CFO'S New Instructions

Bertil E. Chappuis, Aimee Kim, and Paul J. Roche

Shareholders' expectations of enterprises are getting higher and higher, and more and more companies are involved in business affairs. The phenomenon of mergers and acquisitions is becoming more and more intense. The regulation of enterprises has been increasingly strict in terms of corporate behavior and compliance. People's expectations for the financial sector have gradually evolved. All these have pushed the chief financial officer to the central position of corporate decision-making, so that they need to be more directly responsible for the company's performance.

It is estimated that in 2006, 13% of CFO in the Fortune 500 companies changed to 1.

In addition, today's enterprises are more likely to recruit new chief financial officers from outside the company. These newly recruited chief financial officers need not only to familiarize themselves with new roles but also to familiarize themselves with a strange industry, which puts more pressure on the new chief financial officer.

Based on the findings of this survey and our cooperation with senior CFO for many years, we have summarized some experiences that will help you understand how to be competent for this job.

Our main concern is the initial pition period, that is, the first 3 to 6 months of the term of office.

The new chief financial officer can not help but hope (and is often eager) to make achievements.

The jobs they need to pay attention to vary from enterprise to company.

Some companies are implementing strategic pformation plans within the company, such as value management, corporate headquarters strategy, or asset portfolio optimization, which require the participation of the chief financial officer.

In other enterprises, especially under the influence of the Sarbanes Oxley act, the demand for daily operation may be more difficult, and there is a very strict time limit. If it is not handled properly, it will cause serious trouble.

If the chief financial officer takes over a stressful company, they may have no choice but to lead the company in a new situation, which will take a lot of time to cut costs and restore investor confidence.

It is a crucial step to define the work according to the situation of enterprises.

On this basis, we can reasonably allocate energy to ensure that the financial departments achieve technical performance indicators, and do not neglect the strategic initiatives committed to value creation.

Among the chief financial officers surveyed, more than 55% thought that the most important task in the first 100 days after the chief financial officer took office was to understand the driving factors of the company's business.

These driving factors include the company's profit path, profit margin, return on investment capital (ROIC) and their respective reasons.

At the same time, the CFO must consider ways to improve these driving factors, such as broadening the source of growth, improving operations, changing business models, and figuring out how these improvements can benefit the company.

To deepen our understanding, several of the chief financial officers we interviewed made strategic and value audits at the very beginning.

They assessed their own companies from the perspective of investors to understand how capital markets would view the importance of revenues relative to high profit margins or capital efficiency. They also assessed whether price adjustment, cost cutting and other similar initiatives would create value; if so, how much value it could create.

A chief financial officer of an in-house promoted high-tech company said: "when I became chief financial officer of the business department, I never worried about the company's tax situation.

I never consider the possible risk of portfolio level from the perspective of product and geography.

After being the chief financial officer of the company, I must understand the business drivers that are not important for the performance of individual business sectors.

When carrying out value audits, chief financial officers usually grasp the existing information first, and the common practice is to meet with the head of the business department.

These executives not only know information about product lines or markets, but also because they use financial services, so meeting them is very important.

In fact, most CFO who participated in our investigation, especially the CFO of private enterprises, hope that they have invested more time in communicating with the head of the business department (Fig. 1).

Through such talks, the CFO begins to establish relationships with key stakeholders in the financial sector and understand their needs.

Some CFO will communicate with customers, investors or professional service providers to understand the external view of their company and the market.

The chief financial officer of a pharmaceutical company described his first month of work as "running around with sales representatives to meet key customers."

I learned a lot from these talks, which helped a lot.

This information is not available to anyone from within the company.

The experienced CFO not only understands and tries to promote the CEO's agenda, but also knows that he must help establish the agenda.

Chief financial officers often keep pace with CEOs and boards before taking office.

Most of the chief financial officers we interviewed said that as early as the recruitment process, the CEO and board of directors had made clear instructions on what they considered important matters and the leading role of the chief financial officer.

Similarly, nearly 4/5 of the chief financial officers surveyed said that the CEO had shown their expectations, especially if they wanted to become active members of the company's top management team, contribute to the company's performance and make the company's financial sector more effective (Figure 2).

A chief financial officer asked the chief executive what he expected to achieve a year later. The answer was: "when I speak half a sentence, you will know what I want to say later, and you will go in the right direction."

This means that at the very beginning of their term of office, they must focus on their own established values to influence the CEO's agenda.

Among the chief financial officers we interviewed, the chief financial officers who carried out value audits could immediately push their views to the CEO and board of directors, thereby gaining trust and starting the dialogue.

In some cases, the truth of the value audit process makes the chief financial officer question the "golden rule" of the business department.

In addition, the CFO occupies a unique position and can challenge the company's strategic choices with actual figures, thereby positively affecting decisions.

For example, the chief financial officer of a high-tech company has created a plan that identifies key issues for the long-term healthy development of a company, including how a large company can make better use of the company's products.

The chief financial officer then urged the sales and service department to establish a new strategy and a new team to promote the sales of the company's products.

Maintaining this balance well is an art, not a science.

As the chief financial officer of a leading software company tells us, "it is important to keep pace with CEOs and to comment on the quality of decisions in a realistic way.

If you can't get a balance between the two, you need to find another job. "

In order to gain time to complete the first task that can affect the agenda of the enterprise, the chief financial officer must have a well functioning financial department backing up, otherwise, they will not be able to obtain reliable and practical data to support their claims.

Many new chief financial officers have found that IT systems, highly artificial processes, unskilled financial personnel or bloated organizational structures have made them unable to do anything other than quarterly accounts.

In order to strengthen the core team, about 3/4 of the new chief financial officers who have been surveyed have initiated a fundamental change or made a change plan for the core activities of the company's financial department in the first 100 days after taking office (Fig. 3).

In these reviews, the CFO inspected the reporting structure of the upper and lower levels, assessed the competence and ability of the former CFO, verified the cost baseline of the finance department, and identified the gaps in the effectiveness and efficiency of the key systems, processes and reports.

The results of this review will help the chief financial officer to determine how much energy he needs to work in the finance department within 6 to 12 months and solve all the problems he finds.

More than half of the chief financial officers who participated in the survey made at least modest reorganization of their core financial team at the beginning of their work.

As the chief financial officer of a global software company said, "if there is a crisis of life and death, you need to find out this crisis and solve it.

If you know that we must make changes, we will implement this change as fast as possible.

Waiting will only make you more difficult. "

The CFO plays a crucial role in promoting the performance dialogue between the corporate headquarters, the business departments and the functional departments of the company.

They have many tools to make use of, including operational status, dashboards, performance goals, enhanced planning processes, company performance evaluation schedules, and personal relationships with business departments and functional departments.

However, some of the respondents took other ways to take advantage of what they call the "company running rhythm", that is, to use corporate planning schedules to guide performance dialogues in the discussions, and to use their own work schedules and indicators.

And we find that some CFO are exerting influence through their prestige in performance evaluation.

The strategy can take advantage of the CFO's ability to drive the participation of other senior managers, and can also make use of changes in systems and processes to improve performance and establish accountability.

Taking into account the many tasks that the chief financial officer may face, the new leader will take the lead.