Review: The Evolution of the CFO

I recently read the article The Evolution of the CFO on McKinsey.com. In my own experience while going to school in the late 1970’s and early 1980’s, the CFO was traditionally responsible for reporting accurate financial statements, maintaining good internal control, etc.

In the 80’s, 90’s and early 2000’s, CFOs took a more active role in the management of businesses and became more forward looking.

After accounting scandals like Enron and MCI, emphasis was once again placed again on accurate financials and strong internal control. Today, the pendulum seems to be swinging again in the direction of management and strategy.

Major Changes in the CFO’s Role

Before I delve into the article’s take on the evolution of a CFO and how that connects to my own experience, I feel it is important to remind readers that many of the articles’ conclusions are speaking about the CFO role in general.

So of course, you may have different experiences in your career that do not fall under the exact umbrella described in the McKinsey article.

Over my 35+ years working in Finance and Accounting, I’ve been fortunate to have worked with four different Private Equity firms.  In my experience, the findings in the article hold true in the big picture over time, but I have found the CFO’s role is usually more aptly defined at the firm-specific level.

Evolution is an Ongoing Process

One of the first claims made by McKinsey partner Ankur Agrawal in the article was about the growing cross-functionality of the CFO’s role.

Agrawal says that just a few years ago, a survey of over 400 C-Suite executives showed that CFO’s functions consisted almost exclusively of finance-specific responsibilities.
But he has found that the role today is more diversified – as it has become much more common to see CFOs take on leadership roles in respect to their company’s strategic vision.

Overall, I agree with Agrawal’s initial point.  As my regular readers remember from The CFO: Idea Killer or Innovator, finance executives today do not necessarily need to drive a company’s innovation, but they must foster it across all levels.

Especially with the rapid automation of technology today, it is important for the modern CFO to be able to adapt quickly and understand a fuller scope of his/her business in order to efficiently work through the growing pains that can come with innovation.  Let’s take a look:

Rapid Change at an Already Fast Pace

There is no doubt that the speed at which advancements in technology are made has a significant impact on CFOs across all industries. What does the automation of many finance functions mean for a CFO?

One would think the rise in automated processes would make it easier for CFOs to focus more on company strategy, vision, and long-term goals. In my own experience, CFOs and Controllers can be more forward looking and value-adding to their company when technology takes away or minimizes the tasks of reconciling accounts, booking journal entries, manually consolidating financial statements, etc.

While some CFOs are able to use advancing technology to expand their reach in the business, there are still some, perhaps even many, Private Equity firms, CEOs, and other decision makers who would prefer their CFOs to focus on finance specific functionalities only. Some CEOs that have grown up in a particular industry may know more about it than a CFO could ever hope to learn.  Of the four PE firms I worked for, two gave me the advice to let the CEO run with the ball and do whatever was necessary to support him.  Two other firms asked me to step up and play a more significant role in strategy setting and execution.

In both situations, it was the culture and decision-makers of the company that drove my role, rather than any technological changes themselves.

Past, Present, Short Term, or Long Term?

Another theme from the McKinsey article is about the transition for CFOs from a retrospective scorekeeper to a forward-thinking pioneer within the business.

As mentioned above, at the beginning of my financial career in the early 80’s, almost all high finance executives I interacted with seemed to be focused on measurables and reporting of past or current activities.

Starting in the mid 90’s when I entered the Private Equity world, some CEOs and Boards of Directors began to request and encourage more engagement from me on operations, strategy, etc. Rather than being a finance executive who was only reporting on the past performance of the business, I was able to both broaden my own horizons and provide a fresh perspective to the CEO and other decision makers.

The above story is a great example of how financial executives have taken on a long-term leadership roles rather than being pigeonholed into present and past financial reporting.

The Only Constant is Change

As cliché as it may be, the old adage holds true for the CFO position. Not only has the role of a finance executive changed with the times, it oftentimes will change on a firm to firm basis.

The most successful CFOs in every era will tell you that you have to be able to adapt in order to keep up.

Even when financial executives are told to focus solely on reporting and compliance, they need to be able to adjust to updated standards of all kinds (technology, product, market, etc.) so that their finance teams make the transition smoothly.

“Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be a more productive than energy devoted to patching leaks.”
-Warren Buffet

On an individual level, the best CFOs must be able to adjust their focus in real time to whatever is necessary to help the business succeed.

While working in the packaging machinery business, my company was bought and sold by four separate Private Equity firms. There were some that told me directly, “Your role is to support the CEO.”  Others said, “We want you to speak up more at meetings and challenge our ideas so that we can improve performance.”  And I have even been asked many times about what my long-term vision for the company was.

In all three scenarios, the new owners’ expectations of me as CFO were different than the previous. By putting the business’s needs first, I was able to simplify the transition that comes with an acquisition and set a positive foundation for my relationship with the Private Equity firms.

No matter what job function or industry you work in, there will always be unexpected scenarios and change to deal with. Ultimately, having the ability to adjust to all types of changes is essential in order to be a successful global finance executive today.