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22 February 2024

CFO, the co-pilot for the CEO

By James Babb

Last week's article conveyed the importance of a CFO being active and eminent across four dimensions (as a strategist, operator, steward, and catalyst) for their title to reflect the responsibilities and authority expected by the company's constituents. This week's article addresses the CFO's contributions as a strategist: what are the focus, roles, competencies, and critical issues a company and its constituents should expect a CFO to address within the strategy dimension?

When a CFO is absent from the strategy dimension, it can be compared to a co-pilot of a commercial airliner sleeping in the economy section during a long-haul flight. The CFO is the co-pilot for the CEO as he/she charts the course for the company and navigates the changing "weather patterns" of the various constituents (board of directors, shareholders, employees, analysts, creditors, customers).

The focus of the CFO as a strategist is to actively support the CEO in setting the future direction of the company to enhance business performance and shareholder value. The business environment is too complex to be managed by one person and therefore the CFO as a sounding board and information filter for the CEO on a range of regulatory, economic, legal and competitive issues is a must in contributing a balanced, conservative, risk-based perspective to the vision being crafted. No board today should approve a strategic plan without the CFO's "fingerprints" on it. The impact on resulting business performance and shareholder value could be the difference between a mirage and an oasis.

The roles a CFO undertakes within the strategy process are to provide the CEO with the following:

A financial perspective which improves risk awareness – The CFO should offer insight as well as pose questions such as whether a strategy entailing the focus on a few large customers results in the potential for an excessive concentration of credit risk.

- Strategic decision-making – The CFO should challenge a company on whether it understands how its profits are truly derived. Is the company segmenting its markets geographically rather than on a customer basis resulting in the mispricing of contracts and misaligned sales and marketing efforts? The strategic thinking CFO starts with the business first then works back towards the numbers.

Integrating performance management – The CFO should be leading this initiative and communicating the results to ensure internal alignment of resources with the external strategy of the company. Does the company understand the key value drivers from within and across functions and are they clearly aligned and document mapped to the company's overall strategy? Value mapping leads to the elimination of evaluation criteria and incentive schemes which promote activities and decisions disconnected from the strategy of the company.

A CFO demonstrates the following competencies as a strategist:

Critical thinking ability – A CFO should temper the wave of euphoria demonstrated by others in a company about a good idea which has yet to be placed under the rigours of analysis and due diligence.

Analysis and presentation of data – A CFO should understand the difference between forward-looking managerial financial information and backwards looking accounting information and which type applies to a particular decision-making process.

Global financial perspective – A CFO should recognise the importance of cross-border investment laws and regulations, effective tax planning, and actively managing the components of the company's cost of capital.

Dealing with ambiguity – The CFO should be a thought leader to the company in forming points of view around the changing business environment and demonstrate the ability to move out of the drudgery of the numbers and step back to understand the wider picture.

A CFO actively addresses the following critical issues as a strategist:

Providing a financial perspective on innovation and profitable growth – CFOs should be actively engaged from the beginning through "what if scenario analysis" discussions and analysis with company management as new business ideas are considered. The CFO should be a leader in the company for instilling a "value mindset" culture for all activities and decisions taken.

- Translating expectations of the capital markets into internal business imperatives – If liquidity in capital markets is drying up, this is a factor which needs to be dealt with proactively rather than reactively.

- Providing the information and tools necessary for the organisation to make sound business decisions.


The author is CFO Program Leader for Deloitte Middle East. This is the second in a five-part series of articles examining the current state of the CFO in the Middle East business environment. The views expressed are his own


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