Changing Market Conditions Redefine CFO Role

MBA (4/2/2008 ) Palaparty, Vijay
Increased competition, tighter regulation, capital market volatility and business complexity have raised expectations of chief financial officers of global banks. A new survey from Ernst & Young finds them facing more challenges as their role evolves strategically.
“Finance has always played a crucial role in the world’s leading banks,” said Sam Knox, vice president and director of research at CFO Research Services, Boston, which released the report with Ernst & Young, New York. “CFOs need to spend less time keeping score and more time leading.”

The report, The Finance Operating Model Matters, revealed that for CFOs to reach expected standards, they first must improve financial operations that have disintegrated in recent times. Once CFOs restore stability, they can then become strategic partners, evaluating new products and providing indicators on business performance and driving merger and acquisition opportunities.

As the credit crunch lingers and firms are aiming to boost balance sheets and protect themselves against future market shocks, investing in finance has never been more urgent, the report said. "CFOs who bring business acumen to bear on strategy can have a lasting impact on their firm and the industry. Banks are aiding this evolution of the CFO by centralizing responsibility for a wide variety of finance roles to allow a CFO's holistic perspective flow into all parts of the organization."

“CFOs are adopting a mindset of innovation,” the report said. “They borrow and adapt management tools from other functions and other industries and insist on asking questions about the business, working with management to develop answers. They seek out and take up increasingly strategic responsibilities. In short, CFOs are aggressively pursuing leadership and innovation opportunities instead of remaining content with traditional supporting roles.”

Risk management has also become a priority for CFOs. The report said risk management, finance and capital allocation decisions should reinforce each other instead of working at cross purposes.

“Common frameworks for measuring business unit performance give finance and business unit managers the visibility they need to find further opportunities for managing growth, cost and risk,” the report said. “Finance’s role—as an independent, neutral source of information, analysis and scrutiny—is particularly useful for ensuring high performance in complex, multi-line businesses.”

Increasingly, banks are also relying more on networks of business- or region-based CFOs who have the ability to stay closee to distributed units while providing the whole-of-business guidance required to keep enterprise strategy on track, the report said. Banks are also using shared services to scale and improve finance areas.

“Finance executives are shifting common transactional functions into regional shared services centers,” the report said. “These typically include such functions as payment processing, receivables, trade execution and accounting , as well as consolidation, financial reporting and regulator reporting. Shared services centers yield highly reliable, timely cost-effective production of the day-to-day transactions for large global banks, while allowing them to keep close to regional regulatory and reporting requirements.”

“CFOs are elevating their game to meet the demands of today’s market conditions,” said T.J. Letarte, head of Ernst & Young’s America's Finance and Performance Management practice for financial services. “In addition to the important work they’ve always done monitoring and reporting, they’re also helping to provide their firms with a comprehensive, actionable view of risk. By doing so, they’re creating more competitive institutions that can face future challenges more resiliently.”