Features
Growing or counting beans
On the importance of accountability of financial reporting, Generally, CFOs are considered the financial stewards of their companies and arguably second in importance only to the Chief Executive Officer (CEO) in corporate hierarchies. Indeed, following the Enron crisis, the importance of the role a CFO plays is now fully recognized by regulators. For example, the Sarbanes-Oxley Act of 2002 requires both the CEO and CFO of a publicly traded U.S. firm to personally certify the material accuracy and completeness of the financial information and disclosures released to the public.
Thus, in the U.S., the CFO is legislatively elevated to the same level of the CEO in terms of financial reporting and oversight. CFOs, particularly in a US corporation, oversee the implementation of accounting principles and procedures and the preparation of financial reports. They are also responsible for establishing and maintaining internal controls and reporting any deficiencies to the audit committee and the external auditors. As a result, CFOs must work closely with internal auditors in order to identify any potential internal control weaknesses.
CFOs can potentially influence the quality of financial reporting by monitoring the expertise of accounting personnel, by their attitude toward internal controls, and through their role as conduits of information to directors, other managers, and auditors. Because they link with other functional directors, the CEO and auditors, their role in the firm is more strategic than operational. As such CFOs have also become key players in strategic planning, mergers and acquisitions, implementing information technology initiatives and managing associations with venture capitalists and the investing public.
Five decades ago, the role of CFOs was never this complicated nor seen as this strategic, at a time when corporate finance was a back-office function performed by treasurers or 3 controllers, whose duties were confined to tasks like bookkeeping, preparing tax statements, monitoring debt and capital structures.
Decision-making was the prerogative of operational managers from manufacturing to sales and marketing, while the corporate treasurer was mainly involved with creating the budget, usually after production decisions had been made. Extant literature offers two reasons behind the rise of the finance manager from the traditional role of bookkeeping to the level of chief. The first argument is predicated on the firms’ dependency on capital, particularly during times of financial crises or following the passing of unfavourable legislation that impacted on earnings statements. The salience of external financing suggested that management had to restructure the locus and nature of financial expertise within firms in order to meet firms’ funding needs. The uncertainty associated with external financing due to fluctuations in stock markets and interests made the presence of a financial expert in the boardroom even more exigent.
The second reason was borne out of the central theme of the shareholder system that the firm should be taken as a vehicle for investment, involving assessment of risk and investing in less risky but potentially value-enhancing projects. Consequently, this had the effect of casting managers with a background in finance as best equipped to run corporations, leading to the transfer of control from production to finance. Consequently, as Khan says, companies started looking for financial officers who could do more than cut costs…so CFOs tossed aside their green eyeshades and turned to more creative pursuits.
A similar sentiment was expressed by Roberto Goizueta, the late chairman and CEO of Coca-Cola between 1981-1997 when he said that today’s CFOs are being asked to grow new beans in addition to counting the company’s existing beans. It can be argued, therefore, that changes to the role of CFOs came as a result of the need for firms to pay attention to the whims of financial markets, a development that saw the finance manager move from the tail-end of corporate decision-making to its strategic apex as part and parcel of the shareholder movement.
MBA
In addition to professional qualifications, the pursuit of Master of Business Administration (MBA) degrees by many senior managers, including CEOs and CFOs, is very common due to the value and benefits of it interalia:
1. Broad Skill Set: MBAs provide a well-rounded education, covering various business disciplines such as finance, marketing, operations, strategy, and leadership. This diverse skill set equips senior managers with a comprehensive understanding of different aspects of business management, enabling them to make informed and strategic decisions.
2. Leadership Development: MBA programs often include courses and experiential learning opportunities focused on leadership and management skills. CEOs and CFOs need strong leadership capabilities to inspire and guide their teams effectively, making an MBA a valuable tool in honing these critical attributes.
3. Networking Opportunities: MBA programs typically attract a diverse group of professionals from different industries and backgrounds. Building a strong network of peers, professors, and alumni can provide senior managers with valuable connections and resources that can be leveraged throughout their careers.
4. Global Perspective: In an increasingly interconnected world, understanding global business trends and dynamics is essential for senior executives. MBA programs often offer international experiences, exposure to global case studies, and discussions, preparing managers to navigate the complexities of the global market.
5. Adaptation to Changing Business Environment: The business landscape is constantly evolving, with new technologies, market dynamics, and regulatory changes emerging. An MBA education provides senior managers with the tools to adapt and stay ahead of these changes, making them more effective leaders in dynamic environments.
6. Problem-Solving and Analytical Skills: MBA programs emphasize critical thinking, problem-solving, and data analysis, which are essential skills for senior managers. The ability to analyze complex situations, identify opportunities, and devise effective strategies is invaluable in leading companies to success.
7. Credibility and Career Advancement: Earning an MBA from a reputable institution enhances a senior manager’s credibility and can open doors to career advancement opportunities. The degree can demonstrate a commitment to professional growth and excellence, increasing the likelihood of being considered for higher-level roles.
8. Continuous Learning and Personal Growth: Pursuing an MBA is not just about gaining knowledge; it is also about personal development. Senior managers often view the degree as a way to challenge themselves intellectually, broaden their horizons, and push their boundaries, leading to personal growth and self-improvement.
9. Access to Specialized Knowledge: While senior managers may have substantial experience in their respective fields, an MBA can provide them with specialized knowledge in areas they may not have encountered in their career. This broader perspective can lead to innovative solutions and fresh insights.
10. Succession Planning and Talent Development: Some companies encourage senior managers to pursue MBAs as part of their succession planning and talent development strategies. Investing in the education of promising leaders ensures a pipeline of skilled executives who can drive the company forward.
(The author, a senior Chartered Accountant and professional banker, holds a PhD from AUT university in New Zealand. He has authored numerous national and international publications. Currently, he is Professor in Business Management at SLIIT Business School, SLIIT University, Malabe. The views and opinions expressed in this article are solely those of the author and do not necessarily reflect the official policy or position of the institution he works for.)