It is not easy being a CFO. Between juggling the pressures of economic forecasts, high shareholder expectations, transparency and lumbering operating models, CFOs have a lot on their minds. The worldwide credit crunch and recession have forced CFOs to address two distinct challenges - managing short-term credit, cash and performance needs, in the face of receding pricing power, and effectively positioning and using assets with an eye on post-recession growth.
CFOs, apart from being efficient operators of their finance business, stewards who manage to preserve value, catalysts for changes that drive new efficiencies, and strategists in the post-recession environment, have to be prepared for major shifts and risks in the global economy. Here are some key challenges and imperatives that global CFOs face today.
Regulatory challenges: With new regulations, businesses face lack of legal clarity, significant implementation costs, and compliance. They need to rationalise local Generally Accepted Accounting Principles and reporting capabilities across countries, and to consolidate IFRS or international financial reporting standards into a Centre of Excellence to improve the quality and consistency of financial reporting.
Refining the operating model: Globally, CFOs may act alike in how they manage issues of cash and pricing, but they cannot rely on over-the-counter operating models for their finance function. This challenge of building the right model that consists of an optimal mix of services based on cost, location, in-house staffing, and outsourcing, can make or break a CFO.Financial risk management: Recent economic events and their impact are driving boards and executives to focus on their organisation's approach towards risk management. This necessitates the integration of key risk indicators into an organisational performance management system to enable responding to risk.
A value-based approach is needed that translates both hard and soft benefits into a common shareholder value measure that makes it easier to compare projects and thus facilitates difficult trade-off decisions. Cash is king: Although cash is king again, getting an organisation-wide buy-in of its value is a formidable challenge. An improvement in the cash conversion cycle reduces working capital and enables companies to link management incentives to cash flow management.
Financial reporting: Companies face challenges such as risk of restatements, demand for increased transparency, changing accounting policies and regulations, mergers and acquisitions leading to complex operating models, insufficient IT infrastructure, and manual controls.
Managing taxes: With frequent legislative changes from more directions than ever before, and with up to 50 per cent of profit vulnerable to absorption by taxation, tax planning has never been more important. As CFOs respond to and manage these challenges, they must remain cognisant of how to grow and refine their finance organisation so that it delivers maximum value to its business partners. Maintaining and strengthening the relationships that finance has across the enterprise will be a critical skill set in grooming CFOs for their future career paths, whether preparing for a transition to CEO or for increased responsibilities in a global organisation.
Steven Ehrenhalt is a senior partner at Deloitte Consulting LLP (USA). His co-authors are Sachin Sondhi, a senior director, and Sameer Wadhwa, a director, at Deloitte Touche Tohmatsu India
The views expressed here are the personal opinions of the authors.