trend we’ve confirmed after years of research: the finance leader’s role is ever evolving.”
That has never been truer than it is in 2022 -23, when businesses and consumers are experiencing a challenging and disruptive environment.
An HBR article in 2018 led with: “The job of CFOs today is more important and more complex than ever. And the role of the CFO is changing dramatically
CFOs also have a meaningful role to play in their companies’ Environmental, social, & governance (ESG) programs. An inciteful comment in a recent KPMG article confirmed that: “There is a clear belief that sustainable companies are more stable, and consumers in all industries seek out strong ESG criteria.
CFOs were at the forefront of addressing the many challenges that COVID-19 wrought across industries and countries.
M0st CFOs focussed on their business’s short-term needs and have continued to closely monitoring cashflow, financial performance, costs, productivity and supply chain.
CFO’s focus on value creation requires them to have a deep knowledge of the economics of the company’s business model, a strategic perspective on industry specific trends, and a role as thought partner with the CEO and board, making them the best qualified member of the top team to lead these new challenges.
The CFO’s role in capability-building
As organisations shift from responding to the COVID-19 pandemic to recovering from it, many are discovering that the capabilities of their workforce no longer match the needs of the changed marketplace.
One of the most critical responsibilities of CFOs is supporting efforts to build new capabilities-The mindsets and behaviours an organisation needs to reach and sustain its full potential.
The finance leader is uniquely suited to provide the necessary combination of insights.
The CFO’s role in integrating Mergers and Acquisitions
To successfully integrate companies and cultures, business leaders must have a clear perspective on the synergies to be captured, the transformation opportunities to be pursued, the value to be created, and the cultural pitfalls to steer clear of.
Your CFO plays a major role in initial merger strategy and negotiations, so has both the information and the expertise to provide that perspective and help lead the way.
According to a recent McKinsey article: There are 5 varied roles the CFO can play in ensuring that companies capture the most value from M&A deals.
- Cost and revenue synergies are more likely to be achieved when the CFO is deeply involved in merger integrations
The numbers show that when the finance chief is directly involved in identifying potential synergies, transformation and value-creation opportunities, and cultural pitfalls, companies achieve better outcomes.
- Synergy leader
They should also make sure that the full range of opportunities from the deal are targeted and assessed, not just those synergies required to justify it.
- Transformation sponsor
As transformation sponsor, the CFO can facilitate discussions about the financial and strategic trade-offs that are inevitable in any merger—for instance, how to set up shared services, how to rationalise IT systems, or how to upgrade talent and other capabilities.
- Communication leader
The finance chief has the information and expertise required to present a complete financial picture while tailoring the value story to each set of key stakeholders—customers, suppliers, investors, employees, and board directors.
- Cultural role model
Integrations inevitably pose cultural challenges for business leaders.
As the member of the top team closely associated with strategies and decisions relating to resource management, the CFO is in a good position to ease concerns & model the culture of accountability required in such situation
How the CFO can enable the boards success in the post Covid era
Critical business decisions cannot be made unless management teams and boards of directors are on the same page. Transparency, fair and balanced dialogue, and well-structured processes for gaining agreement on strategic plans—these dynamics must be present in every boardroom, in good times and, especially, in bad.
In crises, such as the global spread of the coronavirus, the CFO is best positioned to provide the most relevant and up-to-date facts and figures.
CFOs have pivoted to managing financial headwinds in 2022 & 2023
The recent Kinsey CFO Pulse survey indicates that CFOs have sharpened their focus in 2022 on managing inflation, supply chain disruptions and interest rate hikes, and as a result they appear to be spending less time on long-term strategic goals.
According to McKinsey’s, “the right response to such challenges — is, maintaining focus on the long-term while adjusting in the face of present conditions, rather than opting for one or the other.”
Lessons learnt from CFOs in private equity funded businesses
In both good times and challenging times, CFOs of PE-backed companies offer invaluable insights that private or public company CFOs can learn from to raise their game.
Below is a summary of five of the most important lessons from Private Equity (PE) backed companies that CFO’s can learn from.
- Focus relentlessly on value creation
According to McKinsey: Effective PE Company CFOs are instrumental in developing a value creation strategy tied to the most impactful levers—growth, margin expansion, and capital structure.
- Create and incentivise ambitious but achievable targets
PE funded Senior leaders, including the board & CFO, invest a lot of time and effort establishing realistic, achievable targets that stretch performance target levels but never bend credulity.
In most cases, targets are accompanied by incentives that align the managers’ rewards with their teams’ success. Incentives are typically disproportionately weighted toward tangible, demonstrated outperformance.
- Mergers and acquisitions (M&A)
When the finance chief in PE funded companies is directly involved in identifying potential M&A synergies, transformation and value-creation opportunities, companies see greater success.
- Embrace an investor mindset
Clearly understand what pension funds and long-term investors understand instinctively: long-term value maximisation matters, a lot. This stark realisation jolts CFOs from a mentality of passively minding year-over-year performance to a much more engaged approach.
- Become an expert at every aspect of the business
In PE-backed companies, the CFO is expected to have a solid understanding of all key elements of the business.
Which customers are the most profitable? Which product lines or markets generate the highest growth rates and margins? What potential risks or disruptions could occur? What are competitors doing better or different?
This knowledge is critical to making informed decisions on strategy and resource allocation. It also makes the CFO an invaluable team member—the key person with informed insight about business performance.
Conclusion
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