Top challenges facing CFOs

Building in sunlight
robert-outram By Robert Outram, Editor, The CA

3 August 2018

Robert Outram talks to finance heads about the responsibilities involved in the job.

The role has many names - Chief Financial Officer, Finance Director or Head of Finance & Operations to name a few - and it can involve a range of responsibilities, but the top finance job in any organisation is always a critically important one.

The wide range of issues the FD faces, from treasury management and financial reporting to managing risk and IT, is in itself one of the challenges, according to Keith Fleming CA, CFO of Pulses Division with global trader ED&F Man. He said: “A lot of the time there is no specific training, no user manual you can refer to, to help you solve the problem.”

Susanne Godfrey CA, Group Finance Director of law firm Anderson Strathern LLP, described one of the FD’s key challenges as: “Controlling things which are out of your control or unforeseen, once described to me as ‘seeing around corners’. Trying to be prepared for many things and if they occur, quickly plan contingencies.”

People look to you for your view, whether it’s monthly results, a proposed investment, the cash position, or whatever. You have to make that call.

Alan Scott CA, Group FD of utility Scottish Water, identified a range of challenges, adding: “The two biggest types of challenge I have faced in my career have been, first, developing a strategy or business plan during times of uncertainty and downturn; and second, when joining a new business (not my current one), finding a problem with the numbers which requires delivery of an unexpected and unwelcome message, sometimes as a lone voice, then dealing with the inevitable reaction.”

The key attribute for the FD, according to Colin Kerr CA, Director of Finance with The Children’s Trust, is “judgement”. As he put it: “People look to you for your view, whether it’s monthly results, a proposed investment, the cash position, or whatever. You have to make that call: Is it okay or not? What do we need to do or not do?.

“This is how you earn your salary and make (or lose) your reputation. You can’t sit on the fence. Of all these things, the very hardest thing to do is to acknowledge that a previous decision now looks wrong and that you have to change your view. But you absolutely have to have the character to deal with that properly.”

Also in the not-for-profit sector, Elaine Dykes CA is CFO with the World Council of Churches, based in Geneva. She said: “The biggest challenge in the FD role, from my perspective, is to see the way ahead, and help the organisation towards opportunities, while balancing the ordinary demands, essential to equilibrium, with a well-trained, motivated team which ensures reliable reporting and controls. The volume of work regularly demands creative thinking and new approaches.”

The role is so variable that you come into the office in the morning with a to-do list for the day and more often than not that list is torn up.

The CFO’s responsibilities are especially significant in an organisation in which other management team members do not have financial training or a business background.

Dealing with unpredictability is also a key aspect of the finance role for Katherine Tenner CA, CFO at software house FreeAgent. She commented: “The role is so variable that you come into the office in the morning with a to-do list for the day and more often than not that list is torn up and a whole new array of things to do emerges.”

Simon Wrench CA is Finance Director of Parklands Care Homes. He says the FD needs to work across different perspectives: short, medium and long-term. For example: “The short-term focus is on cash-flow management, the medium-term focus on cost reduction and efficiency improvements and the long-term focus on securing the appropriate funding solutions to deliver the business’s long-term growth ambitions.

"It can be difficult to remain focused on the medium and long-term objectives, while still giving enough attention to ensuring the day-to-day/short-term objectives are met.”

Three priorities for an FD are compliance, financial support to the business and efficiency. It is all a delicate balancing act.

He added: “The other big challenge for the FD is resisting the impulse to get involved in everything, I have to continually check myself and allow the operational managers to get on with their jobs but ensure there is a framework in place so that they are clear as to when issues need to be brought to my attention.”

And Diane Stephen, Finance Director EPS West of Petrofac, suggested: “The challenge is spinning lots and lots of plates. For example, three priorities for an FD are compliance, financial support to the business and efficiency.

"The new facilitation of tax evasion rules have placed a burden on companies to assure themselves of associated parties’ tax compliance. This has added steps to the due diligence of trading partners impacting efficiency of vendor set-up and potentially even impacting operations, but is an absolute requirement for compliance. It is all a delicate balancing act.”

Key relationships

The FD/CFO has a critical role, not only operationally but also in terms of governance, so their relationship with the Chief Executive and the board - however the organisation is run - is vital.

Kate Gibb CA is Chief Operating Officer with ground-breaking publisher Canongate Books. Her role includes the finance function, operations and overseeing non-editorial issues at the company’s subsidiary, Severn House. She said: “For the senior management team you need to build a balance between a very creative board and someone who is taking a hard-headed view. So, for example, if we’re looking at publishing a particular book, it has to be able to make us some money. It’s managing the risk.”

It also means working on the same wavelength as the Chief Executive while being prepared to challenge him or her. “It works [at Canongate] because we are so different,” Kate explained.

Trust characterises the relationship with the CEO, who turns to the finance head for a reality check.

Brendan Waters CA, CFO with Glasgow-based fashion business Wilson Design Source Supply, said: “As a partner, you need to work closely with the CEO and board to implement the strategy of the business with appropriate governance and controls. However, as the CFO, it’s also your responsibility to challenge the CEO and board to ensure that all decisions are taken with proper accountability, ethical standards and with a close eye on cash, margins and capital.”

Elaine Dykes added: “Trust characterises the relationship with the CEO, who turns to the FD for a reality check, seeks a view on the operational or financial implications of a project concept, and for a sense of issues arising in medium-term planning in relation to funding perspectives, and laws and regulations.”

The important thing is to understand the business and what is going on, with open relationships such that opportunities and threats are called out early.

For boards, Colin Kerr has two golden rules: “First, write all board papers as if they were for an intelligent layman. Second, the board must never get any surprises.”

Of course, the CFO has a number of stakeholders to consider, depending on the nature of the organisation. Scottish Water’s Alan Scott advised: “I have huge respect and trust for the board and CEO [Douglas Millican, also a CA] and would hope that is reciprocated. There are many other important relationships: the executive team; owners/stakeholders; senior leaders; advisers and auditors; your own finance team etc.

“The important thing is to understand the business and what is going on, with open relationships such that opportunities and threats are called out early, so that the FD/CFO can make sure that the numbers represent the business, that expectations are set and that threats are managed and opportunities seized.”

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