If everything is fine in the company, they are mentioned less frequently; as soon as a major obstacle arises in business, they are expected to be the first to react and propose solutions. They are Chief Financial Officers and often remain in the shadow of other high-ranking individuals, although their role in a complex environment with rapid changes and technological development is becoming multidisciplinary, increasingly important, and more complex.
Finance is one of the key components of every business organization, and in today’s environment, this function involves more than just executing its basic regulatory obligations; for example, it is expected to provide strategic insight into the organization’s position. Accordingly, the finance function creates added value throughout the organization by acting on value drivers.
Expansion of the CFO Role Today’s Chief Financial Officers are expected to simultaneously hold four different and challenging roles.
Two are traditional: the steward, who controls the organization’s assets and seeks to mitigate business risks, and the operator, who ensures efficient processes within the finance function to provide reliable and quality financial information and promote cost efficiency throughout the organization.
These functions, although traditional, have recently expanded. For example, due to increased organizational complexity, risk management requires more effort and knowledge than ever before, making the stewardship function more challenging. On the other hand, the operator is more involved in cost management and increasing the company’s efficiency and is more connected with investors seeking increasingly detailed information about the operations of the companies in which they hold investment portfolios.
The transformation of the role is particularly evident in two new functions. Modern Chief Financial Officers must be excellent strategists who help shape and implement the overall strategy of the company. Additionally, they direct the financial operations of the organization, thereby contributing to the improvement of its other parts. In the area of strategy, a good Chief Financial Officer analyzes business results and interprets financial information to support the planning and execution of strategic initiatives throughout the organization.
The last, but increasingly important role is that of a catalyst, which encourages the broader organization to make changes necessary to support the effective functioning of the management and strategic leadership of the company.
Once, it was expected of the Chief Financial Officer to exclusively enforce financial discipline and negotiate with financial institutions regarding credit terms. However, after the onset of the global financial crisis, which brought liquidity issues and their consequences to the forefront as one of the main problems, sometimes threatening the survival of the companies themselves, the role of the Chief Financial Officer has changed significantly.
From Policeman to Catalyst From that initial perception, where the Chief Financial Officer was seen by most of the public as ‘just’ sitting in their office figuring out how to compile a report for the management, supervisory board, and regulator presenting dry numbers and analyses, it suddenly became essential for them to know the basics of crisis management, thus becoming a sort of crisis manager. They were expected to resolve newly arisen problems with minimal damage to the company whose finances they managed.
Through further transformation, the role has expanded to that of today’s strategic planner at the organizational level. The financial crisis forced business organizations to start managing their finances and balance sheets more effectively, thus significantly broadening the role of the Chief Financial Officer. Traditional responsibilities of financial reporting, control, planning, and capital structure management have been enhanced so that the Chief Financial Officer is expected to provide additional value in every major project the company is involved in.
Chief Financial Officers must organize and maintain all necessary processes, resources, and controls together in a flawlessly functional finance organization. Efficiency and cost-effectiveness of processes and organization are among their key objectives.
Internal and external stakeholders expect a lot regarding the provision of useful, quality, and reliable financial information. Therefore, the finance function should develop capabilities to meet stakeholder expectations and fulfill its role as a key business partner. Chief Financial Officers must identify the key stakeholders of the organization, such as the CEO, shareholders, supervisory board, executive directors, IT managers, risk managers, internal audit heads, audit committee, and ensure effective mutual communication.
