With more and more being asked of the CFO, is it still a desirable career option for investor relations professionals?
The CFO job is evolving: from number cruncher to business partner and people motivator, from chief accountant to strategic thinker and keeper of the corporate conscience. Today’s CFO is being asked to be all of these things and, as a result, new demands are being placed on IR.
‘If I were to go back about 15 years, the CFO role was more of an administrative function,’ comments Steven Springsteel, SVP of finance and administration and CFO at Sunnyvale, California-based Verity, a small-cap business software company. ‘It then evolved into more of a strategic role, [for] more of an operations business type of person.’ With the advent of Sarbanes-Oxley and the complexities of revenue recognition, Springsteel points out, ‘the pendulum started swinging toward CFOs with more of a technical, accounting background.’
Now that companies are past the first year of Sox 404 compliance, the pendulum may be swinging again.
‘The CFOs who are going to be in high demand are those who can provide that operational and strategic insight,’ Springsteel observes. ‘For a CEO to be successful you need to understand all aspects of the business. The CFO’s role is really to provide the cross thread of the functional groups of the company and tie them together as they pertain to the business model, as well as the day-to-day operations of the company.‘
The corporate conscience
‘The job has become a lot more demanding,’ agrees Dave Murray, CFO at Longview Solutions, which provides business performance management software and solutions. ‘You have to be proficient in a lot of different areas.’
Today’s CFO must be up to speed on regulations and, in a sense, become the corporate conscience. ‘There’s a ton of legislation out there,’ says Murray. ‘Before any new initiatives are taken on or a company tries to do something it hasn’t done in the past, the CFO has to be actively involved to ensure no-one’s running foul of any regulations.’
According to Murray, the line between acceptable and unacceptable behavior is ‘more black and white’ today. Even so, companies are looking to CFOs to help them identify where that line is and avoid stepping over it. ‘This is where the CFO has to be visible and active,’ states Murray.
Given the high visibility CFOs have today, many people view the job as the most important corporate spot after the CEO post, and close interaction with the CEO goes with the turf. ‘I’ve always been the CEO’s right hand person,’ says Springsteel. ‘We’ve always conversed on a multitude of initia-tives. [The CEO is] probably the person with whom I’ve always had the tightest relationship. But you have to be able to get along with your peers and develop relationships with all the other functional groups [as well].’
Sanity check
As expectations for CFOs change, so do the demands on IR. ‘[When running a company, it’s easy] to drink your own Kool Aid,’ says Springsteel. This is likely why he looks to IR officers to provide a ‘sanity check’ with direct feedback from the company’s investor base.
‘You really want a sounding board,’ Springsteel adds. ‘As you put together your business model, your earnings call script, and so forth, you want someone who’s going to tell you how your stakeholders will perceive [this information]. Investors will tell an IR person a lot more than they’ll tell the CFO or the CEO, so the [IROs] can say, Here’s the feedback that I’m hearing from our investors; here’s what their concerns are.’
However, CFOs are looking for IR not only to identify stakeholder questions and concerns but also suggest solutions and responses. In his 15 years as a CFO, Springsteel says he’s seen IR evolve from a ‘purely administrative function’ to a ‘much more strategic role.’
Before IROs can provide strategic insight, though, they need to develop a thorough understanding of their company’s business. ‘The more informed [IROs] are about the competitive landscape and the value their company and their products bring, the more value they can add,’ says Melissa Cruz, former EVP and CFO at Massachusetts-based Concord Communications, which was recently acquired by Computer Associates. ‘The mantra in my shop was always to be a business partner first and a functional expert next.’
For Cruz’s IRO at the time, Ray Ruddy, that meant collabo-rating with the company’s marketing and engineering teams to understand what a product does and how to position it. It also meant spending time with the company’s customer base and learning what customers really think. This enabled Ruddy to add value and speak credibly with institutional investors.
Making sure analysts are educated and well informed about regulatory changes is a valuable service IR can provide to support the CFO, says Colleen Cunningham, president and CEO of Financial Executives International (FEI), the New Jersey-based organization for financial executives.
‘Briefing analysts in advance about Sox 404, the internal control reports and what the management assessment of internal controls would mean, rather than have the CFO do that during the quarterly earnings call, are good examples of how IROs can be proactive and support the CFO,’ Cunningham notes. ‘It’s important to have that knowledge and be able to impart it to the analyst community without involving the CFO.’
Beyond the numbers
Like IROs, today’s CFO also has to interact with other employees to get a real sense of how the business is performing beyond the numbers.
‘The reality is that none of us is Merlin the magician,’ explains Murray. ‘You need to interface with the people who are down at the line to understand where the business is going and put some sense to the numbers you’re seeing. People have to know that you’re both trustworthy and dependable. They have to be comfortable having a conversation with you and believe that you’re genuinely trying to get to the right answer, and not necessarily trying to hang them out to dry.’
CFOs need to interact effectively with a growing number of individuals external to the company as well. ‘Confidence and integrity, plus the ability to garner the respect of a wide circle of other stakeholders is a must,’ says Cunningham. ‘In addition to shareholders, the board, the audit committee and senior executives and staff, there is a whole organization perspective that stretches beyond finance.’
Audit committees have new responsibilities under Sox and are much more interested in understanding the compliance effort and the internal control environment, Cunningham adds. As such, the CFO has a responsibility to educate and inform the audit committee. ‘The biggest challenge CFOs face these days is really the resource issue,’ she notes. ‘You have to make sure you have the right staffing and the right people motivated to continue to do that type of work.’
Cunningham believes training along with retaining and motivating staff has become a much bigger facet of the CFO’s position. ‘In the past, people skills might not have been as important as deal-making skills and the ability to interact with Wall Street,’ she says. ‘Now, however, you really need to be an authentic leader.’
CFO credentials
CFOs with leadership skills are expanding their responsibilities. ‘We’re seeing more companies move away from [the chief operating officer] position and the CFO is taking on that role as well, particularly as the compliance effort and the internal controls are such a big piece of the operations of the organization,’ explains Cunningham. ‘We are also seeing more and more [CFOs] move into the CEO role.’
The American Institute of Certified Public Accountants (AICPA) believes a certified public accountant’s (CPA) reputation for objectivity is among the reasons why CPAs make desirable candidates for the CFO job. This makes CPAs ideal for looking at a business through different eyes and asking tough, probing questions.
‘[CPAs] can say, Are we doing things the right way; is that the right strategy for us?’ says John Morrow, CPA and vice president
of AICPA. ‘Gone are the days when the CPA is considered to be wearing a green eyeshade, a pocket protector and a calculator hanging from his or her belt.’
According to Morrow, today’s CPAs are strategic professionals who have a strong work ethic and a commitment to quality. Cunningham agrees. ‘Certainly, having a CPA in this new environment gives you an advantage,’ she says, noting that many CFO job searches today stipulate ‘CPA and MBA’ rather than ‘CPA or MBA.’
Not everyone agrees that having a CPA is the best path to the CFO post, however. ‘The [CFO] job is much broader than just accounting,’ comments Cruz. ‘The chief accounting officer component is certainly important, but it’s not the whole job. It’s not that someone couldn’t have a CPA qualification and also have a broader role, but it’s not just a job for CPAs.’
With all the new demands on the role, some wonder whether the CFO role – which is a logical career move for IR – will be harder to fill in the future. ‘The CFO used to be a role that people coveted,’ comments Murray. However, given increased scrutiny of CFO behavior and the public disclosure of the post’s compensation, he wonders ‘how attractive’ this role will be in the next five or ten years: ‘It’s going to take some people with lots of guts to want to step into the line of fire. Fear is pervasive out there.’