Is an Accounting Background Important for Today's CFOs?
Over the years, I’ve had many discussions with public-company CFOs that went something like this: Me: So tell me about your background. The CFO: I came up through investment banking (or business development, or FP&A, or treasury — anything but accounting). Me: No accounting? The CFO: No. I understand accounting, but I don’t have a degree and never really had any formal training. Me: How do you feel about signing off on the accuracy of your financials, at some professiona ..
If only time would stand still, we could all draw a picture of the perfect CFO.
I can see this illustration on paper: the outline of a human being made up of equal-sized foundational skill sets like accounting, strategy, technology, operations, banking, and compliance, blended with such leadership traits as creativity, communication, diligence, patience, and humor. Voila! The uber-CFO.
Alas, the world does not stand still. In fact, it changes more swiftly and demonstrably than ever before. A quick glance back at the macroeconomic, geopolitical, legal, and competitive landscapes proves that paradigms are ephemeral. Since few CFOs have all the characteristics of my uber-CFO, our respective talents will be called upon at different times for different needs.
History indicates this to be the case. As a longtime reader of this magazine and CFO.com, I’ve been fascinated by how the description of the “modern CFO” has altered over time.
In the 1980s, many CFOs hailed directly from the accounting profession, typically what were then called the “Big Eight.” In the 1990s, CEOs wanted finance chiefs that were more than just accountants. They wanted someone to help them connect current business performance to strategy, and strategy to the forward-looking operating plan. Rather suddenly, being a CPA was more icing on the cake than the cake itself.
Then, Sarbanes-Oxley came along in 2002, and you couldn’t get a job as a CFO unless you were a CPA. Because SOX Sections 302 and 404 require CFOs (and CEOs) to personally attest to the effectiveness of the internal controls over financial reporting, a CPA provided clear evidence of more refined and careful accounting smarts.
Now, we appear to have come full circle. The CFO is back to being a business-savvy, operations-focused, and strategic-minded person who can lead finance and accounting, knowledgeably talk with the rest of the C-suite as well as company managers, and collaborate closely with both the board of directors and the rarefied realms of Wall Street: banking and private equity.
Consequently, what constitutes an optimal CFO depends on timing. A CPA with an MBA who came up through the accounting ranks in the late 1990s and early 2000s generally would have been overlooked as a CFO candidate. Back then, companies wanted a controller-type CFO, someone who could close the books and serve as a strong audit committee chair on the board.
A few years hence, this need lessened and the recruitment priority shifted to people with strategic and business experience. It remains to be seen whether, because of the new revenue recognition rules, the pendulum will swing back toward accounting skills.
That was the main subject of conversation at a recent dinner I attended with about 20 of my fellow CFOs. While we all would agree that our number one goal and day-to-day activity is running the business to hit our numbers and be a partner to the management team, we nonetheless, and to our mutual surprise, discussed accounting.
CFOs understand the significance of accounting, of course. We know it is vital to our organizations’ ability to appreciate and avoid major risks. But it is simply not perceived as the platform for career success. You don’t ascend to the top of the CFO profession (much less become the CEO) by being an accountant first and foremost.
Here’s what all this tells me:
- Today’s CFO must have a solid background comprised of strategic and business skills. That’s how you build a career.
- Accounting knowledge is more important than accounting experience.
- You ensure balance sheet accuracy and address growing compliance demands by hiring smart accountants and giving them sophisticated finance and accounting software tools.
The better these systems, the less chance of internal control deficiencies causing a material weakness.
That’s today’s uber-CFO. We shift with the times.
Mark Partin is the CFO at financial automation software provider BlackLine.