Study: CFO's Work Increasingly Challenging

A news release said that the study by Mercer and Russell Reynolds Associates found that CFOs were directing their trust-building campaigns at their boards of directors, investors, regulators, and independent auditors – a goal the CFOs polled said was their biggest challenge since the passage of Sarbanes-Oxley.

While CFOs face increased pressure to excel at their mission of managing the business and controlling risk, the new emphasis the markets place on accurate financial reporting makes CFOs personally responsible, in large part, for building and maintaining the public’s trust in their companies, researchers said.

“Accurate reporting is the basis of corporate credibility today and CFOs say that working effectively with external stakeholders who scrutinize the numbers is a primary challenge,” said Charles Bralver, executive director of the Strategic Finance Practice at Mercer Oliver Wyman, in the news release. “CFOs who succeed in establishing trust-based relationships with investors, the board regulators have a more influential seat in the corporation.”

CFOs interviewed for the study reported spending more time explaining corporate strategy and the company’s business model to investors and analysts, particularly those with a long-term perspective, according to the report. Market swings (about 40% of the largest companies in the US and UK experienced share price changes of over 75% in 2003 or 2004) raise the importance of frequent, clear communications between CFOs and investors.

Similarly, interactions with the board are more time consuming, rigorous and even adversarial these days with the sometimes dramatically stepped up regulatory pressure applied in the post-Enron/Worldcom era. Directors are more engaged in fiduciary oversight, and CFOs are almost unanimous in reporting that their relationship with the board has changed. For example, the study found, Audit Committee meetings these days are more frequent, longer, require more “rehearsal,” and involve more detailed review of financial statements.

Realistic Reporting

Also, since today’s market does not permit surprises, CFOs are under pressure to ensure reported results are accurate, and expectations about the future performance of the company are realistic. New regulations like Sarbanes-Oxley and International Financial Reporting Standards increase pressure on the CFO to certify the accuracy of the numbers.

Further, the study also shows that the increasingly complex and global nature of the business environment has made the mandate to mitigate corporate risks, seize growth opportunities and create value even more of a challenge for CFOs than it ever was before.

The new suite of challenges has created a new job description for CFOs and not all are up to or enjoy the changing environment. Turnover is on the rise, driven by both promotions and resignations. To fill CFO positions, companies in search of specific skill sets are hiring external candidates as opposed to promoting from within.

“Holding a financial officer position at a publicly traded company has become more challenging as the CFO is not only responsible for the financial integrity of the company but is also asked to act as business partner while balancing the increasing needs of external stakeholders,” said Christopher Langhoff of Russell Reynolds Associates Financial Officers Practice, in the news release. “These demands have led to increased compensation as well as an increase in turnover amongst financial officers. Companies need to continually recruit and develop a special breed of executive who can successfully operate in today’s stringent regulatory environment.”

The study, How CFOs are Managing Change in Roles and Expectations, is based on proprietary research and more than 60 interviews with CFOs of the largest public companies, primarily in North America and Europe, and their stakeholders.