In the last few decades, the role of the chief financial officer (CFO) has changed substantially, says Fritz Foley, the André R. Jakurski Professor of Business Administration at Harvard Business School (HBS). Finance leaders, he says, now play a crucial role in formulating, evaluating, and implementing strategic choices that impact the performance of an organization. In this interview, Foley explains how the executive education program Succeeding as a Strategic CFO prepares finance practitioners to manage these responsibilities and grow into strategic leaders.
Why has the CFO role changed so dramatically in recent years?
There are a variety of reasons. First, technological changes from the last several decades have enabled people in finance to make greater use of data and analytics than ever before. Now, a CFO has the data required to glean insights about core strategic choices and what's going on within an organization. As a result, there are more opportunities for companies to make use of the finance function in a strategic way.
Second, investor bases have changed. The rise of activist investors means that there are more people knocking on a company's door who are prepared to do the financial and strategic things that the senior finance team should be doing. Activist investors are also more eager to engage with companies that are well run from a financial standpoint.
Third, regulatory changes have made the CFO role more complicated. Due to the Sarbanes-Oxley Act of 2002, CFOs now have to hold personal accountability for the financials that they sign off on. Regulation over fair disclosure has changed the way that CFOs share information with investors.
One trend that indicates how the role of the CFO is changing is the decline in the number of companies that have a chief operating officer (COO). The strategic responsibilities that historically sat with the COO have been transferred to the CFO, who is increasingly expected to help the senior leadership team develop insights that will really set the direction of the entities they’re a part of.
What are today's CFOs expected to do?
They have a broad set of responsibilities. CFOs are expected to engage in value-based management, making decisions based on what will enhance the value of the organization. They need to set strategic direction and goals, often as a partner to the CEO. They need to play a role in driving performance, figuring out what metrics shed light on performance and what actions would drive performance improvements. They manage risk and regulation and lead capital budgeting processes that impact choices about investment, divestiture, and optimization across business lines.
The CFO also has to be a great communicator. This isn't a role where you can sit quietly in an office in front of a calculator; you have to get out and interact with internal and external constituents, including investors and board members. And on top of this, you have to do all the traditional things that CFOs are expected to do, such as budgeting, closing the quarter, anticipating funding needs, and ensuring that organizations are well resourced.
Do you think this requires a certain personality type?
You need to have quite a bit of humility and willingness to learn, along with an open mind and the ability to work with people who have deep knowledge in areas that you might not be as well versed in. Many people find that when they start off as a CFO, they have big blind spots. You need to know how to lead effectively while addressing those blind spots.
What's the main goal of this program?
The goal of this program is to help "emerging CFOs," as I call them, to start rounding out the skills they need to be successful. It aims to broaden their perspectives, expose them to new ideas, and connect them with a cohort of people who also are trying to round themselves out. Some of the participants in the program may be stronger in some skills areas, and some may be weaker in other skills areas.
This isn't a program that will train participants to be a CFO in three days. It's more meant to broaden how financial professionals think and give them tools that they can take back to work and continue to progress up the ladder. It helps participants begin the process of building broader leadership skills, general management skills, communication skills, and strategy skills.
For me, the analogy is that in three days, we're not going to take you from someone who's never been a runner to someone who's ready for a marathon. But we're going to expose you to a bunch of ideas. We're going to teach you how to think differently. We're going to give you skills that, if applied consistently, will get you to the place where you’re ready to step into the CFO role.
How do you teach strategy in this program?
We start by asking participants to consider a number of strategic questions, such as: What are the characteristics of an attractive competitive landscape? What are the key drivers of value creation? Once we've created value, how do we capture it? What metrics should we use to drive performance?
I find that including sessions on measuring performance drivers is a useful way to kick off the idea of the relationship between strategy and finance. Because if you pick good metrics that are consistent with strategy, things will work out. If you don't, things won't work out.
We also talk about choosing between emphasizing margins and emphasizing growth. When is one of those more attractive than the other? What kinds of systems do you need to have in place to promote or pursue one as opposed to the other?
How do you help participants develop their leadership skills?
We have a couple of sessions on group dynamics and leadership. We will explore how to manage and motivate teams of people with deep subject-matter expertise. This can be a challenge for people who are high performers in the finance function but may not know how to lead a big team of people and motivate them to be effective contributors. We will discuss how to balance your own expertise while drawing on the expertise of everyone else on the team.
How does this program look at the relationship between innovation and finance?
Very often, financial managers are under pressure to deliver current earnings, current cash flow, or current profitability, and those pressures can work against innovation. Ideally, CFOs should be able to help an organization set up a system that balances and optimizes profitability and innovation. In this program, we will ask questions such as: What types of performance targets are good for promoting innovation, and which ones are good for pushing businesses to be more efficient? We want to balance the disciplining aspects of finance with the levers that can promote innovation within organizations.
Who is right for the program?
The program is relevant to a wide range of finance professionals. It's good for new CFOs who want to enhance their skills, as well as CFOs who are working for small entities or smaller divisions within large organizations. It's for ambitious folks who are working their way up the CFO ladder.
It's also a good program for other people within the finance function—such as analysts, treasurers, controllers, and those in financial planning and analysis—who would benefit from sharpening their strategic acumen. People who are responsible for finance in an early-stage company may benefit from a more comprehensive treatment of their role and function, especially if they have a technical background but not a lot of finance training.
I think the program would also appeal to financial leaders in government and nonprofits. The issues we talk about throughout the program are fairly general and not specific to public companies, private companies, governmental institutions, or nonprofit organizations.