Synergy between the CFO and CEO
Amentor once said, to create value in an organization, the following must be present: strong leadership, strong partnerships that break organizational boundaries, and a perfect opportunity to exploit. In this article, we would like to discuss how a strong partnership between the CFO and the CEO can help companies adapt to the continually changing business landscape.
KEY ALLIES IN VALUE CREATION
When new opportunities and threats, such as digital, are transforming whole sectors and causing CEOs to question their strategy, operating model and team, CEOs need a firm ally and business partner by their side. One such partner is the CFO, who can be a strong advocate and support for growth. CFOs can be strategic advisors to the CEO, being aware of where the market and competition is heading.
Surprisingly though, in a survey of 652 CFOs across the world, EY found that while a majority of CFOs have increased collaboration with the CEOs and report greater involvement in corporate strategy driven by a focus on growth, CFOs still consider their most significant contribution as being cost discipline champions and managing budgets.
CFOs need to strike a balance between control and growth. They need to be able to display agility and flexibility — both personally and organizationally, as the organization’s strategy and economic situation evolve. Tony Klimas, EY Global Finance Performance Improvement Advisory Leader, has seen this tension at play in many organizations. In his experience, the CFOs that have successfully made the transition to business partner are those that have taken a step back from finance operations, and are focused on taking a strategic view on how they build and structure the finance function.
“To partner in a strategic way with the CEO, CFOs need to redefine the principles of the finance function,” Tony says. “Many CFOs have the will and the drive to be a business partner to the CEO, but the change just can’t come from them. They need to ensure the larger finance function has a balanced skill set that covers cost control, treasury, analytics and strategic forecasting. The CFO should be able to trust his finance leadership team and keep some distance from each of these activities in order to dedicate more time to collaborating with the CEO on strategic matters.”
For CFOs to maintain their role as a key ally to the CEO, CFOs must always be at the table during key discussions or asked for their input on strategic decisions. According to the same CFOs survey respondents, organizational boundaries and a lack of demand from CEOs for insight from finance into strategic issues are the top two barriers preventing a closer relationship between the CEO and the CFO.
The onus on the CFO to become a value creation-focused business partner to the CEO falls upon them both. So what does it take to become trusted allies? Commitment must be made by both parties to strengthen the CFOCEO alliance:
• CFO commitment — Develop the right strategic skills and mind-set and build a finance function with the right balance of skills to give the finance leaders the breathing space to step away from the details.
• CEO commitment — Break down the organizational barriers that CFOs still perceive as barriers and rethink the contributions they require from their CFOs.
DRIVING AND ENABLING THE SHIFT TO DIGITAL
Digital technologies do not respect tradition. They destroy hierarchies, trample over sector boundaries, democratize information and make large, traditional businesses ask hard questions surrounding their own companies’ future and relevance. And digital technology is only just getting started. That said, CFOs and CEOs must develop a strategic response to external risks and opportunities and disrupt their own organization’s business and operating models. Both should know how digital can create new sources of value. Surprisingly, of the 652 CFOs surveyed, only 50% consider the shift to a digital business model to be a high or very high priority for their organization, and less than half feel they make a significant or very significant contribution to the shift to a digital business model. This suggests that CFOs have yet to recognize the impact digital is likely to have on their organization, or what their role is in positioning the organization to adapt and secure its relevance.
While many CFOs surveyed feel that digital sits outside their area of responsibility, they should realize that they can play an important role in championing and embedding digital within their organization. Some of the digital priorities that both the CFO and the CEO can work together on include:
1. Develop a business strategy that is fit for a digital world and make the disruptive investment calls required, including developing and managing a portfolio of digital investments with a variety of profiles, from quick wins to strategic bets.
2. Use data analytics to anticipate digital disruption, measure performance and respond quickly. CFOs are uniquely positioned to gather and analyze data from across the organization, which can provide an early warning indicator of any potential disruptive threats and opportunities. By sharing their insights, CFOs can help the CEO and the organization better develop strategic responses and consider preemptive changes to the business model in the face of increasing competition.
3.CFOs and CEOs can work together to create a governance framework that puts digital at the heart of the business, including management decision making. Currently, many organizations’ governance arrangements still do not take into account the digital economy. This includes assessing the readiness of the board for digital leadership, the overall digital talent pipeline and whether the existing digital capacity is enough to ignite digital business model innovation. Ruby Sharma, a Principal for the EY Center for Board Matters, says digital experience on the board can help guide management through changes in business models and disruptive forces.
4. Manage the tax, legal and regulatory risks of digital and support digital growth plans. It is absolutely important that CFOs, together with the Tax Directors, sit down with the CEO to explain how changes in the business model will transform their tax model. This will help ensure that risks are anticipated, while at the same time, help develop tax strategies that support digital growth ambitions. Not doing so poses greater controversy, including intense media and regulatory scrutiny and the risk of reputational damage.
As we can see, creating a powerful synergy between the CFO and the CEO, and potentially, other C- level executives, can redound positively on a business’ overall performance.
This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the author and do not necessarily represent the views of SGV & Co.