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CFOs Need to Improve Risk Skills, Says Survey

New poll shows finance chiefs need to get better at alerting boards and operating units to business risks.
Lisa YoonJanuary 23, 2003

The rising demand from investors and regulators for more financial detail is putting a real strain on companies, which must supply that info. In turn, this internal demand is testing the expertise of CFOs and chief risk officers. Indeed, a recent study by Korn/Ferry International and strategy consultant Oliver, Wyman & Co. reveals that finance chiefs and risk managers now need a broader range of skills to explain risk-adjusted performance in plain English to executives of other business units.

Ten years ago, the CFO role might have been described as the “financial manager,” say the study’s authors. Today, the role is better described as the “manager of managers.” According to the survey, “The Evolving Role of Chief Financial Officers and Chief Risk Officers,” that means CFOs and CROs not only need to do more over a wider range of functions, but they must get more detailed in the work they already do — i.e. reporting and controlling risk, and meeting increasing demand for more detailed disclosure.

Ninety percent of the CFOs and CROs said their risk-adjusted performance metrics were insufficient in meeting the demands of boards and shareholders, according to the survey, which focused on CFOs and CROs of financial-services companies in North America and Europe.

The survey also found that the majority (57 percent) of the executives’ employers were less satisfied with the quality of their management reporting. By contrast, only 43 percent said they were either “satisfied” or “very satisfied” with their management reporting structures.

What’s more, even institutions that were more or less happy with their CFOs’ risk reporting pointed out areas that could use improvement. Only about half of all the institutions felt that their current performance-measurement systems provided an “accurate reflection of true business economics.”

It seems CFOs think strategic planning and performance evaluation could use work, too. How? Given a list of descriptions of strategic-planning processes, 60 percent of finance executives checked off “incentives and performance are not sufficiently linked” to describe strategic planning at their companies.

Slightly more than half of the respondents said “the process takes too long,” and 50 percent said that their process’s method “involves competing metrics.”

“CFOs and CROs today face more complex variables [and] greater demands from their boards of directors and shareholders,” says Arthur D’Elia of Korn/Ferry International’s financial services market. “It’s imperative that these executives consistently respond with value-added solutions.

D’Elia says the study illustrates the various challenges CFO and CRO professionals face in their increasingly strategic role. And it demonstrates, he says, “that talented human capital is playing a more important role in driving corporate objectives and shareholder wealth.”

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