Financial Advisor Actuary

THE CHANGING ROLE OF CFOs

DYNAMIC AND CHANGING REGULATORY ENVIRONMENT

In today’s world, financial rigor and strategic insight need to be tightly linked. Senior financial executives play a key role in strategy development and execution by working closely with the CEO. As the CFO, you are called upon to identify and assess profitable business ventures, explore mergers and acquisitions opportunities, establish partnership and alliances, and determine strategic growth strategies.

In this rapidly changing business environment, the role of a CFO has evolved from been a financial gatekeeper to a strategic partner and advisor. Most CEO and board member now expect a competent CFO to be a “partner in strategy” , wearing multiple hats including chief compliance officer, chief investment advisor and key communicator with regulatory bodies, agencies and the stakeholders. These new roles and responsibilities requires you to secure a deeper understanding of strategy, leadership and communication skills. In fact, most CFOs surveyed acknowledged the fact that increasingly, more is expect them to be active members of the senior-management team and contribution to the overall business direction and strategy.

Without proper management training, CFOs are finding it increasingly demanding to balance these multiple and conflicting roles which includes strategic and operational responsibilities. Financial competency is no longer sufficient to meet the changing requirements.

THE CHANGING ROLE OF CFOS

CFOs are responsible for the finances of a company, including presenting accurate financial information and overseeing its financial condition and capital structure. The role has become increasingly onerous, with listed firms facing more detailed accounting practices and tougher standards of disclosure.

For some firms, the role of the CFO may have evolved over the years so that this staff member is more of a strategic planner or investor-relations chief. Also, in larger companies, there is usually another accountant, normally the financial controller, who is responsible for doing most of the detailed work on the numbers.

What exactly is the role of the CFO within the corporate structure? According to Wikipedia, the CFO of a company is the corporate officer primarily responsible for managing the financial risks of the business. He is responsible for financial planning and record-keeping, as well as financial reporting to higher management. The CFO typically reports to the Chief Executive Officer and is usually a member of the board of directors. In other words, the CFO is the head of finance in a company.

The role of the CFO is indeed a challenging one. According to audit and consulting firm Deloitte, the CFO has four critical roles, namely steward, operator, strategist and catalyst.

1. The CFO’s role as a “steward” is probably the most obvious. As a steward, the CFO is responsible for accounting, financial control, risk management and asset preservation. He must also ensure the company’s compliance with financial and regulatory reporting requirements. This important role of the CFO is borne out by the recent volatility in the financial markets where companies have had to contend with significant write-downs in the value of their investments. With the use of fair value or marked-to-market valuations as the international accounting standard, companies have to be mindful of the impact of market movements on the valuation of their assets and hence their solvency positions. In this regard, the CFO would have to provide professional advice to the company’s Board on the potential implications of such risks when deciding on the company’s risk tolerance. In addition, for insurance companies, there is a greater need to manage asset-liability mismatch risks as liability and asset values are closely inter-related.

2. The second critical role of the CFO is the “operator”. This means that the CFO is responsible for ensuring that the company’s operations are conducted in the most cost efficient manner. This is particularly important in the corporate world nowadays as shareholders demand an adequate return on their investments. However, in an environment where resources are tight, it is a challenge to keep costs low without sacrificing quality. The CFO therefore has the unenviable task of striking the right balance between cost-savings and service quality. The CFO has to ponder issues of resource management, outsourcing, and sharing of services, amongst others, in order to reap the most out of the company’s limited financial resources. I’m quite sure CFOs have often been criticised by the business units for being too tight-fisted with the company’s finances and hindering business opportunities. But one area that CFOs should not compromise on is the need for sound and effective internal control systems and processes. With the operating environment increasing in complexity, the CFO needs to be confident that these systems and processes can be relied upon to prevent or detect problems before they occur.

3. The third critical role of the CFO is that of a “strategist”, providing financial leadership in determining strategic business direction and aligning financial strategies. As a strategist, the CFO has to focus on sustaining future business performance of the company to enhance shareholder value. They will have to think creatively within the boundaries of the legal and regulatory framework to optimise the company’s capital resources. However, these strategies should not compromise financial resilience of the company over the long-term for short-term profitability. This is arguably often a difficult call to make as the CFO may be concerned that he will not retain his job over the long-term if his decisions do not produce results in the short-term.

4. Finally, the CFO is a “catalyst”. As a catalyst, the CFO is an agent for change, stimulating the right behaviours across the organisation to achieve its strategic and financial objectives. The CFO has the important responsibility to establish the appropriate structure of enterprise accountability that provides the right incentives for all units within the company to achieve its objectives. In this role, the CFO has to serve as a business partner to the other decision makers in the company, including the business unit leaders, to ensure the alignment of business strategies across the organisation.

In order to be effective, the CFO needs the support of the Board and other members of management. While the Board can delegate certain functions relating to the day-to-day management of the company to the CEO and CFO, it remains the Board’s responsibility to ensure that the company remains financially sound. Therefore, it is in the Board’s interest to ensure that the CFO has the necessary resources and incentives for him to perform his functions effectively. The incentives should reward effective risk management and not be skewed towards top-line or bottom-line monetary goals only.

A good CFO with the ability to manage all the various responsibilities effectively is, however, hard to come by. When one is found, he is often loaded with other responsibilities to capitalise on his strategic thinking ability and financial proficiency. This is often the case as companies push for greater cost efficiencies. In the case of insurance companies, there seems to be a tendency for the appointed actuary to also be the CFO to take advantage of his strengths in financial analysis.

About the Author

Aventis School Of Management unwavering commitment towards delivering practical driven curriculum ensures that its qualifications are not only recognized academically but also by professional bodies across the world including the Chartered Institute of Marketing (CIM) UK, American Association of Financial Management (AAFM) and Centre for Behavioral Science (CBS). Aventis is also an affiliated member of the European Foundation for Management Development (EFMD) and European Council for Business Education (ECBE), which is connected to over 600 business schools across Europe.

Can you list the (pros) and (cons) of choosing the following careers?

Answering to the ones you know will be fine.
Thanks!

I think it is better for you to list the pros and cons yourself, because what is a con for others might not apply to you e.g. I don’t like working with animal but it might not bother you.

The only common characteristics (in my opinion) of the lised professions are only maths and English. Perhaps, you should look at what subject you are interested in before choosing the profession e.g. art or science.

Other than that, you should do your own research on the length of study, there is a lot of time-different in HR and pediatritian. It will take a lot of investments – physically, mentally, emotionally, and financially – to achieve your goal.

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