The Chief Financial Officer

THE CHIEF FINANCIAL OFFICER Chief Financial Officer.indd 1 13/01/2014 18:21 otHER EcoNOMIST BOOKS Guide to Analysing Companies Guide to Business Modelling Guide to Business Planning Guide to Cash Management Guide to Commodities Guide to Decision Making Guide to Economic Indicators Guide to Emerging Markets Guide to the European Union Guide to Financial Management Guide to Financial Markets Guide to Hedge Funds Guide to Investment Strategy Guide to Management Ideas and Gurus Guide to Managing Growth Guide to Organisation Design Guide to Project Management Guide to Supply Chain Management Numbers Guide Style Guide Book of Business Quotations Book of Isms Book of Obituaries Brands and Branding Business Consulting Business Strategy Buying Professional Services Doing Business in China Economics Managing Talent Managing Uncertainty Marketing Marketing for Growth Megachange – the world in 2050 Modern Warfare, Intelligence and Deterrence Organisation Culture Successful Strategy Execution The World of Business Directors: an A–Z Guide Economics: an A–Z Guide Investment: an A–Z Guide Negotiation: an A–Z Guide Pocket World in Figures Chief Financial Officer.indd 2 13/01/2014 18:21 THE CHIEF FINANCIAL OFFICER What CFOs do, the influence they have, and why it matters Jason Karaian Chief Financial Officer.indd 3 13/01/2014 18:21 THE ECONOMIST IN ASSOCIATION WITH PROFILE BOOKS LTD Published by Profile Books Ltd 3a Exmouth House Pine Street London ec1r 0jh www.profilebooks.com Copyright © The Economist Newspaper Ltd, 2014 Text copyright © Jason Karaian, 2014 All rights reserved. Without limiting the rights under copyright reserved above, no part of this publication may be reproduced, stored in or introduced into a retrieval system, or transmitted, in any form or by any means (electronic, mechanical, photocopying, recording or otherwise), without the prior written permission of both the copyright owner and the publisher of this book. The greatest care has been taken in compiling this book. However, no responsibility can be accepted by the publishers or compilers for the accuracy of the information presented. Where opinion is expressed it is that of the author and does not necessarily coincide with the editorial views of The Economist Newspaper. While every effort has been made to contact copyright-holders of material produced or cited in this book, in the case of those it has not been possible to contact successfully, the author and publishers will be glad to make amendments in further editions. Typeset in EcoType by MacGuru Ltd [email protected] Printed in Great Britain by Clays, Bungay, Suffolk A CIP catalogue record for this book is available from the British Library Hardback isbn: 978 1 78125 097 6 Paperback isbn: 978 1 78125 098 3 e-book isbn: 978 1 84765 985 9 The paper this book is printed on is certified by the © 1996 Forest Stewardship Council A.C. (FSC). It is ancient-forest friendly. The printer holds FSC chain of custody SGS-COC-2061 Chief Financial Officer.indd 4 13/01/2014 18:21 To Leo and Harriet, a top executive team Chief Financial Officer.indd 5 13/01/2014 18:21 Chief Financial Officer.indd 6 13/01/2014 18:21 Contents Acknowledgements viii Introduction ix 1 Origins: from the back office to the front line 1 2 Role: ensuring control, driving strategy 13 3 Responsibilities: internal affairs 30 4 Relationships: colleagues and partners, friends and foes 62 5 Prospects: a world of possibilities 89 Notes and sources 110 Appendix 121 Index 135 Chief Financial Officer.indd 7 13/01/2014 18:21 Acknowledgements IN THE coURSE of REPORTING for this book, I was struck by how often a CFO I spoke to one day became a CEO the next. Or a chairman. Or moved to a different company, in a different country, in a different industry. Belying its somewhat staid image, the world of the CFO is in constant flux. For this reason, I am grateful to the many finance chiefs who generously gave me their time and put up with my questions; most of them are cited in the text by name. Special thanks also to Janet Kersnar for her insightful comments on draft chapters and, in general, for passing on her extensive knowledge of the subject. Marie Leone, Barney Southin and Chen Wu went out of their way to help me at various stages of the writing process. Thank you to Daniel Franklin for the introduction and Elizabeth Bramson- Boudreau for the time to delve into this project. At Profile Books, thanks to Stephen Brough for encouragement and to Paul Lewis and Penny Williams for skilful direction and editing. Most of all, thanks to Daianna: editor, researcher, motivator and much else besides. I could not wish for a better partner, in books and in life. Jason Karaian January 2014 Chief Financial Officer.indd 8 13/01/2014 18:21 Introduction STRATEGIC PARTNER. Trusted adviser. Devil’s advocate. There is no single way to describe the role of the chief financial officer. CFOs themselves struggle to provide an answer.1 What is agreed, however, is that the dismissive stereotype of a mere book-keeper or bean counter no longer applies. The CFO is the head of the finance department, of course, but in practice this is an excessively narrow view of the role’s responsibilities. Only the chief executive wields as much influence within a company. Other functional executives, like the heads of marketing, technology or human resources, do not come close. The heads of regional or divisional business units may sit at the same level in the corporate hierarchy as the CFO, but their remits are more limited in scope. This book explains who CFOs are, what they do, and why it matters. It details how finance chiefs earned their privileged position and what the future may hold for them. It describes their ever- expanding role, and how they are transforming their departments and revamping their teams to deal with this growing complexity. It examines the relationships that CFOs must forge, both inside and outside their companies, to achieve their goals. This is intended as a reference for current finance chiefs to enable them to learn the latest thinking from their peers and benchmark their own performance; those looking to build a career in corporate finance; non-financial executives seeking to improve their relationship with the finance department; and service providers – banks and accounting and consulting firms, among others – that want to get on the good side of the keeper of the corporate chequebook. Many outside the finance department still find it difficult to relate to modern Chief Financial Officer.indd 9 13/01/2014 18:21 x THE CHIEF FINANCIAL OfficER finance chiefs, as outdated notions of their remit persist. To this end, it is crucial to understand their origins, motivations and pressures. Cash is king Years ago, when new writers joined the staff of CFO magazine – as the author of this book once did – they were given a dog-eared memo about how to write for the publication. It included a flippant, but accurate, summary of the roots of the CFO role: In the beginning, there was cash. Soon, an owner put the cash to work and sought a return. Eventually, keeping tabs on the money seemed like a good idea but the owner had other priorities, namely, finding more ways to make money. Someone was needed to make sure that the owner received his or her due while paying attention to other matters, and the finance profession was born. Since that time, companies have centralised and decentralised, merged and splurged, but fundamentals remain the same. Hence, the finance exec’s hoary dictum: “Show me the money, because I must show it to the owner.” From the pervasive influence of financial markets to the growth of data-driven decision-making, at each step in the evolution of the modern corporation the CFO’s skill set has proved uniquely in tune with the times. This suggests that the finance chief’s time in the spotlight will endure. As guardian of the balance sheet, the CFO must be convinced that the numbers in a business case pass muster before putting it into action. A major technology purchase may thrill the IT department, or a new promotional campaign seem like a no-brainer to marketing, but these initiatives will falter if they fail to find favour with the CFO. Anyone selling big-ticket products or services to companies also needs to understand the CFO’s pressures and priorities to stand a chance of winning contracts. Successful executive teams are often marked by a healthy tension between a bullish, hard-charging CEO and a cautious, independent- minded CFO. Few senior executives other than the CFO are expected, or even encouraged, to challenge the boss as part of their daily routines. Investors looking for guidance on a company’s plans often prefer to Chief Financial Officer.indd 10 13/01/2014 18:21 Introduction xi quiz straight-talking CFOs instead of cheerleading CEOs. CFOs also benefit from extensive time spent with the board of directors, giving them access and input into a company’s strategic plans. The irony of the CFO’s lofty status and far-reaching influence is that the finance department does not itself command vast resources. In fact, the finance function is subject to relentless pressure to cut costs – and since CFOs often ask others to trim their budgets, this is a sensible way to set the example of a lean and efficient department (to eat their own cooking, as it were). All guts no glory As the de facto second-in-command charged with enforcing discipline and controls, CFO can sometimes be a lonely position.

Load more