The CFO: Idea Killer or Innovator?

Without a CFO who recognizes innovation as a core value and has a process in place to foster it, your organization may be ill-prepared for the future.

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Did you ever look up synonyms for “CFO”? The internet knows many, with Chief Finagle Officer being one of the “friendlier” labels. But “innovator” doesn’t come up at all.

Small surprise, you say. Perhaps for the better. Who wants to bet their corporate future on the bean counters, right?

Perhaps you would even agree with the man who currently personifies the spirit of American innovation. Tesla CEO Elon Musk thinks that Chief Financial Officers simply don’t have the bandwidth to see the bigger picture and embrace the future.

"The path to the CEO's office should not be through the CFO's office, and it should not be through the marketing department,” said Musk. “It needs to be through engineering and design.”

Speaking of bandwidth, I think it’s worth noting here that Tesla’s first, on-and-off-and-on-again CFO Deepak Ahuja, who was credited with saving the company from bankruptcy already once, is a former-engineer-turned-finance-executive in the automotive and software industry.

The global CFO doesn't need to drive innovation...

My point, which is also based on my tenure as the global CFO for one of the world’s leading manufacturers of packaging automation equipment: Innovative companies and their CEOs depend on CFOs who are open to and capable of fostering innovation.

To be prepared for the future, I believe, the modern enterprise needs a chief finance executive with a strategic vision for change, who has a process in place to vet and help the CEO guide and facilitate innovation.

Applied this way, innovation becomes simply sound fiscal policy. Or, in the words of Don Allan, the CFO of tool and hardware manufacturer Stanley Black & Decker (as quoted by PwC): “Two thirds of what you do in innovation is to maintain market share.”

CFOs who don’t understand this, I would add, are risking their company’s ability to compete in the future.

Gilles Hilary (currently a Professor of Accounting and Business Law at Georgetown University) pointed this out in an INSEAD research paper a few years ago. His findings confirmed: “{A]ccounting conservatism curbs corporate innovation.”

...but can be expected to foster it - on all levels

Predictable? Perhaps. What’s telling is the main factor - as far as the finance department is concerned - why companies fail to innovate.

The INSEAD report concluded that accounting conservatism had its innovation-impeding impact “mainly through managerial myopia, not through firms’ liquidity constraints.”

This finding, I think, points us to how CFOs can make a difference fostering innovation within their organization. Above, I already mentioned the importance of having a process in place to vet and evaluate innovative impulses. What do I mean?

In my short review of “Orchestrating Success” by Richard Ling and Walter Goddard on this blog, I highlighted how important it is for leaders to be tuned in to the organization on all levels.

In my experience, innovation is one of the areas that stand to benefit most.

As the strategic partner of the CEO, in my experience the CFO is ideally positioned to evaluate, communicate and promote innovative impulses and strategies on these levels:

  • Knowledge: Innovation depends on information, including from other industries, and connecting the dots at the right time. As a core member of the CEO’s “innovation intelligence” team, a well-read and well-informed CFO considers the potential impact of innovative ideas and trends past the quarterly report horizon.

  • People: Regardless whether innovation is recognized as a core value of the organization or not, the CFO’s team should keep an ear on the ground and listen to the ranks. A finance department whose leader is open to innovative ideas can serve as a sounding board.

    In my experience, when the CFO’s team isn’t perceived as the preventer of innovation, it will be sought out to assess the financial validity of innovative proposals early on, long before they reach the formal due diligence phase of a business case. This helps improve the innovation process as well as productivity because it also reduces the risk of running around in circles through the bureaucracy later on.

  • Communication: CFOs cannot always expect their CEO to drive innovation. Knowledge about innovative developments inside and outside the industry and listening to the ranks within the company enables them to be ready with facts, numbers and insights so that innovation doesn’t drive the CEO, but also to broach innovation deficits that need his or her attention.

The last point goes to the heart of this subject matter, the delicate balance required to effectively foster innovation from the role of the CFO.

Skilled CFOs (or interim CFOs) know how best to support their CEO - and his or her appetite for and approach to innovation.

Some CEOs do not want significant pushback on ideas. Others want a sparring partner.

My most recent CEO was quite clear about his leadership style. This is his company, and he decides which paths we go down. It was my job to support him and get things done. And I did - and we have been tremendously successful together as a result of that.

Another CEO told me that what he values most in a CFO is the ability to actively challenge him. He was expecting his CFO to come back to him two or three times to vet an idea or proposal that the CEO has put forth.

Over the course of my career, I have found that both approaches don’t relieve the CFO from the duty of fostering innovation to maintain or improve the organization’s financial health.

Perhaps my reflections will help others to strike that delicate balance, or to define what they are expecting from their future CFO, or inspire them to let me know where they agree or disagree. Then this post has served its purpose.

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Resources: How CFOs Can Foster Innovation