Today’s CFO is more than the custodian of the investor’s wealth and a conduit to the Board of Directors and share-holder community at large. The modern CFO aligns with the CEO as an equal partner to increase profitability and improve cashflows while providing operating and financial metrics to measure business performance.
A CEO is the one who has a long-term vision and uses the metrics to deliver on the agreed direction, pace and quality of business growth. To become a CEO is not every CFOs ambition. Those who want to, and make the cut to the corner office, are individuals who have a vision for the organization. They can think beyond ‘generating numbers’; they ‘apply’ them to the business and get results. Needless to say, other CXO’s are in the running for the corner office, but the CFO is getting more and more preferred for this role. But a CFO has stronger connects with the Board and investors, and therefore is already aware of their expectations. Besides, he also has a sound grasp of processes, solid understanding of the levers that move the business and close working relationships with all functional heads in an organisation. With the external business environment becoming more volatile and uncertain, data driven decision making are at a premium. Since the CFO has access and understanding of all these, he/she is being preferred more and more to maintain a steady state of the business.
CFOs also have the ability to translate business performance into a language that is understood by investors. With the proliferation of PE and VC funding and with primary markets looking up again, the ‘articulation’ provided by the CFO is an attractive attribute to look for in the CEO candidate.
Corporate India recognises that the CFO’s ‘claim to fame’ is not just bean counting or number crunching. Evolved organisations respect the CFO’s ability to understand organisation dynamics and synthesise conflicting sets of data and complex trade offs to arrive at optimal and objective decisions. This is what drove Keshav Murugesh did when he was the CFO of Syntel. He made it a point to understand every aspect of the business and helped improve the brand image of the company while keeping it financially sound. He is now the CEO of WNS and his experience in Syntel gave him the perspective of how to helm a corporate. His financial background gave him an edge.
R Seshasayee was Executive Director of Finance before being elevated as the Managing Director and CEO of Ashok Leyland in 1998. Internationally, several multi-billion Corporations have also decided to choose people who have a finance background to be at the helm of their organizations like Sanjiv Mehta, CEO of HUL. It is interesting to note that Unilever’s CEO Paul Polman, one of the most respected business leaders globally, too is an ex-CFO. Probably the most celebrated and well documented case in India is that of Indra Nooyi, CEO of Pepsico, who was the CFO of the company before taking the corner office.
The increased expectations from a CFO as the ‘go-to’ (wo)man in the organisation has also impacted the headhunting process significantly. Increased expectations means more filters in CFO candidate shortlisting, which in turn means that the pool available for selection is small and that CFO recruitment processes are long lead affairs. CFO compensations are up. While larger organisations are able to afford these remunerations, mid-corporates which have a definite need for a ‘business partnering’ CFO are often left in the lurch. The evolving CFO ecosystem is now throwing up some innovative solutions like that of “Outsourced CFOs”. Firms like MyCFO, for instance, have found a niche in financial effectiveness services for larger companies and CFO services for mid-size businesses funded by venture capitalists and/or private equity. MyCFO which is the largest player in the outsourced CFO services segment claims that its CFOs are drawn from senior positions in the industry. They have demonstrated business partnering experience and helped organisations grow their businesses faster.
S Ramnath, earlier Regional CFO, Asia-Pacific at BASF and Managing Director at BASF Sri Lanka, now Executive Director with MyCFO says, “The demands from a CFO has changed dramatically in the last decade. My grounding as CFO in planning, forecasting, controls, processes, business performance and IT stood me in good stead in evolving into a CEO role. A smart CFO who has been a good partner to his business has a good grasp of “how it all comes together” in an organisation. Such a CFO is ideally positioned to make the transition to CEO.”
A CFO’s technical knowledge and grasp of accounting and financial theory is a ‘given’. Now, its their ability to mix business ingredients in the right proportion and ‘apply’ at the right time that is making them front runners for the top job. CFOs are indeed emerging from their image as backroom boys and stepping up to the place centre stage as the conductor. Organisations are looking to CFOs to create the business ‘symphony’ that will deliver sustainable and scalable returns.