As Seen in CFO Studio Magazine Q4 2016 Issue

THE MODERN CFO MUST FOCUS ON BUSINESS STRATEGY AND GROWTH

“A business that is not growing is probably a business that is dying.” Strong words from Arlen Shenkman, CFO of SAP North America, the world’s largest enterprise application software company, and a CFO Studio Business Development Partner. And he’s not done: “The demise rests squarely on the CFO’s shoulders, at least in part, if all he does is stare at spreadsheets.”

Mr. Shenkman spoke on “Operations, Risk, and Finance: The CFO as Growth Strategist” at a World-Class Companies CFO Dinner, part of CFO Studio’s Executive Dinner Series, held recently in the SAP Suite at Levi’s Stadium in Santa Clara, CA. CFOs from select Bay Area companies attended the invitation-only dinner.

He opened the discussion by asking those in attendance to join him in recognizing how the job description of a chief financial officer has evolved over the years and across industries to the point that “the CFO is far more than the steward of the assets of a business, or in place solely to ensure compliance and assess risk.”

Mr. Shenkman noticed heads nodding rapidly in agreement, so he continued: “These days, anyone who wants to be a CFO must understand that the role is much more multifaceted than it ever has been, and in order to be effective, you need to understand — and be able to explain — your business model, value drivers, competitive differentiators, and your customer needs, as well as the strategies that are in play.”

That means today’s CFO has to stand ready to “help the business determine the most advantageous way to continue growing.” In other words, and “this is key,” he said: “The CFO must decide on the strategy of the business to ultimately ensure its long-term vitality, while at the same time helping the organization understand the financial ramifications of those strategic decisions.” That’s a heavy portrayal of the job, he acknowledged, and one that, like so many in the current environment, requires a balancing act. “Keeping the company strategy in mind, CFOs have to determine how they can align the financial return for the shareholders with the long-term growth prospects of the business.”

Stepping It Up

Mr. Shenkman noted that this characterization of the finance leader’s role is a radical shift away from the traditional and stereotypical description of the CFO as the prototypical “bean counter,” and opined that it’s due, partly, to the “automation” of certain aspects of the job. “There is a piece of what, historically, a CFO would do around reconciliation and aggregation of data that is now addressed in our systems and analytics that, frankly, free up the CFO’s time to be more proactive in operating or running a business.” And the best way to be action-oriented with an eye to the future, he said, is to “understand where the business is headed, rather than just merely looking back at the numbers and knowing where it’s been.”

Francois Delepine, CFO of Venafi, a cybersecurity software company, attended the dinner and in an interview afterwards summed up Mr. Shenkman’s assessment of the current role of the CFO by simply saying, “The job of the CFO is to be a problem solver and to find solutions,” while Liyuan Woo, former CFO of Bebe Stores, an upscale fashion retailer, went a step further and likened the modern-day CFO’s role to that of a “co-pilot to the CEO and other senior executives.” In her view, “the Board and the CEO are looking to the CFO more and more to really drive strategies and direction for the company.”

Ms. Woo had a theory about the CFO’s more demanding job description: “Traditionally, the CFO has been seen as a very objective person who comes to the table from the rational side that deals with the numbers. Given that knowledge base and, typically, a very even-keeled temperament, there is much more of a push for the CFO to be the change agent for the organization, to kind of rally the troops and work with senior-level counterparts to make sure everyone is executing in the same direction.”

Peter Derrick, who runs his own CFO consultancy, Peter Derrick, LLC, said that the conversation “struck a chord” with him. “I always considered my role as one of a key strategist and as a change agent and growth agent for a company.” But he added that not everyone sings his same tune. “I’ve certainly been around long enough to know that some stakeholders embrace that and others do not.”

He admits it was quite difficult at times, over the years, to get people to understand where he was coming from, but “it’s become easier and more common now for the CFO to operate in the ways in which I have consistently done, because I think there is a greater recognition broadly with shareholders and Board members to that evolving and growing role.”

The Malfeasance Theory

Paul Kirincich, CFO for One Medical Group, said in an interview after the dinner: “The way I see it, there’s now a COO component to the current-day CFO role.” And he, too, had a theory: After Enron, a 2001 scandal in which top executives at the Texas energy company hid billions of dollars in debt from auditors and the Board of Directors, “there was such an excessive amount of attention on compliance and control and fraud prevention, which caused all of us to be more narrowly focused to avoid a similar scandal.”

Mr. Kirincich pointed out that the business economy has been operating for some time now under the controls put in place by the U.S. Securities and Exchange Commission (SEC) following Enron, and “things are relatively stable, so CFOs can focus more broadly now than we did 10 years ago.”

Mr. Shenkman said that CFOs today have more systems at the ready to address those necessary and critical operations like internal controls and processes, but cautioned attendees to “keep their eye on the ball,” pointing out that, “Compliance, risk, and accuracy of financial statements are the price of admission. These are your core responsibilities; they are foundational. And the more diverse and global your business is, the more complicated it gets.” He went on: “If you’re a great CFO who understands the strategy of your business, but your financials are wrong and you have a compliance issue, you’re probably not going to be a CFO for very long.”

Pointing out that industry-wide acceptance and recognition of the CFO as a growth strategist within an organization doesn’t necessarily come with a free key to the boardroom, Mr. Shenkman said, “The onus is on us as CFOs to ensure our relevance and that we have a permanent seat at the table.” The first step, he said, is to develop and cultivate a strong relationship with upper management. “You need to be a valued member of the senior executive team in order to reach your full potential as a CFO,” which is to provide insights and assist in decision making, he added.

He advised CFOs to think creatively and resist hanging on to their old ways that offer a sense of security. “I find a lot of finance people revert back to what their comfort level is, which is often, ‘I want to get back into my spreadsheet and find the right answer.’ ”

In an interview, Ms. Woo echoed this: “No longer is the day where you can just repeat what you learned from the past. Changes are everywhere, and companies rely on the CFO to step up the game and be anticipatory instead of just focusing on the past.”

Mr. Shenkman advised new and veteran CFOs alike to keep their “crunched numbers” accurate, embrace good processes that can be modified to the changing needs of the business, but also to focus on spending a portion of their time with customers and vendors. “This will go a long way toward proving to upper management that you’re not myopic about the business, and that you really do have a larger view of the organization, you do deserve a seat at the table, and that you can help influence decisions which you’re very likely in a good position to influence.”

Now, welcome to the new age.