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CFOs have long aspired to that lofty moniker. Is the time at hand when many can lay claim to it?
Alix Stuart, CFO Magazine
November 1, 2009
In case you haven't heard, the strategic CFO is in vogue. Again. Not that any CFOs have confessed to being less than strategic — at least, not until after they leave their companies and can comfortably complain about how their former bosses held them back. But today, as companies gear up for postrecession growth, CEOs are more eager than ever to hire CFOs who are not only "strategic," but "strategic business partners," according to the exact words of several executive recruiters.
These days, veteran and would-be CFOs "have no choice — they almost have to be chief business strategy officers," says employment expert Andrew Reina, regional practice director for Ajilon Finance Solutions. "Yesterday's CFOs hoped to have that input to the CEO and the board; now, they're expected to have it."
Philip Tulimieri, professor at Baruch College's Zicklin School of Business and a former Deloitte partner, goes so far as to propose a new model for corporate management in which CFOs will one day be co-equals with CEOs. "We need to see that companies are too complex to be managed by one person," he says, and "today's CFO is much better equipped than anyone else in the company to take on an equal role in a joint-management situation." He and a colleague, Moshe Banai, recently wrote a paper about the CEO-CFO partnership and are currently conducting research along those lines.
This all might sound like good news for finance executives, who likely already have the phrases "strategic" and "business partner" somewhere (if not in multiple places) on their résumés. But, as appealing as it may be, this vision of the strategic CFO striding arm in arm with the CEO is one that has so far been perpetually on the horizon without ever quite arriving. The recent buzz about its importance, if not inevitability, only underscores that phenomenon.
For at least the past decade, the story has remained the same: finance chiefs are ready to pull their heads out of the numbers and address a broad range of business imperatives. They are ready to think about things like whether the consumer division should expand in Latin America or Europe, whether to acquire a competitor or fight harder against it, whether to shutter or deepen investment in projects that haven't lived up to their potential.
In short, they will prove that they have a broad enough command of the company that they could step into the CEO role at any time. Sarbanes-Oxley, which plunged most CFOs into a vortex of mind-numbing compliance-related tasks, is regarded as a temporary obstacle to this evolution; now, experts say, we're back on the right path.
To be sure, some CFOs truly are in this vaunted position. But research indicates that it is still far from the norm. The Corporate Executive Board, a networking and consulting group, recently probed 70 CFOs on how they spend their time. Of the group, only 17% were deemed to be "performance leaders," executives who react quickly to change and take advantage of opportunities for their companies, and whose actions can be correlated with shareholder returns during their tenure. The rest fell into categories that sound perfectly acceptable — "process optimizers" and "consensus builders" — but that indicate executives who do not move companies forward.
Moreover, the idea that CFOs are so broad-minded that they are the first to be tapped for the CEO spot turns out to be a bit of a myth. Of current Fortune 500 CEOs, Spencer Stuart counts 83, about 17%, who have ever held a CFO position. Those who went straight from the CFO spot to the CEO chair are even more rare, numbering 19.
And the rate of such appointments shows no promising momentum. One of those 19 was chosen this year, in contrast to 3 in 2008 and 5 in 2007. At no point has the number of CFOs being named directly to the top spot hit anything close to a critical mass.
"Clients are asking for someone who can step up, but the reality is, I'm not aware of any Fortune 500 CEO who was recruited from the outside as CFO and went directly to the CEO chair," says Christopher Langhoff, managing director of the financial officers' practice at Russell Reynolds, who is working on a white paper on the CFO-to-CEO path. On average, it takes 19 years of experience with a company (irrespective of titles) before a promotion to CEO, he notes. That means "you shouldn't take [the CFO] role banking on" a quick leap to the top spot. (As for how ex-CFOs perform as CEOs, results are mixed. See "When CFOs Take the Top Spot.")
For the most part, CFOs themselves seem to have conflicting thoughts on exactly where they lie on the strategic spectrum these days. According to a recent CFO magazine survey of about 150 CFOs (see our 2009 career survey), nearly 90% say they have a voice in corporate strategy. A solid 35%, however, say CFOs are generally stuck in too-siloed roles. And only 1 in 5 say they have spent more time shaping company strategy during the past year.
Part of the issue, of course, is that the definition of "strategic" is hazy. For some, it simply means being invited to the meetings in which strategy is devised, rather than being told after the fact that, say, breaking into China is the new corporate priority. Too often, laments one CFO, "my input comes after decisions have been made, as opposed to on the front end." Another says he has a voice on major decisions, "but not loud enough."
For others, it means taking a defensive position that might be thought of as antistrategic, although that in itself may constitute an alternative way to be strategic. "CFOs offer balance to the management team by bringing a more conservative, risk-averse approach to business strategy," according to one director of finance. That means "explaining the likely financial and risk implications of various scenarios — sometimes forcefully," according to one CFO of a small (under $1 million) company.
For others still, "strategic" entails a dual mission: setting the agenda in collaboration with the CEO, and then building the financial infrastructure to help realize whatever vision emerges. The most common definition offered by survey respondents equates "strategic" with "visionary," and describes a CFO who "actually has real input into the direction a company is headed; what it will be doing five years from now and how it will be done," says one survey respondent.
Ultimately, the role will be defined differently at every company, and by every CEO. But board members, recruiters, and consultants say there are some common themes among those CFOs who are truly strategic business partners and those who are not. How can you get into that first camp? Consider the following:
Strategic CFOs delegate. There is no shortage of finance-related activities to chase, what with the ambitious slate of projects at the Financial Accounting Standards Board (IFRS anyone?) and the increasing challenges of obtaining credit. For any hope of having the bandwidth to consider the big picture, CFOs must first hire or train others who are strong enough to handle their roles with a minimum of intervention.
"The single most differentiated attribute of performance leaders is that they spend significantly less time with finance," giving their staff members more decision-making power than average, says Levin Somaya, senior director with the Corporate Executive Board's finance practice. And while nearly everyone delegates things like accounting, compliance, and governance, this group also delegates some nontraditional areas, including strategic planning, resource allocation, and capital-structure management.
"While many CFOs are reticent to take their hands off of certain critical tasks, this finding reinforces how crucial it is that they make time to develop a senior team that in turn frees its time for companywide leadership tasks," says Somaya. The one activity they hold closely, though, is operational reviews, so they can stay closely connected to the business itself. (See "The Next Stage," CFO, March.)
Strategic CFOs start with the business, then move toward the numbers. It's not so much what you do, some say, it's the context you put it in. Some CFOs might look into improving working capital because it's simply part of the finance function, a box they should check, says Chris Click, principal with Booz & Co., who is currently working with a company on reformulating its CFO role to be broader. Strategic CFOs, though, will get to working capital from a different angle.
"If you're preparing monthly reports for the business units, walk down to the business leader and say, 'Hey, as I looked at your results, I was thinking maybe there's a way to drive down working capital to fund the build-out of the customer-service network in the Middle East,'" or some other desirable project, says Click. This is strategic in two ways: not only does the CFO get kudos for helping, but this approach may also motivate the business unit to work harder on an otherwise uninspiring task. And addressing the issue face-to-face, versus by phone or e-mail, also wins points.
It goes without saying that such CFOs have strong relationships with various people in the businesses. Eileen Kamerick, for instance, CFO at Tecta America and on the board of two public companies, says she regularly picks up the phone to check in with her company's business-unit leaders. One recent example: she polled them on how changes in revenue-recognition practices could affect their businesses. "I wanted to know if it would create more paperwork or less, and if there is a way we can structure it so that it's the least amount of trouble possible," says Kamerick.
In some cases, thinking business first, numbers second may actually mean offering less information. Chuck Eldridge, senior client partner at Korn/Ferry International, tells of a CEO who was asked to describe what he liked so much about a departing CFO. The CFO made a huge impact on the business, the CEO said, by taking away a 200-page data book that the previous CFO had given the CEO each month and replacing it with a much briefer description of the metrics, data, and insights that really mattered to the business.
Strategic CFOs push the boundaries — but recognize the limits of their role. The vast majority of CFOs — 88% of those studied by the Corporate Executive Board — think they have a good relationship with their boss. That should be a given. But that relationship doesn't necessarily parlay into power.
"If the CFO views him- or herself as a change agent but the board and CEO don't, it will be hard for that CFO to really play that role," says Click. To broaden their horizons, then, he advises CFOs to educate themselves about various areas of the business and take on incremental responsibilities, with an eye toward building up their experience base. One, for example, took an active role in a Booz & Co. project analyzing the client's global strategy, taking it as an opportunity to learn more about the operational side of the business, and "leveraged that into more responsibilities for himself," says Click.
Some finance professionals are even going back to school to prepare for the increasing breadth of the role. Ajilon's Reina says he knows of CFO candidates who have recently obtained Six Sigma training, project-management certifications, and even HR credentials.
If those qualifications seem more fitting for a chief operating officer, that's no accident. As more companies phase out the COO and president titles, the CFO often assumes oversight of additional corporate functions. Does a bulging portfolio of operational responsibilities make a CFO more "strategic"? Not necessarily; those CFOs who have a broader role thrust upon them through circumstance may find that their stock rises little. But for those who are ready to prove the full extent of their value, the time has never been more ripe to assume the mantle of the truly strategic CFO.
Alix Stuart is a senior writer at CFO.