Finance Transformation Leader and CIMA President Oracle
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The CFO goes above and beyond the bottom line

For years now, the CFO has been responsible for much more than number crunching and cost-cutting. These days the CFO needs to be a jack of all trades and a master of many.

10th Mar 2021
Finance Transformation Leader and CIMA President Oracle
Columnist
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CFO reviewing financial reports
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Until recently, boardrooms were made up of many different C-suite roles, each with unique remits and their own challenges. However, times have changed.

Where once only the CEO sat atop the pyramid setting and driving strategy, now the CFO sits alongside them – vital to, and accountable for every decision, big and small. The difference is that the impact of these decisions now extend far beyond the bottom line, into environmental, social and governance (ESG) aspects, cybersecurity, people operations, and many other areas.  

In turn, companies are recognising the associated reputational risk where their actual operations fail to match their rhetoric.

The CFO needs now to be a jack of all trades, and a master of many. Not only must they ensure the business is thriving, but they also need to find and create value at every turn. To do so, they need the right toolbox – made up of boardroom allies, dependable finance teams, growing skillsets, and technologies that can support everyone, everywhere.

Driving the ESG agenda

Alignment with the ambitions of ESG is becoming increasingly critical for businesses, driven largely by sustainable development goals such as those set by the UN and EU. But the pandemic itself has also heightened expectations for businesses to source sustainably and ensure traceability in the supply chain. Climate change has moved from a side issue in business to the mainstream, and, as such organisations should be ready for greater regulation by governing bodies in the near future.

It is crucial that CFOs and their teams aren’t caught off guard by this. Reporting against the ESG agenda, in addition to the bottom line, will be a necessity for organisations to be able to account for the impact they are having and the actions they are taking. This requires a joined-up approach between financial and non-financial data, where, for example, every investment is consistent with moving away from fossil fuels, ensuring fair treatment of workers in the supply chain, or using only sustainably sourced materials.

It also means being able to access information from anywhere in the business at any time. Only then can finance leaders and the C-suite make intelligent decisions that will have a real impact; and be able to provide the assurance required by regulators and shareholders.

Moving from a CSR to ESG framework, and being able to demonstrate this to customers and wider stakeholders based on data insights, should be a key priority for the CFO. But the CFO also has a significant role to play in developing and driving ESG strategy. After all, the art of a good business partner is to tell an effective story with numbers and data.

This means ensuring the CFO has a complete picture, including options and the risks associated with alternative decisions – as well as where the business can find value in them. Dialogue must be informed by robust information, which will in turn provide clarity and visibility into ESG initiatives. The impact of ESG done well is enormous, for employees, customers, and ultimately the bottom line.

Stewards of data

This is just one example of the quality of data being absolutely paramount. It means everything for compliance when delivering against key agendas like ESG, so requires finance to have accountability for it. The standards against which accountants are held to account by their governing bodies could fit well as finance moves into the world of data scientists.

For the CFO and finance team, their role isn’t just about cost cutting, maintaining cashflow and executing on payroll. They are also stewards of data across a range of external information coming in, responsible for ensuring it is valid, reliable and accurate; and that it is used to report objectively and responsibly. 

In other words, they are experts of data – and subject to ethical standards from their own institutes with regards to it usage. It’s a major responsibility, but new AI and ML tools and cloud technologies are able to lessen the load, crunching data fast, and carrying out predictive analytics and scenario planning. This frees up finance professionals to focus on providing more strategic advice based upon the results of such analysis.

For the CFO at helm of this, their role becomes one which is focused more on understanding what the data is saying, and creating the most value from what they find. Perhaps chief value officer, rather than chief finance officer, is more fitting.

Mitigating risk

Just as value can be created by the right data, value can be damaged by a lack of, or inaccurate, data which undermines trust. An ESG misstep which has failed to account for a problematic part of the supply chain risks significant reputational damage. In a commercial world, this translates to financial damage. It may give off the impression the company isn’t being managed properly, in turn risking the loss of confidence amongst shareholders as compared to companies better able to demonstrate compliance with ESG principles.

This applies to other aspects of organisational risk too, and it’s increasingly keeping CFOs up at night. As technologies become more advanced, threats to an enterprise’s perimeter grow more sophisticated. As a result, the finance team is now far more active in cyber security.

A breach of sensitive company information might not necessarily result in direct financial loss – unless it stems from failure to comply with GDPR and other regulations – but it will affect perception and brand. Companies risk losing investors, income streams and consumer confidence if it appears that they’ve failed to take appropriate steps to protect their organisation. And that means losing trust and, therefore, value.

The lynchpin to value

Finance departments have, stereotypically, been seen as part of the back office. However, the implied distance in the relationship with business now has to narrow. The CFO is the lynchpin to value in an organisation – from driving the ESG agenda, to ensuring the data underpinning decisions is robust and transparent, to mitigating risk at every turn. Without someone overseeing all of this, backed by good data and supporting technologies, companies are at a much greater risk of being caught out when they least expect it.

Nowadays, managing reputational risk is everything. That’s why it’s crucial the CFO works with different departments to help them make well informed decisions, and takes appropriate steps to mitigate any potential damage. From ensuring transparency in the supply chain, to safeguarding the security perimeter, they must go above and beyond the bottom line to generate real value for their business. After all, that’s the price you pay to be at the top of the pyramid.

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