The CFO of the future
John McKenzie, who leads the CFO of the Future course at ICAS, says the role is unrecognisable from 40 years ago. And in keeping with the times, transformation will only come thicker and faster, he tells Nick Scott.
We’ve had a landslide election victory, a delayed constitutional shift finally come to fruition, the Australian continent effectively on fi re due to climate change and the not-so-small matter of the most critical challenge we have faced in living memory in the shape of COVID-19. And that’s just in the last few months. The times, to borrow from Bob Dylan, they are a-changin’ – and with ever-greater rapidity.
And yet, according to John McKenzie – who conducts the five-module CFO of the Future strand of the professional development courses offered by ICAS – we need to rewind a couple of decades to assess why the role of the modern CFO has changed so profoundly. “A major factor is investor mistrust, which has been caused by all sorts of corporate collapses – the Enrons, the WorldComs and so on,” he says.
If you look at the syllabus of all the accounting institutes today and compare it to the syllabus 40 years ago, it’s unrecognisable
“That’s led to demands for greater transparency, but it has also led to the question being asked, ‘Where does value actually lie in an organisation?’ People used to think about the value of an organisation in terms of its assets. But now we live in a human-capital-driven world. The biggest assets in organisations today are its people and the gap is massive between, say, the value of a company in terms of its traded shares and in terms of its bulk assets.”
What this has precipitated, according to McKenzie, is a broadening of the CFO’s role. “If you look at the syllabus of all the accounting institutes today and compare it to the syllabus 40 years ago, it’s unrecognisable,” he says. “It still contains all of the core finance stuff, of course, but it’s much more about seeing the world through a broader lens.”
Exhibit two, he says, is modern-day accounts reports. “So much more emphasis is put on the strategy of a company these days,” he says. “So the CFO’s role has widened. It’s no longer just about financials, reporting understanding how financials are driven and being able to communicate persuasively with the external market about a company’s prospects. It’s about its strategy. It’s no coincidence that such a high proportion of CFOs are not accountants – they’re MBAs.”
Key to future-proofing CFO practice, says McKenzie, is long-term, holistic thinking. “During the ‘90s, the eye was firmly taken off the sustainability ball, and there’s been a market backlash, an investor backlash and also a public backlash. Now, it’s no good taking the short-term decisions to make this year’s results look good.
If I want to make numbers look good and report a stellar profit line, I can always stop spending on training, recruitment, people investment, R&D – but you’ve got to create value for your investors, and do so ethically, with environmental considerations, people considerations and strategic considerations – all of these things.”
Above all, what top-performing CFOs of the future should have as their focal point, says McKenzie, is the inevitable acceleration of change – a reality highlighted by the World Economic Forum’s recent findings that COVID-19 is part of a pattern of increasingly frequent epidemics, linked to globalisation, urbanisation and climate change. “You have to continually ask yourself, ‘Do we have a set of what-if scenarios that cover major shifts?’ Did anyone foresee Brexit? Well, there have been Eurosceptic moves ever since we joined the Common Market. There’s precedent there, but sometimes we bury our heads in the sand. If life’s good, we forget these bigger shifts.
People used to think about the value of an organisation in terms of its assets. But now we live in a human-capital driven world
“The things that are most likely to do the most damage to a business are the things that aren’t in your control,” he continues. “The big macroeconomic or big political things can do far, far more damage to a business than the micro-decisions we take internally in the business. What if exchange rates did this or that? What if all prices went this way or went that way? It’s about looking at these bigger things – all of which are out of your control – and saying, ‘Well, how good are we at forecasting a set of scenarios? How ready are we to respond in an appropriate fashion?’”
The environment in which competitors are operating is also something to keep a keen eye on, according to McKenzie: then there are the seismic shifts being wrought in the way we live and work by the digital behemoth in the room. “With what’s happening in the world of IT, it’s no great secret that the Big Four accounting firms are scratching their heads thinking, ‘What does the future of auditing look like?’ They recognise that more sophisticated systems, better data capture and the addition of artificial intelligence will create an environment in which a lot of the drudgery and burden will be handled more by systems, which then poses a huge opportunity. It means that finance teams will have more time for other value-adding tasks.”
Perhaps prime among those tasks will be applying more structural integrity when planning for a future which promises to become more unpredictable with each passing year. “Whatever you think the future will be, all you know is that it will be different to the past,” McKenzie concludes.
Those words may appear bleak at first glance: but a turbulent future offers abundant opportunities, just as it offers abundant challenges. Those who weather them well will be those who eye them with a steely pragmatic optimism, rather than trepidation.
This article first appeared in the May 2020 issue of CA magazine.