The numbers don’t lie -- or so the saying goes – but they rarely tell the whole story either, just like how the Chief Financial Officer (CFO) encompasses more than just finance and accounting.
Once upon a time, “CFO” was a reasonably prescriptive, even possibly slightly intimidating title. It used to be pretty much all about the numbers – but the narrative has changed.
Personally, I never had any ambition to be seen as a number cruncher or corporate policeman. I started my career as a Management Consultant at electronics giant Siemens AG in 1994 and only took on my first CFO role 13 years ago at the company’s US$1.5 billion Specialty and Automotive Lighting business unit.
There I was, a CFO at 40 years old. I was full of respect and awe when the legal counsel introduced me to the duties of the role – it was not only about the authority, empowerment, and sense of purpose but also the accountability associated with making decisions.
It was only after I put down my first official signature in the role did, I truly realise what I was signing up for. As a CFO, others depended on my judgement and ability to form a view in a reliable manner.
The consequences were heavy if I failed. This deep sense of responsibility, integrity and commitment to transparency has followed me until this day.
Accelerating growth through calculated risks and partnerships
Historically, the CFO has been a largely invisible figure – often risk-averse and narrowly focused on accounting, assets, liabilities and returns. In contrast, today, we must be seen as accelerators of change and be prepared to take carefully considered risks.
While we’re usually not quite centre-stage with the CEO, we must do much more than just provide behind-the-scenes counsel; we must be a partner in identifying strategic growth opportunities, guiding the evolution of the business model and making measured, value-accretive investment decisions.
Digital transformation the only way forward
When people ask, “what keeps you awake at night?” the honest answer is that it is the very same thing that stimulates me during the day – the challenge of staying relevant and responding fast enough to changing trends, notably the change in consumer and customer behaviours and the digital transformation process, across the finance function.
Research has shown that as we emerge from the pandemic, CFOs must accelerate the digital transformation process for the finance function. Tools – from interpreting results to controlling costs to acquiring capital to processing raw financial information – have simplified some important aspects of the CFO role and many are seizing the opportunity to better leverage data to make better decisions.
According to KPMG, 67% of finance leaders were not actively involved in the digitisation process pre-COVID, but 93% now aspire to be an active part of digitalisation especially as companies recover and rebuild from COVID-19.
Where I work – at the global healthcare network IHH Healthcare – we are embracing automation to create high-value digital workflows as we shift towards a more unified treasury platform. For instance, our subsidiaries previously provided updates on their cash balances via email, and this data was manually tabulated into a summary table.
The next generation of treasury function is exploring ways to automate not only the pooling of data but pooling the cash itself, moving away from manual and laborious processes to free up time and resources for teams to do more high-value tasks.
If you fail to plan, you plan to fail
Over the past 18 months what also has emerged unsurprisingly, is an increased awareness of the need for scenario planning that can ensure business continuity and financial resilience. Many CFOs have faced unprecedented cash constraints, and, in some cases, the resilience of balance sheets was tested beyond what was previously thought possible.
According to a Deloitte report, CFOs in Southeast Asia say that management teams have begun to ask many more “what-if” questions during the pandemic: ‘What if our banks call back unsecured loans?’ or ‘what if we breach a bond covenant?’ The research also indicates that CFOs increasingly have been leveraging tools and predictive analytics when planning for specific scenarios – including possible restructuring or M&A activities – and modelling their impacts on margins and the balance sheet.
Delivering value sustainably
In venturing well beyond the once traditional remit, today’s CFO also must factor in our sustainability obligations and convictions – looking at every aspect of the business through the ESG (Environmental, Social and Governance) prism.
So, in addition to the stewardship of financial accountability and performance, the CFO must now be the custodian of value delivery with respect to the community, the environment, society, human rights, safe work conditions, employees, and, of course, shareholders.
ESG KPIs today have already found their way from the Sustainability Department to the Treasury team, who determine pricing for green bonds or other sustainability linked financing, to cite one example.
Significantly, according to PwC research, 69% of CFOs see coordinating ESG data and information across their company as a priority, something that may not have been as high on their radar just a few years ago.
Aside from the moral imperative, the Return On Investment (ROI) on sustainability has understandable financial appeal. For example, PepsiCo’s sustainability programs are estimated to have created more than $375 million in cost savings from reductions in water consumption and waste.
Some studies show that companies with higher ESG ratings outperform the market and are valued at a premium, compared to companies with lower ESG ratings.
Every CFO must explore new ways to deliver long-term growth for all stakeholders. At IHH, we have developed a comprehensive Net Income and Return on Equity (ROE) aspiration plan to more than double our ROE by creating new revenue streams, improving occupancy rates, and improving productivity. We have already achieved this ahead of schedule and are now setting new targets to improve ROE.
Our success is built upon a value driver model to turn plans into results, with comprehensive M&A governance and execution skills, and a strategy to build bridges to key portfolio entities.
Re-imaging the CFO’s role today
The CFO evolution from a corporate policing tradition to guardianship is about partnering with the CEO and COO to improve the enterprise’s overall viability.
Yes, it is still about rigorous cash and resource preservation and a clear vision of how to keep what is good and keep bad things from coming back -- but it also is about the finance function accelerating the digital transformation process, a clear investment management approach and focusing on ESG and sustainability goals to ensure long term resilience for the organisation.
In our re-thought and re-imagined roles, we must be strategic-value architects involved in all aspects of growth and, especially at this time, resurgence.
It requires breaking out of the mysterious silo from which some CFOs used to issue dry reports of historical numbers or forecasts. After the challenges of the past 18 months, stakeholders are looking for analysis, insights and recommendations that offer context and a degree of confidence on where the journey goes.
Of course, the numbers matter and usually they don’t lie; even so, the days of the old-school CFO are numbered, the value creation game is on.