what makes a cfo great

What Makes a CFO Great? is published by CFO Publishing LLC, 51 Sleeper Street, Boston, MA 02210. Mary Beth Findlay edited this brief, with editorial assistance from Caitlin Hegarty and Jenna Howarth. Cover design by Robert Lesser.

Copyright 2013 CFO Publishing, LLC. All rights reserved. No part of this book may be reproduced, copied, transmitted, or stored in any form, by any means, without the prior written permission of CFO Publishing, LLC.

ISBN 978-1-938742-21-7

WHAT MAKES A CFO GREAT?

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TABLE OF CONTENTSFOREWORD: DEFINING EXCELLENCE 5

CHECKS AND BALANCES: BEING PART OF A DECISION-MAKING TEAM 6 Good Sports: Leading and Collaborating With A Team 7 No Exclusions: How to Direct A Risk Team 9 Collective Leadership: Managing Talent Effectively 12 Tough Choices: How Well Do You Decide? 15 A Great Fit: Different Companies Need Different CFOs 17

TALKING THE TALK: COMMUNICATION SKILLS 22 CFO as Storyteller: How to Communicate Strategically 23 Finding a Signal: Communicating With Your CIO 26 Advise and Shine: Motivating Your Team 29

KNOW YOUR NUMBERS: DATA ANALYSIS 33Staying Skeptical: Applying Your Judgment to the Data 34Predictive Value: Adding Knowledge to Tools 36

CONCLUSION: TAKING THE WHEEL 38


FOREWORD: DEFINING EXCELLENCEW hat qualities typify excellence in a finance chief? Technical capability? Its completely irrelevant, professes Ian Tyler, chief executive officer of

Balfour Beatty. That is a commodity that you can buy. Im not saying that its not important in the wider world, but for the purposes of what makes a great CFO, its irrelevant.

For Tyler, Theres a really big difference between a good CFO and a great CFO. A great CFO is part of a very small team of people who run the business: and I mean, really run the business. One of the corporate myths is that CEOs run companies, he says. They dont. Within any company there is a small group of people who ultimately make the decisions, and to be part of that team is a question of reality, not status. You first and foremost have to be resolving the balances in the business.

Nor, adds Tyler, is there any place on that small management team for anyone who comes at things with a single point of view. Anybody can have a single point of view on something. Its the resolution of those points of view that is key, and a great CFO has the ability to do that, he says. A great CFO ultimately is first and foremost part of that senior management teamand a very distant second, running the finance function.

James Cheesewright, CFO of Eurostar, a passenger-train service that runs from London to Brussels, Paris, and other destinations in

France, explains that great CFOs are those who can make a difference: Its the value that you add in the discussions that take place around the senior management or board table. That comes through understanding how an organization works, understanding whats important to your colleagues at the senior management level, and then making a difference accordingly.

He adds a caution: If you go to a board meeting and the numbers are slightly off or you cant explain something, a little bit of credibility dies. Get them off by a lot and you just wont be around.

What really matters, though, is having the experience and the confidence to distill down in simple words how you think you can make a business better or how a company can be made better. Data and analysis really help with that process. If you are able to present that, its an enormously powerful position.

Asked whether great CFOs are born or made, Tyler thinks they are born: You have to have an instinct that wants to create value. For example, how much time does the CFO spend in front of customers?

If you dont have an instinct to go out and talk to your customers, you really dont have a place around that senior management team. You have to have the instinct to want to go and find out where value is created, says Tyler. And if you dont, you might be a good CFO. But as far as your stakeholders are concerned, youll never be a great CFO.

FOREWORD: DEFINING EXCELLENCE

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CHECKS AND BALANCES: BEING PART OF A DECISION-MAKING TEAM

When executives think about the best sports team they were ever onfrom Little League to high-school

basketball to intramural Ultimate Frisbeeand recall what was great about it. The answers are always the

same: People say, We knew each other. We knew what it took to win. We had a common goal. We had fun. You

need to draw on that experience.


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GOOD SPORTS: LEADING AND COLLABORATING WITH A TEAMA side from the occasional coaching stint, most CFOs Little League days are long past, but the lessons learned on those distant summer evenings may hold the key

to their future success. Two such lessonslearning to take a leadership role on a team and to collaborate with other team membersare critical for any finance executive who aspires to advance. Whiff on those and the result can be career stagnation.

CFOs face two distinct team challenges: they must lead the finance team as well as play on the senior management team, where the dynamics can be fraught with tension as members compete for resources, the CEOs favor, and even his job.

Building a strong team is critical because the CFO role is now so varied and demanding that no individual can effectively manage and execute all parts of it alone. Finance executives who hope to put their time to best useworking on strategic planning with the CEO, say, or meeting with large institutional investorsmust rely heavily on their supporting cast. Work is much more complex than it was 10 or 20 years ago, says Todd Harris, director of research at consulting firm PI Worldwide and an adjunct professor of psychology at the University of Massachusetts. Its becoming increasingly difficult for any one person to have all of the knowledge and all of the skills to get his or her work done. This is really driving a need for teams.

CFOs need to get results through others, says Fred Adair, a leadership consultant and former partner at executive search firm Heidrick and Struggles. The demands on different subfunctions in finance are becoming much greater, and if the CFO has not created an organization with competence at each level, he gets pulled back into the details.

As an entry point, Adair often asks executives to think about the best sports team they were ever onfrom Little League to high-school basketball to intramural Ultimate Frisbeeand try to recall what

was great about it. The answers are always the same, he says. People say, We knew each other. We knew what it took to win. We had a common goal. We had fun. You need to draw on that experience.

Taking the LeadBuilding and leading a strong team is easier said

than done, of course, and that may be particularly true in finance. CFOs are numbers people, Adair says. Building an organization is where they tend to fall down.

Experts on team behavior cite a few important steps that finance chiefs can take to build better teams. Having the right mix of skills and people is an important starting point, but the nuts and bolts of the teams processes are also critical, says Harris. The most effective teams establish ground rules for how theyre going to communicate, make decisions, handle conflict, and evaluate performance.


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Adair agrees. So much of the improvement you can make in leadership effectiveness is not through changing out team members or doing rope climbs, he says, but by specifying basic agreements about goals and roles and processes.

The best teams then coalesce around a point of ignition, or an inspiring goal or mission, says Lynda Gratton, a professor of management practice at London Business School who has studied high-performing teams. While never easy to come by, such a goal can prove particularly elusive for finance. In finance, there tends to be a relatively simple vision, like achieving a given return on invested capital, says Gratton. The CFO has to think of more-energizing goals. For example, encouraging the finance team to identify new areas for business development may provide a stimulating counterpoint to months of cost-cutting.

High-performing teams also work across company boundaries, says Gratton. When team members reach out to users of finance information throughout the organization, for instance, better ideas or practices can result. But this, too, can be difficult for finance. Functions build great big walls around themselves and [each] department becomes like a fortress, she says.

Highly skilled groups like finance or research-and-development also struggle with what amounts to a language barriertheir technical vocabulary can hinder communication with their colleagues throughout the rest of the company. But attempts to bridge that gap and share ideas prove worthwhile, helping finance staffers raise their profiles and find new ways to contribute throughout the business. Some of the most innovative work in the finance function, for example, occurs when finance works with marketing or sales.

Playing Well with OthersMembers of the senior team are not necessarily

consciously withholding [information] from each other, says Adair. But they are often devoting only part of their attention to the team, while most of their focus is on how their part of the business is doing.

This is partly because many compensation structures provide incentives for management team members to compete rather than collaborate, says Gratton. With each member jockeying to advance his

or her own agenda and score points with the chief executive, team goals often fall by the wayside. Boards often try to address such team dysfunction by hiring a new CEO, when the problem actually lies within the team itself, says Adair.

To reduce such counterproductive competition, Gratton advises companies to consider designing incentives based on meeting group goals. Adair cites a CEO who changed the compensation structure for his top lieutenants to tie their bonuses to the achievement of his own companywide goals, thus encouraging them to work together to meet the companys broader strategic agenda.

Barring such significant company- or teamwide changes, finance chiefs can improve their own performance within the management team by attempting to see the company through their fellow executives eyes, says Adair. On a good senior management team, everybody feels required to share his or her point of view about other parts of the business, he says. Perhaps adopting that broader perspective is the best thing CFOs can do to improve their skills as both team players and team leaders.


CFO Summary

As the CFOs job gets more and more complex, it is essential to have a competent finance team that can handle the pressure.

Make your goals, roles, and processes clear; establishing the rules is often more important than selecting the members of your team.

Communication beyond the walls of the finance function is critical. Make sure your team members know how to work with and communicate with other departments.

As a member of the senior team, make sure you and the other members are collaborating and not competing; if everyone is vying for the CEOs attention individually, overall strategy is diminished.

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NO EXCLUSIONS: HOW TO DIRECT A RISK TEAMM ore than ten years after the Sarbanes-Oxley Act highlighted the need for better corporate risk management, many experts say that companies misguided

efforts to do so actually poses a new kind of risk.The main problem, they argue, is that companies

are not defining risk in the right way. They pay too much attention to a common subset of risk management activities, such as insurance coverage, fraud detection, and regulatory compliance, while ignoring more-important risks. Risk management typically focuses on operational risks and compliance risks, but those are a small piece of the puzzle, says Christopher Dann, a vice president at consulting firm Booz & Co. Even financial risks like bad debt or fraud, in terms of shareholder-value loss, are very, very minor.

Instead, a Booz & Co. study of 1,200 large companies over a five-year period suggests that more than 60% of [shareholder] value lost over the last decade has been attributable to strategic risks, like being in the wrong market with the wrong product, Dann says. Very few risk management programs would regard the What product in what market? question as falling in the risk domain.

Another flaw in many programs is that theyre too complex, putting form over content. Board members and management need to be mindful of a risk management program that is so extensive it paralyzes the company, says Michael Peregrine, a partner at law firm McDermott Will & Emery specializing in corporate governance.

Some CFOs would argue that they dodge these pitfalls by approaching risk management not as a formal process but as a concern that is woven through all strategic decision-making. Senior management doesnt think about managing risks; we think about managing the business, where there are risks around every corner, says Dennis Hernreich, CFO and chief operating officer of the

nearly $400 million Casual Male Retail Group. [Risk management] is just part and parcel of everything we do.

Whatever the starting point, the good news is that CFOs can and should be leading the risk management charge, in whatever form it may take. And a major key to handling that successfully, many CFOs believe, is to inculcate risk management savvy into every corner of the organization.

I see every risk translating into a number in some way or another, whether its the loss of sales or the loss of opportunities, says John Varvaris, CFO and COO of Best Doctors, who recently initiated a companywide risk management program. Here, we look at some of the key components of how to sharpen a risk management program and get it right.


For more on John Varvaris and his team building strategies, read Teaming Up on Innovation.

http://www3.cfo.com/article/2012/1/growth-strategies_best-doctors-varvaris-ernst-falchuk

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Human Capital: How to Build a Risk TeamVarvaris joined fast-growing global medical-

specialist network Best Doctors as CFO in 2009, after 30 years working in the insurance industry and two as a risk management consultant. So its not surprising that one of the first holes he noticed at the $120 million firm was the lack of a formal risk management function.

I knew right away we had to put something into place, says Varvaris. The first step: get the rest of the senior leadership team on board. If you put something in place but the executive management team doesnt buy into it, it dies on the vine. The task at Best Doctors was relatively easy, Varvaris says, as the companys senior leaders quickly agreed that it was time to formalize efforts.

Step two was to assemble the right people to assess the firms risks, in this case by creating a risk management committee. The committee began with 12 people: the heads of business units and geographies, as well as key departments like finance (which was represented by the vice president of finance, because Varvaris himself was chairing the committee) and IT, and the companys chief actuary. That group meets quarterly for about two and a half hours each time.

Once the committee was formed, Varvaris focused on its education. To make sure everyone had a common understanding of risk management, he ran a brief survey with open-ended questions asking committee members what they thought risk was, and how they might measure it. People had different answers, he recalls, so we went through a little tutorial of how you identify and measure risk as a corporation.

Once everyone was up to speed on the working definitions, the group then collectively set a risk-appetite level for the organization based on the impact the risk would have on several key metrics, including revenue growth, earnings, and shareholder equity. For any given decision to move forward, its potential estimated negative impact can be no more than half the total risk appetite, since there could be more than one incident in a year.

Committee members self-assess their parts of the business before each meeting and report on the top five to ten risks they face and what theyre doing about them. From there, each risk is plotted on a grid according to its potential severity and likelihood, with the results helping the committee winnow many dozens of items down to a list of the top 10 risks for the corporation as a whole. The goal is to anticipate things before they come up; if you have a good team thats challenging each other, you get some of that, says Varvaris. But trust among the team is critical, so they can share their areas of exposure, rather than trying to prove they dont have any.

Over the past three years, Varvaris says he has seen an evolution in how his colleagues approach risk. People understand it; the [self-assessments] are getting a bit more realistic each quarter, even as new people join, he says. The committee now has 14 members, with some of the original members rotated out and representatives from several new business areas joining. Enthusiasm for learning is no doubt boosted by the fact that Varvaris gives the committee credit for several successes. One example: in 2010, the group pinpointed that the company would soon run out of capital for growth. That spurred a $20 million equity-capital raise from strategic investor Nippon Life in April 2011.

While he is constantly reassessing the work and composition of the group, Varvaris says the very act of carving out time for people to think deeply about what can go wrong in their businesses is vital. Unless people come with a risk management hat on, youre not really going to get the focus and attention you need. In our meetings, were not talking about the staff, or goals for the quarter, or anything like that; its just risk management, and you get a lot of value out


Create a formal risk management function. If you put something in place but the executive management team doesnt buy into it, it dies on the vine.

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of that. And the price is right: not counting any risk mitigation strategies the company might take, theres no cost, just the leadership teams time.

Such companywide risk committees are one of the best practices Ive seen, says Hank Prybylski, a risk management expert at Ernst & Young specializing in the financial-services industry. While the finance department often takes the lead, including the businesses as well as the key support groups on a level playing field to identify risks and make decisions helps create more risk-spotters across the organization, he says.

Risk Governance: How to Equip Your BoardIronically, getting the best from frontline employees

may start with sorting things out with the board. Experts say that requires careful guidance from the CFO. The board has the duty to exercise oversight, so they should be part of the conversation on how detailed and extensive risk management is, says Peregrine, but its the executives who know what the fine line is between too heavy and too light.

While there is still debate over whether the full board or the audit committee should be responsible for risk, finance executives can often help engage more members in risk, say experts, even by subtly working risk into broader educational efforts. Best Doctorss Varvaris, for example, says that every board meeting involves a SWOT (strengths/weaknesses/opportunities/threats) analysis of a rotating series of business units and geographies. Once an organization is clear about the level of risk it wants to take in executing its business strategy, it is much easier for board members to have a conversation about where in that spectrum the company sits, and where it might want to go, says Ernst & Youngs Prybylski.

All of that structure can lay the foundation for higher-level analyses and discussions with the board, rather than simply inventorying a long list of risks. The board looks at how robust our program is, but that is less of a focus than assessing what we are doing around these risks, whether we are looking at the right risks, and what is happening in the business that changes our risks, says Intuits Nasburg. Its not just a report, its a discussion.

CFO Summary

If your company does not have a formal risk management function in place, make one. CFOs should be leading the movement towards better and more-informed risk management processes.

Make sure everyone has the same understanding of risk managementwhere interpretations vary, risk levels will vary as well.

Engage your board in the risk processincorporate them into an informed conversation rather than reading off a litany of risks.


Click here for the latest CFO.com articles on Risk Management.

http://www3.cfo.com/risk-compliance/risk-management

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COLLECTIVE LEADERSHIP: MANAGING TALENT EFFECTIVELY

F or some time now, it has been predicted that companies can expect high voluntary employee turnover when the economy starts to recover. The hardest hit could be companies whose employees have become unmotivated, unattached, and disengaged during the downturn.

Corporate talent programs are falling short on performance and investment, according to the January 2012 issue of Talent Edge 2020, a survey series conducted by Deloitte in collaboration with Forbes Insights. Only 17% of executives surveyed believe their talent programs are world-class across the board, while 83% acknowledge that significant


http://www.deloitte.com/view/en_US/us/Services/additional-services/talent-human-capital-hr/Talent-Library/redrafting-talent-strategies/index.htm

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Equipping CFOs and their teams with the right language to align common goals, roles, and responsibilities can help create a stronger level of commitment toward what they need to accomplish together.


improvements need to be made. As our economy begins to show signs of recovery, now is the time to renew investment in talent-management programs that will help decrease turnover rates and increase employee commitment and company success.

So what is the CFOs role in this?Now, perhaps more than ever, CFOs must take

the time to craft carefully a leadership approach for themselves and their staff that is responsive to the teams needs and expectations and that adapts to ever-shifting circumstances. An effective approach includes the ability to develop a sense of belonging for employees, commitment to take personal action to achieve the goals of the organization, and a common understanding of how to work together. That approach drives organizational behavior and offers important benefits: more productive and dedicated employees, higher levels of employee engagement, and increased retention of key talent.

How can CFOs, through a focus on collective leadership, help minimize employee turnover and effectively manage talent to sustain company initiatives and enjoy ongoing success?

Operate As OneThe role of CFO is no longer solely financial

stewardship and accountability; CFOs today must be strategic business leaders. In addition to financial responsibilities, they must be effective at creating, communicating, executing, and sustaining strategic initiatives within the company, and that means managing talent as well.

To manage (and keep) talent effectively, CFOs must develop a more precise understanding of the different ways in which their team members work together. Equipping themselves and their teams with the right language to align common goals, roles, and responsibilities can help create a stronger level of commitment toward what they need to accomplish together. When a group of peopleno matter in what industrytruly operates together as one, remarkable things can be accomplished.

A great example of this is seen through dabbawalas, the lunchbox deliverymen of Mumbai. Through an operation with Six Sigma-like precision, dabbawalas deliver more than 200,000 hot meals a day. Of every 6 million deliveries, only one fails to arrive on time: a staggering feat of performance and efficiency. If one

dabbawala is injured or otherwise unable to complete a task, another can be instantly called in.

Their success can be attributed to an ability to operate as one, with a shared sense of pride in their work, common understanding, and a culture of mutual support. When given the tools to do their job well, employees canand willactively contribute to the overall success of the company.

Clearly Articulate Roles and Responsibilities

In addition to giving people the tools to carry out their responsibilities effectively, CFOs must create a sense of ownership and accountability for shared goals and objectives. A lack of clear direction and ineffective communication will result in poor workforce engagement and underperformance, likely leading to unacceptable, unsustainable levels of turnover. High-performing organizations have clarity on goals, strategies, and the individuals role in achieving these.

Without a sense of ownership for goals, its hard to obtain the necessary levels of commitment to execution, which is the single biggest challenge in many organizations. It isnt just how you develop shared goals that matters most; its how you instill ownership by the people required to take action for their implementation. All team members should understand how they individually contribute to the organizations success.

Recognize Opportunities for Employee Growth

Once CFOs clearly define roles and responsibilities within the organization, they must consistently

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CFO Summary

Many workers became unmotivated, detached, and disengaged during the downturn, leaving companies at risk for high turnover rates as the economy recovers.

CFOs must lead their teams to operate as onesharing a sense of pride in their work and cultivating a culture of mutual support.

Make each individual clearly responsible for their roles. They will understand the integral role they play in the workings of the department and be more committed to execution.


recognize and evaluate new opportunities for growth among their staff.

When employees really believe their voice counts and their actions will make a difference, staff commitment moves up dramatically. But in companies that lack interactive discourse, its harder to gain the energy and innovation required for staff to be successful.

Through open dialogue, employees and CFOs can share their needs, preferences, and goals with each other on a real-time basis. CFOs can gain a better understanding of what employees value and why, which can inform the development of total rewards programs and other workplace initiatives specifically designed to enhance employee engagement. Employees, in turn, can gain a better understanding of what the CFO needs and expects from them, as well as the sense of having a real say in how the business is run.

As company priorities change, or team members come and go, it is important to have a leadership program in place that can adapt alongside. Turnover is inevitable, but a collective leadership approach that represents a diverse range of leadership models can transform the way CFOs lead their function and positively affect the organizations overall behavior. It can increase the likelihood that new and existing hires will have long, successful careers with the organization and work collectively to achieve extraordinary results.

Through this practice, the CFO can be a strong leader within the broader enterprise and make a significant and lasting impact beyond the balance sheet alone.

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TOUGH CHOICES: HOW WELL DO YOU DECIDE?N o executive would argue with the notion that a companys ability to make and execute decisions effectively is a cornerstone driver of performance.But most, when asked just how adept they are

in this area, admit they simply dont know, says Michael Mankins, a partner with management-consulting firm Bain & Co. Any response to the question would be inherently relative, he says. Unless you know how good other companies are at decisions, how can you gauge your own effectiveness?

Providing that context was part of the motivation for a Bain survey of 760 executives and a new book, Decide and Deliver (Harvard Business Review Press), co-written by Mankins.

Bain asked respondents to rate their companys skill in four dimensions of decision-making and execution:

Quality of decisions: with the benefit of hindsight, what percentage of the time have you chosen the right course of action?

Speed: do you make critical decisions faster or slower than your competitors?

Yield on decisions: what percentage of the time do you execute critical decisions as intended?

Effort (the time, trouble, and expense to make and execute decisions): do you feel youre putting in the right amount of effort, too much, or too little?

Answers to the questions resulted in a decision score for each company. The research results, viewed in the aggregate, demonstrate strong correlations between each of the four dimensions and company performance. Compared with other companies, those in the top quintile of decision scores provided five to six percentage points greater shareholder return, return on invested capital, and revenue growth.

The correlations hold firm across all geographic areas, industries, and company sizes, says Mankins.

However, the four decision dimensions do not carry equal weight from industry to industry. For example, in the aerospace business, a company may have to live with the result of a poor-quality business for decades, while for a technology firm, speed may be as important as quality. And in retail, the execution of decisions matters more than either quality or speed.


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Using the top quintile for comparison purposes is meaningful because those companies have an average decision score of 71, compared with 28 for the others. Consequently, average companies in the bottom four quintiles could realistically improve their decision effectiveness by 2.5 times, the book points out.

Bain was mindful that because the research was based on self-reported assessments, the findings could be subject to the halo effect, meaning that people who work for companies with strong financial results, for example, might report better performance in other areas as well, such as decisions. But the firm found that most companies didnt score uniformly well in all four areas of decision effectiveness, a different result from what would have been expected had the halo effect been significant.

Clients often ask Bain whether there are trade-offs among decision quality, speed, yield, and effort, the authors write. For example, if you push too hard to make decisions faster, wont you end up making poorer-quality decisions? But the research found that the companies that make decisions fastest are actually four times as likely to make high-quality decisions as are those with average or low speed scores.

Bain also found a strong correlation between decision effectiveness and what it calls organizational health. To gauge the latter, the survey asked participants to rate the extent of their agreement with statements such as people understand their priorities clearly enough to be able to make and execute the decisions they face and our culture reinforces prompt, effective decisions and action.

The book outlines a five-step process for improving decision effectiveness. The first step is to assess your decision effectiveness and how your organization affects it by creating scorecards, taking the same approach Bain took with its survey questions.

The second step is to identify the relatively small number of critical decisions that probably drive 80% of the companys value. Those include not only major strategic choices but also daily operational decisions that cumulatively create (or destroy) great value.

Third is to redesign individual critical decisions for success. Does everyone understand what the decision is? Are procedures for decision-making

and execution well defined and understood? Does everyone know the timetable?

The fourth step is to align the organization to support decisions. Fixing individual decisions is a start, but it rarely solves the whole problem, the authors write. Sometimes the organizational structure makes it impossible for decision makers to act quickly. Other times the style of decision-makingtoo much emphasis on consensus, for exampleslows things down.

The final step is to embed the changes in everyday practice. This step isnt sequential: once a company is on the path to decision effectiveness, it may find all kinds of ways to celebrate good decisions, reward those responsible, and create tools for redesigning individual decisions.


CFO Summary

Evaluate your decision-making skills in the following four categories: quality, speed, yield, and effort. Higher decisions scores tend to be correlated with elevated company performance.

Make sure everyone understands decision-making and execution procedures. When everyone is on the same page, decisions will be made more efficiently.

Once youve examined your own decision-making prowess, make changes in everyday practice as necessary.

Dont make a costly error. Read Avoiding Decision Traps.

http://www3.cfo.com/article.cfm/3014027

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A GREAT FIT: DIFFERENT COMPANIES NEED DIFFERENT CFOS

role too far and unreasonable to expect a CFO to be good at everything. How can the CEO and the boardthrough the audit committeeshape a manageable profile for the position? Its an important question, both for companies hiring a new CFO and for existing CFOs who see their roles expanding without a broad perspective.

To get a more detailed picture of how the role continues to evolve, we analyzed the experience, credentials, and backgrounds of CFOs of the top 100 global companies by market capitalization. Our review, while not definitive, suggests that companies are shaping the role to meet their current needs.


T he role of the CFO generally has broadened over the past decade. Beyond the core responsibilities of financial reporting, audit and compliance, planning, treasury, and capital structure, many CFOs are playing a stronger role in corporate portfolio management and capital allocation. Others have become prominent as the voice of the company in investor relations and in communications to the board, as leaders in performance management, and as exporters of finance-experienced personnel to the rest of the organization.

Where does it end? Its unproductive to stretch the

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audit, financial planning and analysis, or business unit finance. They tend to have intricate working knowledge of the company and are often experts in relevant finance and accounting issues, such as financial regulation, international accounting, or capital structure. Many have advanced accounting degrees or experience at an auditing firm.

This type of CFO is particularly well suited to highly decentralized companies with stand-alone businesses or early-stage ones scaling up and professionalizing the finance function. Their strong finance-function knowledge across a broad spectrum of activities is critical to effective compliance and standardization of processes. The finance-expert profile may also be best for any company whose top team otherwise lacks strong finance leadershipor whose finance department is inefficient or in disarray.

The generalist. Companies in highly capital-intensive

industries, such as basic materials, oil and gas, and telecommunications, put a high premium on operational capabilities. So they naturally look for executives with broad experienceincluding CFOs who have spent time outside the finance organizationin operations, strategy, marketing, or general management. Indeed, among the 51 CFOs in our sample who were hired since 2009, 31 of them have such experience, up from 17 of those hired prior to 2009. Among all the CFOs in our sample, 62 have MBAs or other advanced degrees, compared with only 28 with advanced accounting degreesreflecting a premium for management and communication skills over deep technical expertise.

CFOs that fit this description tend to engage heavily in business operations and strategy and often bring strong industry and competitive insights. They are often found in companies in mature sectors, such as financial institutions, where operational similarities across business units provide a good platform to rotate managers among businesses and eventually into functional leadership roles; most are internally hired and already fill an executive function, often being groomed for a CEO role. These rotations give managers insights about different businesses that they need to support tightly run operations, allocate resources, and influence peerswhich, regardless of industry or strategy, make them ideal for companies where personal influence is needed to get things done.

The performance leader. CFOs with strong track records in transformations

both within the finance function and throughout the

Indeed, we identified four distinct profiles of the role defined by the breadth of the current CFOs experience in finance or in nonfinance functions; his or her professional focus, whether its an internal focus on operations or an external focus on strategy; and the sources of the CFOs expertise, whether from years of experience at the current company or another one, for example, or whether it includes a traditional accounting degree or some other.

The four profiles include what we would characterize as the finance expert (or numbers guru), the generalist, the performance leader, and the growth champion. And while there is no single CFO profile that will fit the needs of every companyeach must target candidates with competencies that best fit their strategy, the composition of the rest of the companys top team, and current finance-function capabilitiesthese profiles do offer a glimpse into how the role is evolving and where peers are looking for talented and innovative CFOs. They also raise important questions for board audit committees thinking about CFO development or the profile of the person they would like to hire, as well as for executives seeking to shape their current role or considering new ones.

Four Profiles of Todays CFOManagement roles vary by organization, depending

on a companys history, the characteristics of its industry, and the demands of investors. And although fitting CFOs into a clear-cut typology may seem artificial, we found it useful to understand how companies are filling the role to get a clearer picture of how its changing. Based on our research, we categorize CFOs into four general profiles.

The finance expert. Typically internal hires, these CFOs have years

of experience rotating through multiple roles within the finance functioncontrolling, treasury,

There is no single CFO profile that will fit the needs of every companyeach must target candidates with competencies that best fit their strategy, the composition of the rest of the companys top team, and current finance-function capabilities.

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organization are what we have dubbed performance leaders. They tend to focus on cost management, to promote the use of metrics and scorecards, and to work to standardize data and systems. They are often hired externally, and many have previous experience as CFOs. Most have worked internationallyexplaining in part why, among the 51 CFOs in our sample hired in the past three years, 30 have significant experience in multiple geographies, up from 21 of those with longer tenures.

Companies employing these types of CFOs are often highly diversified companies requiring rigorous analytics to compare performance across businesses, companies with aggressive growth or cost targets that must be met in the near term, or companies with scarce resources that must be carefully allocated.

The growth champion. Externally hired professionals are the least common

type of CFOs, but they have risen to account for nearly 25 percent of new CFO hires. They are most common in industries with frequent disruptions that require dramatic changes in resource allocationand in companies that plan to grow considerably or reshape their portfolio of businesses through aggressive M&A or divestiture programs. Such moves make external hires especially valued for

their significant experience in M&A, as well as for their external networks, independent thinking, and strategic insight, often gleaned through working as a CFO or serving for years in professional-services firms. Many growth champions are among the nearly one-third of new CFOs who have spent a sizable portion of their career in investment banking, consulting, or private equity, up from one-fifth with a similar background prior to 2009.

Aligning the Role with the CompanyThese profiles are obviously not prescriptive;

it would be simplistic to suggest definitive rules prescribing a specific CFO profile for general categories of company. That said, with the profile characteristics in hand, companies can more explicitly weigh them against the skills and capabilities they expect to require from the CFO as they shape, refine, and implement their strategy for the future. Whether this means selecting a new CFO or rebalancing the role of an existing one, they will need a candid assessment of their current corporate strategy, the skills and temperament of the CEO, the composition of the senior-management team, the current capabilities of the finance function, and organizational and reporting structures. We propose four questions (by order of importance) that CFOs should answer


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threshold of finance expertise and performance-management skillsa company embarking on an ambitious M&A program, for example, would want to give a strong preference to those with significant transaction experience and industry insight, more akin to a growth champion. A company lagging in profitability or undergoing significant industry consolidation may require a CFO more similar to the performance leaderstrong in performance management and cost containment.

2. What is the composition of your top-management team?

The selection of a CFO cannot be made in isolation; companies must consider the strengths of the rest of the top team, paying specific attention to its blind spots and missing capabilities. Recent research has found that the top teams of high-performing companies score higher on all measures of leadership competenciesincluding thought leadership, people and organizational leadership, and business leadershipthan those of low-performing companies. Finding the right set of leaders is clearly an important determinant of corporate performance. This means that the specific profile of your CFO may need to be different from that of other companieseven those in the same industry or those that have similar strategic goalsin order to create a robust top team.

Companies with a disproportionate share of leaders with a few areas of deep expertiseso-called spiky leaderstend to outperform those whose leaders have a broad range of more general skills. This requires members of the top-management team to build on one anothers strengths and compensate for one anothers shortfalls. A company with a visionary CEO may require a CFO with a firm grasp of the economics of the business and enough influence capital inside the organization to provide a counterbalance against potentially risky moves. Or a company that recently hired a CEO from outside the organization may require a CFO with deep company expertise and a firm grasp of the numbers, such as a person who fits the finance-expert or generalist profile.

The downside of mistakes in selecting the top team, and the CFO in particular, is significant. Myopic top teams can undertake risky or costly acquisitions, fall behind on innovations in the market, or fail to retain key talent. High-performing CFOs must have the integrity and conviction to challenge the CEO and other members of the top

when planning their own career-development plansor that CEOs and boards should answer when beginning the search for a new CFO.

1. What are your corporate strategy and aspirationsespecially considering the nature of your industry?

While there are certain trends in the hiring of new CFOs generally, CFO profiles often reflect the structure, conduct, and performance of a companys industry. Stable sectors with large global footprints and extensive supply chainssuch as oil and gas and consumer packaged goodsare more insular in their CFO selections. Only 4 of 28 CFOs in our sample in these industries were hired externally, and only 2 had significant experience outside the sector. However,

international experience is very important, with 9 of 13 CFOs in oil and gas and 10 of 15 in consumer packaged goods having worked in multiple geographies. At the other end of the spectrum are industries with rapidly changing technology and significant R&D, such as pharmaceuticals and medical products (PMP) and technology. Companies in these industries tend to have CFOs with more experience in strategy and transactions, and they are much more likely to select CFOs from outside the company or the sector. For example, of the 14 PMP CFOs, 8 were hired externally, 6 had consulting or investment-banking backgrounds, and 9 had general-management backgrounds. Over half of CFOs in both the PMP and technology industries have experience outside their sector.

In addition to industry context, companies must consider how certain CFO characteristics might best support their own strategic plans. Leadership teams of companies following inorganic (M&A) growth strategies require a higher degree of market insight and strategic orientation. Senior executives of companies following organic growth strategies, meanwhile, exhibit a high competency in people and organizational leadership. So regardless of industry characteristicsand as long as candidates meet the


While there are certain trends in the hiring of new CFOs generally, CFO profiles often reflect the structure, conduct, and performance of a companys industry.

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team on key strategic and financial decisions and hence steer the company to a higher performance trajectory.

3. What is the current level of capability in your finance function?

As long as a CFOs profile fits with a companys strategy and complements the top team, further considerations are more tactical. The current level of capability of the finance function is the most important of these, since the CFOs primary responsibility is to ensure the execution of core functions of the finance group, especially strong compliance and controls, accurate data, and systems integration. If a company struggles with efficiently performing the basic finance functions (relative to peers), then it may be necessary to promote candidates for CFO with considerable experience in a variety of finance roles and a track record of performance improvement.

However, if strong capabilities are already present in the finance organization, a company may consider candidates with other competencies, such as broader management experience or strategic insight. Companies that do so typically pair such a CFO with a senior finance executive who manages accounting and other traditional finance roles.

4. What is the organizational and reporting structure of your company? Which areas report to the CFO?

It is also important to consider the companys reporting structurethat is, does it have solid or dotted-line reporting to the CFOand the breadth of formal CFO responsibilities. For example, a CFO in a global company with a complex matrix structure and only dotted-line reporting must be able to exert a considerable amount of personal influence to be successful. In this situation, it may help to hire a CFO internallyregardless of which general profile he or she fitswho has the

networks and institutional knowledge necessary to drive change. It is also important to define the areas of responsibility that may lie beyond traditional finance areas, such as IT, procurement, and transformation, which demand day-to-day hands-on management and people skills typically seen in the generalist CFO profile.

The right fit between a company and its CFO involves a complex set of trade-offs reflecting its strategy, the skills and abilities of top management and the finance function, and a given individuals ability to drive change. Understanding how the role is evolving can prompt useful conversations that shape the CFOs role at your company in the future.

CFO Summary

The requirements for great CFOs vary not only with macroeconomic conditions, but also with companies specific goals and needs. Having a CFO with the proper skill set is vital to company strategy.

Broadly speaking, CFOs can be categorized into four general profiles: the finance expert, the generalist, the performance leader, and the growth champion.

Companies should strategically choose CFOs that fill gaps in the top-management team. A great CFO complements the C-suite.


Sources for Checks and Balances:Advise and Shine, Kate OSullivan, CFO Magazine, September 1, 2009. Copyright 2009 CFO Publishing, LLC.Are You Strategic?, Alix Stuart, CFO Magazine, November 1, 2009. Copyright 2009 CFO Publishing, LLC.Good Sports, Kate OSullivan, CFO Magazine, May 1, 2009. Copyright 2009 CFO Publishing, LLC.How CFOs Can Stem Turnover, James Quigley, CFO.com, April 20, 2012. Copyright 2012 James Quigley.How to Direct a Risk Team, Alix Stuart, CFO Magazine, April 15, 2012. Copyright 2012 CFO Publishing, LLC.How Well Do You Decide?, David McCann, CFO.com, October 7, 2010. Copyright 2010 CFO Publishing, LLC.What Makes a CFO Great?, Andrew Sawers, CFO.com, May 18, 2012. Copyright 2012 Andrew Sawers.

http://www3.cfo.com/article.cfm/14290301http://www3.cfo.com/article.cfm/14449015http://www3.cfo.com/article.cfm/13522606http://www3.cfo.com/article/2012/4/people_quigley-deloitte-cfo-leadership-turnover-retentionhttp://www3.cfo.com/article/2012/4/risk-management_cfos-manage-risk-build-teamshttp://www3.cfo.com/article.cfm/14529251http://www3.cfo.com/article/2012/5/leadership_cfo-senior-management-team-eurostar-balfour-beatty

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TALKING THE TALK: COMMUNICATION SKILLS

To collaborate effectively with the executive team, the board, and other departments on key financial decisions, CFOs should tell the story behind the numbers, not just

interpret them. When you get to this level, 80% of your job is communication.


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CFO AS STORYTELLER: HOW TO COMMUNICATE STRATEGICALLYE ven CFOs who are bona fide strategic partners may still fumble when talking finance to the rest of the company. To collaborate effectively with the executive

team, the board, and other departments on key financial decisions, they should tell the story behind the numbers, not just interpret them, says Suzanne Bates, founder and CEO of Bates Communications.

That may mean delegating some accounting responsibilities to direct reports and investing more time into honing communication skills, Bates says. When you get to this level, 80% of your job is communication, she says. With that in mind, here are five tips to become a more influential, engaging communicator.

1. Reach Out and Align InterestsCommunication is a means to influence, and when

done well, it can help win support for your strategic ideas, says Susan Cramm, executive coach and president of Valuedance, a leadership-development firm.

Figure out what drives people and where your interests meet theirs by asking them about their goals and projects. When Cramm was a CFO and wanted to improve operational efficiency, she approached the people who could further that goal: operations executives. She explained why improvements were necessary and how their programs could be more efficient given some additional perspective from the finance department. The operations people suggested


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At a workshop Maw attended, an insurance executive spoke about his companys quest to improve Six Sigma quality. With its language of four nines, green belts, and Plan-Do-Check-Act Cycles, Six Sigma can sometimes sound incomprehensible. So instead of talking about lean processes, the executive spoke of his effort to shed time-consuming, bureaucratic procedures. He told a story about a little yellow form that had been used at the firm for 30 years and that everyone had to fill out, although no one knew why, Maw says. The speaker imagined the form, always beyond reach, floating along through his enormous office building and taunting him. Call it executive humor, but the audience was laughing. I felt feel like I was walking around that place with him, Maw says. He was talking about probably one of the most boring topics, but he dragged you into a real-life story.

4. Get to the PointAnother way to keep people engaged during

meetings: dont bore them to tears with extraneous details. Craft presentation slides to highlight broad themes, and keep presentations to no more than six slides. Putting a limit on the number of slides, by the way, does not mean crowding every tiny bit of information you can onto each slide. When a CFO unveils a 25-word introduction slide, you can just feel the room deflate, Bates says.

Including too much detail on slides can also tempt you to read the presentation, a mistake that can keep you from engaging with the audience. Include only important facts and numbers, and rely on an outline that allows you to speak conversationally. Fewer slides doesnt mean the conversation has to be less substantive, though, because people can always ask questions, says Bates.

Keeping the slides simple sometimes means choosing graphics over words. Maw recalls a workshop instructor who used a picture of a train wreck to represent the failing U.S. economy. The message was potent. You dont really need to state the obvious with more facts [when] everybody knows how bad things are, he says. Sometimes people overkill a message, where one simple but impactful picture says it all.

5. Dont Go It AloneTo improve your presentation skills, seek help

from all the resources your company offers, including other people, Bates says. For example, reach out to a marketing employee for help creating compelling visuals for your presentations.

areas where they could make cuts, and in return Cramm gave them more-tailored analytical support.

Engaging with others reveals their unique strengths and limitations, Cramm says. In one case, the vice president of operations at her company had dyslexia and needed financial statements read aloud to him. Cramm says that if she had not gotten to know him, she would have assumed that he wasnt interested in financial performance or didnt want to collaborate with finance.

2. Teach FinanceIts crucial to translate its function and its

vocabulary into something thats crisp, compelling, and accessible for people who dont work in finance every day, says Bates.

An example of a way to do that is to set up a brown-bag lunch or meet briefly with other departments to explain basic finance in a casual context, says Joel Garfinkle, founder of Garfinkle Executive Coaching. Be encouraging and use business terms instead of finance jargon. It also helps to speak in terms of your audiences interests, showing it that understanding the numbers could help gain traction for its own ideas. For example, the marketing team could make a better pitch for a new initiative by analyzing its profitability, Garfinkle says.

And if you reach out to other departments before formal presentations, they will be more likely to pay attention when you do get up to the podium, Cramm adds.

3. Tell a StoryTo keep meetings and conversations engaging,

model them after the dinner-table conversations people have after work, when all the stories come out and the real communication happens, says Bill Maw, CFO of Liquidnet, a vendor of securities-trading systems. That means telling stories that keep your audiences attention through humor, imagery, and other techniques.


Another way to keep people engaged during meetings: dont bore them to tears with extraneous details. Craft presentation slides to highlight broad themes, and keep presentations to no more than six slides.

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Or, interview key audience members before a presentation, asking them to point out your blind spots - what you might be neglecting, and what they would like you to cover. That can lead to more engaging and relevant presentations and foster more productive communication. Most CFOs dont take that extra step, Garfinkle says.

Sitting through a presentation that is not tailored to its audience can be a brutal experience, Maw notes. Ive been a victim of that many times, where theyre not telling you whats of interest to you. And thats just wasted time and opportunity.

CFO Summary

Interpreting the numbers is important, but explaining them and explaining them well to the executive team, the board, and other departments is essential for CFOs to collaborate effectively.

Cater your explanations to your audience. Know what their interests are and where their interests meet yours. Explain your finance jargon when necessary.

Make your talks engaging. Stories can make the most boring topics seem vivid and relatable.

When public speaking, keep it short and keep it simple. Boring your audience is a waste of everyones time.


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FINDING A SIGNAL: COMMUNICATING WITH YOUR CIO

A 2011 joint survey by Gartner and the Financial Executives Research Foundation found that 42% of IT organizations report directly to the CFO. The percentage soars to 60% at smaller businesses with revenues between $50 million and $250 million.

The same survey pointed out that finance chiefs alone authorize 26% of all IT investments, while chief information officers approve only 5%. This makes sense: in tough economic times finance inevitably asserts itself and casts a gimlet eye on spending. In fact, an October 2011 report by CDW, one of the worlds largest technology resellers, said that only 40% of IT decision-makers expect their budgets to rise this winter, down 8% from last year and the lowest level of IT investment increase since October 2009.

Given the oft-unequal CFO-CIO relationship and constrained IT spending, its not surprising that the techies seemed more downcast than usual in another poll, CIO magazines 2011 State of the CIO survey. Only 33% of CIOs believe theyre seen as a trusted partner or business peer, and even fewer (31%) see themselves viewed as a valued service provider. Only 11% think IT is providing competitive differentiationagain not a surprise, given how cloud computing is propelling IT toward a utility model.

The fact that two out of three CIOs dont believe that theyre seen as a trusted partner is not good news for CFOs. Thats because to remain competitive, businesses need their top finance and IT managers to maintain a productive relationship.

At CDW, for example, finance chief Ann Ziegler counts herself fortunate to be surrounded by experts in technology, she says. By having the luxury of working with a CIO who is very financially literate, Ziegler has improved what she calls her own fluency in technology. This is critical, she says, because it allows her to allocate scarce resources more knowledgeably.

Tension between finance and IT can lead to what former Taco Bell CIO and Chevys Mexican Restaurants CFO Susan Cramm has called the schizophrenic CFO-CIO relationship, in which the two parties play an ongoing game of chicken, with CIOs asking for more money and CFOs asking for more justification. At best, such a relationship is organizationally dysfunctional; at worst, its an institutionalized competitive disadvantage.

Companies need to be able to do both: identify the next opportunity while determining the appropriate level of investment based on the organizations current condition. But they cant do both optimally unless the CFO and CIO are able to talk. To better


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understand where that conversation can break down, and how to keep it productive, CFO spoke with two CIOs who began their careers in finance.

Can You Fix It?Hyatt Hotels and Resorts CIO Mike Blake was head

of capital budgeting at Sears in 2000 when his CFO called him in to his office. Recalls Blake, The CFO said, You know, Mike, we spend a little less than $800 million a year on IT, and you know what? I dont really have a good understanding of what were spending it on, and our business lines dont believe theyre paying the right amount. Can you fix it?

Right then, says Blake, a new role was created at Sears: director of IT finance. Blake had studied accounting at the University of Utah and received his MBA in finance and economics from the University of Chicago. But what did he know about IT? Nothing, he says. I broke it down into products and services. You consume this particular application and it costs x dollars per year. What I came up with shocked people.

For instance, says Blake, I had a conversation with the head of logistics who was paying $300,000 a year for a system, and he said only three people read the report [produced by the system]. We were able to get rid of it. It was eye-opening.

Creating that kind of transparency got me excited about IT, he continues. Finance is a way of seeing how the business operates through language and numbers. IT is a way of seeing it through transactions. In IT, you can see whats happening in the business, [and] what will happen, before dollar one hits.

No More Black BoxBlake says the transparency he worked to create

at Sears has become more easily achievable in the cloud-computing model, and that has made it easier for CFOs and CIOs to communicate. IT is no longer about how you develop and code, says Blake. Its no longer a black box.

With cloud computing, things are brought down to cost accounting. Its price p times quantity q equals whatever youre buying. The CFO deals with p times q all the time. Now, the CIO deals with p times q because, in the cloud, quantities are smaller and prices arent as high. IT used to come up with ideas and run it through the solution delivery lifecycle [build, test, deploy], and it could take years. Now you can drop in an app in less than two minutes. No ones waiting for IT anymore.

This fundamental change in the way IT is practiced, says Blake, should transform both how the

CIO manages resources and how the CFO makes IT investment decisions.

I want my budget to be less year-over-year, says Blake, who reports to Hyatts CFO. Thats the mind shift that has to happen. I tell people the story of the movie 300. One of the Greek generals meets up with the Spartan king and asks him why he has only 300 soldiers. The Spartan king responds by asking the general how many of his soldiers are farmers, artisans, or herders. All of my 300, the Spartan king says, are soldiers. Thats what you want. You need to get to the right skill set for your organization.

Blake advises CFOs, for their part, to start asking easy questions, such as how much the companys e-mail costs. If your CIO cant tell you its x, y, z per box, Blake says, thats a problem.

But Blake also suggests that CFOs be patient. Tell your CIO youre not looking for year-over-year cost reductions; youre looking for the enhancement of opportunities with the use of technology, he says. Thats sacrilege in the CFO ranks; CFOs are geared to drive down costs. But you can increase the line in technology and decrease other costs. Below a certain level of investment, dont push so hard on ROI for fear of killing opportunity.

Today, says Blake, theres a plethora of opportunities on the IT horizon. In order not to miss them, the CFO and CIO need transparency, and they need to talk.

Beware of CFOs Bearing iPhonesLike Blake, Safety-Kleen CIO Mark Stone has a

degree in accounting. From 2003 to 2006, he was vice president of financial planning and analysis at jewelry retailer Zale, where he had his own moment of IT clarity.

I had sharp disagreements with the CIO, recalls Stone. He wanted to move off Oracle Retail to SAP. His bottom-line argument was to change how the merchants worked by implementing SAP Retail with best practices in it. Never implement IT to force process change.

Tell your CIO youre not looking for year-over-year cost reductions; youre looking for the enhancement of opportunities with the use of technology.


Make the right choice next time. Read Five Rules for Hiring the Right CIO.

http://www3.cfo.com/article/2011/8/it-value_five-rules-for-hiring-the-right-cio

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There was no ROI for the project, and when I became CIO [in 2006], I canceled it, continues Stone. I avoided spending $20 million, and went back to Oracle. There are no such things as best practices; there are only practices that best fit a company.

Like Blake, Stone sees a fundamental change occurring in the CFO-CIO relationship, but he regards it as less a product of cloud computing and more a result of the consumerization of IT.

CFOs think that because theyre using iPads and iPhones and have wireless networks in their homes theyre tech savvy, and so they want more say in IT, says Stone. The risk is that they may not understand the complexity of enterprise IT. CIOs used to hide everything behind a blizzard of complexity. Today, the CIOs job is to communicate those risks clearly.

To do that, Stone emphasizes that CIOs have to be familiar with the CFOs worldview. The CFO is a creature of a lean world where every penny needs to be justified by ROI. Hes watching competitors move nimbly; he sees a dynamic world, and the CIO has to see through the same lens.

And if youre a CFO and your CIO is not on the same wavelength, find a new CIO, Stone concludes bluntly. If you have an operationally sound CIO, you

can trust him. If you dont, youre back in the same contentious relationship.

Or, as Susan Cramm puts it: Its always about the person, never the title. For both CFO and CIO, the question is always, Is the person the wind beneath your wings, or not?


CFO Summary

Effective communication between the CFO and CIO is necessary for companies to remain competitive by identifying new opportunities and determining the proper level of investment in these projects.

Converse with your CIO. Getting him or her to explain where your expenses are going can help you ensure that you are allocating resources in the most strategic way possible.

Trust your CIO. When CFOs think they are more tech savvy than they really are, misunderstandings run amuck. Let your CIO explain his or her reasoning and keep an open mind. If you cant trust your CIO, it might be time to find a new one.

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ADVISE AND SHINE: MOTIVATING YOUR TEAM

their toes and be prepared to lead their companies through any economic climate they may face in the future. Consider these steps to improve your crisis communication skills now, at a time when the stakes are not as high.

I t is certainly much easier to be a motivational leader when the news is good and there are plenty of perks to dole out. When your latest pep talk includes a mention of free baseball tickets or, better yet, bonuses, you can be sure the troops will love you. But when the company is under intense pressure and there is little to announce other than wage freezes and plant closings, even the most fearless leader can be tempted to hunker down and keep his office door closed.

CFOs worldwide were forced to fight this impulse in 2009. As the recession dragged on, many workers were dragging, too, and in need of inspiration. Employees were looking more carefully than ever at their companys executives, not only hanging on every word but also observing nonverbal cues like facial expressions or other seemingly innocent behaviors: Is that door closed because the CFO is on a personal call, or because layoffs are being discussed?

Robert Sutton, a professor of management science and engineering at the Stanford Engineering School, says that when employees feel threatened they become distracted from their work and devote more attention to watching what their bosses are doing in an effort to figure out whats going to happen next. People in the organization are carefully watching every word and action from the CFO to know whether their jobs are at risk, agrees Alexander Grashow, managing director of Cambridge Leadership Associates. Theyre looking to see what the CFO says while hes getting lunch, while hes in meetings, while hes in the hallway.

The economy has been looking up since the bleak struggles of 2009 and CFOs are delivering more-hopeful messages to their employees. But in spite of present circumstances CFOs must remain on

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Show YourselfOne of the most important ways to provide crisis

leadership is also one of the easiest: be there. People take comfort in knowing that top managers are on the job, working alongside them through the businesss challenges. In a difficult environment, I think employees and external constituents look more than ever to a leader for cues about the state of the business, says Steven Kafka, vice president of finance at biotech firm Infinity Pharmaceuticals. One thing Im trying to do is to be more visible. Im very optimistic about our business, and I think its important for my finance team and the rest of the company to see that optimism. Kafka says he builds time into his schedule to roam the halls and tries to eat lunch in the cafeteria regularly.


You have to get out from behind your desk, agrees Cosmo Alberico, finance chief at Odyssey Logistics and Technology, a transportation- and supply-chain-management firm. You need to communicate more than ever, not only with staff but with your customers and analysts, both formally and informally. Alberico now travels more frequently to Odysseys various far-flung locations to hold small-group meetings. He and the firms CEO hold formal, companywide meetings once or twice a month instead of every other month as they had in the past. The CFO also holds face-to-face meetings rather than conference calls with his direct reports in the finance, IT, and facilities groups. I think people feel better when they see a C-level guy coming and spending an hour with them, he says.

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Not every communication needs to be momentous. Sometimes just hearing from a senior finance executive can reassure nervous staffers; in the absence of news, many assume the worst.

Say SomethingCFOs arent always known for their

communication skills, but with employees, investors, vendors, and customers eager to hear the financial details straight from the source, its time to get more comfortable with public speaking. If communicating isnt your strong suit, you may need someone to help you, says Robert Duboff, CEO of communications consulting firm HawkPartners. Duboff suggests identifying a strong communicator in the finance department or working with someone in marketing or elsewhere in the company to craft the appropriate message and practice delivery and presentation before a company town hall, Webcast, or conference call.

Not every communication needs to be momentous. Sometimes just hearing from a senior finance executive can reassure nervous staffers; in the absence of news, many assume the worst. People Im coaching will say to me, I dont really have anything to say. A good communicator can always think of something to say, says Duboff. Try, Heres what Im working on, heres what we have coming up, heres what were waiting to hear about, or simply, Theres no news. Were still here. Were making progress. Heres what you can do to help.

At Infinity, Kafka participated in a half-day, companywide learning session, which he describes as a kind of room-to-room event in which members of each department gave a 15-minute presentation about what they do and how they support the firms goal of developing cancer-fighting drugs. Its a way to build community and create a sense of a shared mission. It also gives people the chance to ask questions, says Kafka.

One way that a finance executive can play a unique leadership role today is by making sure the rest of the business has all the data necessary to piece together a forecast for the days ahead. With the entire organization now intently focused on the core concerns of finance, including cash management, cost reduction, and risk, the stage is set for the CFO to take the lead in critical discussions throughout the business. Pamela Craig, finance chief at Accenture, the global business-services firm, says, Finance can be helpful in times of stress because you can provide some certainty. Looking at how the business did in prior downturns gives people something to react to, something to work with. Conversations that center on scenario planning can provide a valuable starting point for the management team as it tries to develop a strategy

for survival and recovery.If you dont allow your detailed knowledge to bog

you down, your expertise can be very helpful to a business-unit leader, says Alberico, who recently worked with Odysseys sales staff to help them understand the profitability levels of the companys different services. Weve been able to help the head of sales focus on the type of services that he should be pushing in order to drive higher margins, which is really a different approach than, Weve just got to get out there and sell, he says.

Grashow of Cambridge Leadership urges CFOs to seize the opportunity to get more involved in strategy development earlier in the planning process. Finance chiefs should work on building

informal relationships throughout the organization so that they are included in strategic conversations at the earliest stages, he says. Then they can provide information about budgets and the costs of various ideas to the rest of the company and encourage them to decide how to make the best use of limited resources, rather than weighing in at the end of the analysis with a yes or no. Try to take the approach of saying, Heres our budget, and then give the choices back to others, says Grashow.

Spread HopeWhile providing useful data to business-unit

heads can help a finance chief enhance his or her existing role, to expand that role and earn credentials as a strategic leader it is critical to go a step further and address the future of the business. A CFO who takes the long-term view can challenge the stereotype of finance executives as shortsighted Dr. Nos who are solely focused on cutting costs.

This is an ideal chance for the CFO to show that, while he understands the need to keep costs down, he has a deeper appreciation for the sustenance of the business, says Duboff. Its a good time to be asking questions like, What are we investing in? Whats our longer-term game plan?


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As hard as it is to do, we need to look well beyond next quarter, says Alberico. Odyssey upgraded its technology platform and increased hiring, hoping to take advantage of the greatly improved market for talent. Alberico touted these investments both inside and outside the business in an effort to reinforce the message that Odyssey planned to make it through the recession.

While it may be tempting to deal with the stress of the moment by shutting the door and obsessing over every detail of the budget, those CFOs who recognize the importance of their words and actions as business leaders have a real chance to both help

their careers and ease some of the anxiety in their organizations. When times are tough, Accentures Craig says, Its an opportunity for finance to have a stepped-up role in the business. Lets not waste it.


CFO Summary

When times are tough, CFOs are placed under the communication microscope. With employees analyzing everything from body language to your office door, maintaining your image as a strong leader is essential.

Make yourself visible within the company. Employees will be comforted by seeing and spending short periods of time with you.

Look beyond current cost cutting. Show your interest in investments with the hope that the company will emerge stronger than ever. Finance can be helpful in times of stress

because you can provide some certainty. Looking at how the business did in prior downturns gives people something to react to, something to work with.

Sources for Talking the Talk:Advise and Shine, Kate OSullivan, CFO Magazine, September 1, 2009. Copyright 2009 CFO Publishing, LLC.CFOs and CIOs: Can We Talk?, David Rosenbaum, CFO Magazine, December 1, 2011. Copyright 2011 CFO Publishing, LLC.How to Be a Strategic Communicator: 5 Tips, Marielle Segarra, CFO.com, January 10, 2012. Copyright 2012 CFO Publishing, LLC.

http://www3.cfo.com/article.cfm/14290301http://www3.cfo.com/article/2011/12/it-value_cfo-cio-relationship-it-cost-transparency-consumer-tech-environmenthttp://www3.cfo.com/article/2012/1/leadership_cfo-communication-collaboration-skills-maw-bates-garfinkle-cramm

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KNOW YOUR NUMBERS: DATA ANALYSIS

Unfortunately, there are a relatively small number of informed skeptic analytic experts, constraining the scope and depth of analytic capabilities across finance. As such,

FP&A teams greatest risk comes from too much data, not too little.


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STAYING SKEPTICAL: APPLYING YOUR JUDGMENT TO THE DATA

F inancial planning and analysis (FP&A) teams that want as much data at their fingertips as possible yet insist on using only perfect data in their analyses are unlikely to provide the kind of actionable insight many CFOs seek from those teams, a new report suggests.

The desired level of insight can come only from financial planners who incorporate more judgment into their analyses and fewer raw numbers, according to the CEB Financial Planning & Analysis Leadership Council, a new program of the Corporate Executive Board (CEB). To understand common FP&A challenges, the council performed qualitative analyses based on extensive interviews with 70 corporate FP&A heads and with academics and consultants. It also conducted some quantitative, survey-based research.

The finding: poor financial analyses may stem in part from overly detailed analyses that consume too much time. When you give people too much information, they actually underperform, says CEB executive director Michael Griffin. There is more and more data coming in, but that doesnt make it any easier for FP&A teams to deliver actionable insight to their business partners.

To their credit, the leaders of FP&A teams willingly point the finger at themselves. Only 29% of those surveyed say they consistently deliver insights about the business. The rest say they sometimes or never do that.

The difference between those two groups lies mainly in their willingness to use subjective judgment to illuminate or discount what the raw numbers seem to say. In a separate survey of 444 finance employees of all types, the CEB found that 37% were informed skeptics, who apply judgment to their analyses and are comfortable with dissent and listening to other

viewpoints. Those are the preferred type of staffers, flanked by two extremes: unquestioning empiricists (44% of respondents), who trust data over judgment and value consensus, and visceral decision makers (19%), who seldom trust analysis and make decisions unilaterally.

That unquestioning empiricists make up the largest of the three groups is hardly surprising, says Griffin. Finance folks are very comfortable with data, but less so with the application of judgment into the data, he says.

By contrast, the informed skeptics possess the relevant skills for decoding large amounts of data, managing ambiguity, and using judgment to influence their analyses, the CEB writes. Unfortunately, the boards report says, there are a relatively small number of these analytic experts, constraining the scope and depth of analytic capabilities across finance. As such, FP&A teams greatest risk comes from too much data, not too little.

With judgment playing such a critical role in analytics, the CEB identified five elements of judgment and specified how they should be incorporated into FP&A:

1. Synthesizing diverse data. Integrate into the analysis both qualitative and

quantitative data, as well as external viewpoints.

2. Inferring trends. Distinguish patterns that are relevant from those

that are not; identify risks and opportunities based on data analysis.

3. Generating insight. Isolate actionable and noteworthy implications, and

teach managers something new about their business.

For more on data analysis, read the CFO Research report Linking Numbers and Narratives: Correlating Quantitative Reports with Qualitative Analysis.

http://www.cfo.com/research/index.cfm/displayresearch/14654737?f=search

CFO PUBLISHING 35

4. Redirecting poor business assumptions. Surface key biases and assumptions that affect the

results of data analysis; identify and size the impact of environmental factors that may not be reflected in the data.

5. Influencing business decisions. Deliver controversial messages comfortably and

with authority; clarify decision trade-offs to internal customers.

The CEB also identified three broad take-aways from its research. First, stop relying on boilerplate performance-review criteria that were created for finance generalists. Instead, tailor the FP&A competency model by clearly defining analytic skills and behaviors that are unique to that discipline and that lead to insight generation.

Second, identify key decision points where FP&A can cut down on unnecessary, non-value-added work, and establish protocols for analysts to collaborate with business partners.

Third, dont spend much time looking for the perfect data or analysis to answer business questions. Teach analysts to make smarter trade-offs between timeliness and accuracy by setting guidelines about which types of decisions or projects require perfection and which require only directional analysis.

CFO Summary

Apply judgment to your data analysis. You have a vast amount of data to work with but overly detailed financial analyses can be time-consuming and overwhelming.

Dont uphold faulty business assumptions just because they are established. Redirecting poor assumptions can remove biases from your analysis.

Teach analysts to prioritize their time. Some projects require perfection while other require simply directional analysis.


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PREDICTIVE VALUE: ADDING KNOWLEDGE TO TOOLS

B etween 2005 and 2007, Jim Braun was CFO of OmniTRAX, a privately held railroad, transportation, and real estate management company. OmniTRAX owns shortline railroads (less than $500 million in annual revenue), but a significant percentage of its income in those years came from leveraging the land the company owned around its tracks. If, for example, a manufacturer shipped its product on OmniTRAX rails, it made sense for that manufacturer to locate a warehouse (or even a factory) near the tracks, and lease (or buy) the land (or building) from OmniTRAX to do so.

That model, in which OmniTRAX used real estate for top-line revenue generation, worked out great, Braun says, and the company was investing heavily.

Of course, in 2007 the real estate market was on the brink of an historic collapse. Id be lying if I told you I knew it would get that bad, says Braun, now a consultant in business information management at Capgemini. But he looked at industry trends, drawing on data that indicated an increase in inventory (properties languishing in the pipeline) and a slowdown in development. He modeled that information with Cognos Business Intelligence (BI) tools and embedded predictive analytics. Seeing red flags in all that, Braun urged his board to slow its real estate purchasing.

That didnt go over so well. Brauns suggestion that real estate prices were not going to rise forever was not popular. Real estate was showing a great deal of return, he recalls. It was a good revenue stream.

But OmniTRAX did transfer its focus from real estate acquisition to its operating assets. That shift, according to Braun, was a real lifeline for the company when real estate blew up, the

financial markets tottered, and credit froze.Many companies and financial executives

had access to the same tools as Braun did, and the data was available to everyone. But he had a background in structured finance and securitization, enabling him to see what was happing in credit. He added the value of his knowledge and experience to the tools and data.

The Data-Driven EnterpriseIn Competing on Analytics: The New Science

of Winning, Thomas Davenport and Jeanne Harris define analytics as a subset of BI, a set of technologies and processes that use data to understand and analyze business performance. Gartner, which in the fall of 2011 identified next-generation analytics as one its top 10 strategic technologies for 2012, defines it as embedded in technology (as opposed to offline, ad hoc analysis done through Excel), forward rather than backward looking, and drawing from increasingly diverse sources of unstructured information (i.e., Big Data).

Traditional BI uses transactional data captured by an organizations enterprise resource planning system. New analytics tools draw from Big Data to provide a less transactional, more rounded view of customers and business processes. However, writes Davenport, organizations that win understand that its the human and organizational aspects of analytical competition that are truly differentiating. In other words, if Braun had read the real estate data differently, or if his boa

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