The Chief Financial Officer as CEO-in-Waiting

Contributed by Edie Stackhouse

Traditionally viewed as financial gatekeepers focusing on historical results, the role of the CFO has expanded and evolved into that of strategic partner and advisor to the CEO. Rather than being mere technical experts focusing on historical results, today CFOs have become strong leaders increasingly playing a more critical role in shaping their company’s strategies. As a result, CFOs are emerging with far greater clout and responsibilities. This transformation is evidenced by the CEO-in-Waiting status that many CFOs now hold.

Obviously, companies must have strong compliance and internal controls and CFOs have to be held accountable for them, but duties of the modern CFO now straddle those traditional areas of financial stewardship and more progressive areas of strategic and business leadership. The people who have the strongest grasp of the company’s finances need to be part of the strategic thinking from the ground up. Strategy is all about looking forward and figuring out how to create additional value; strategy and finance need to be inseparable.

There will be greater scrutiny on the effectiveness of the risk management processes and much higher expectations of the adequacy of long-term financial plans. In order to perform their role of balancing compliance and risk management with business performance goals, CFOs must have a sophisticated understanding of the many areas of the business and its operations. With heightened risk in the marketplace, it follows that risk management has become a highly critical area and that risk management skills are absolutely essential if the CFO is to be a major contributor to the company’s prosperity. On the other hand, in the case of acquisitions, the CFO must be able to tolerate a reasonable level of risk. Being too conservative could end up sacrificing a number of transactions that might be very good for the organization. CFOs will be expected to find solutions that better balance risks with rewards.

The strategic CFO must also spend considerable time and effort understanding the company’s markets, customers, competitors, and suppliers. Which markets and customers represent the greatest potential? What are competitors doing and likely to do? The CFO must stay current with changing trends in politics, technology, the broader economy and elsewhere that might have an impact on the company. Having this understanding lets the CFO introduce and promote new strategic alternatives and bring greater value to the company.

It is encouraging to see that many CFOs have already moved in the direction of becoming strategic CFOs and have been rewarded for it, including succeeding to the CEO seat.