The Role of a CFO: motivating people, managing assets and hedging risks

In practice, the financial function seldom evolves at a pace commensurate with business growth. Typically, management and corresponding process development struggle to keep pace with core production process expansion. This discrepancy is not due to a lack of motivation on the part of financial leaders but rather stems from the residual resource allocation principle. However, this phenomenon extends beyond finances and applies to all service (non-core) functions for businesses. Nonetheless, neglecting the aforementioned aspects, whether deliberately or due to lack of knowledge, underinvestment in infrastructure, process construction and automation, as well as in financial department resources, significantly heightens business risks, often culminating in bankruptcies.

Chapter 1

Finance in Company Management

The Role of а CFO

The position of Chief Financial Officer (CFO) differs fundamentally from that of their counterparts in company management. The CFO primarily serves the shareholders and only secondarily the CEO. While this principle is universally accepted in modern business and international law, it may not always be intuitively clear to CFOs themselves or their immediate superiors.

However, it’s essential to understand that the CFO is not in opposition to the CEO and the management team; rather, they are an integral part of it. Nevertheless, what sets them apart from other leaders is their role as internal skeptics and sparring partners in strategy discussions. Additionally, the primary focus of the financial leader and their teams is to provide accurate information to all stakeholders within and outside the company for decisionmaking and risk management purposes.

Traditionally, the CFO’s responsibilities included financial planning and analysis, budgeting, management accounting, tax reporting, and liquidity management. One notable recent trend in business management is the expanding role of the CFO in business development and strategic operations management. The CFO is evolving from being solely an accounting specialist to becoming the CEO’s right-hand partner and a permanent member of the board of directors.

Over the last 30 years, the strategic responsibilities of the CFO have undergone significant transformations. In the 1990s and 2000s, particularly in most developing countries and many developed ones, CFOs had to establish tax optimization systems involving international tax havens and secure timely bank financing, often relying on personal connections and tolerating conflicts of interest. The few exceptions among senior managers and bankers, primarily from top-tier institutions, merely reinforced this general trend.

In the 2010s, intensified competition across most industries, including global players, rapid technological advancements in public administration and tax control, the desire and ability of companies, their shareholders and management to enter international markets and attract capital through IPOs, all led to a rapid shift in financial management priorities. It became critical to demonstrate consistent growth, invest in electronic sales channels and business digitalization, sometimes at the expense of customer acquisition efficiency. Shareholders and executives encouraged financial teams to focus not just on business efficiency and operational automation but also on rapidly expanding into new regions and launching products, using external funding obtained through promising forecasts and creative reporting.

Furthermore, starting in 2020, the impact of the pandemic, accelerated business digitalization (driven more by necessity than by trends), geopolitical tensions, and the resulting fragmentation of the once-global world, intensified competition across most industries and significantly complicated operational processes, particularly for companies with access to international markets. Dependence on foreign suppliers and investors became more pronounced, and challenges arose in obtaining financing from foreign banks, as well as in purchasing equipment and raw materials.

In the past, organizations prioritized performance growth at any cost, often at the expense of investors or margins. Today, however, the focus has shifted towards profitability and operational efficiency, especially for medium-sized businesses. Those who survived the drying up of cheap international funding – successful entrepreneurs and senior managers – realized that sustainable business development requires the establishment of regular management accounting, an internal control system, and end-to-end process automation. Ultimately, this demands a radically new approach to company management, based on modern, comprehensive financial management principles.

Among recent trends, there’s a movement towards adopting an effective service-oriented approach within organizations. The essence of this approach can be summed up in a simple slogan: outsource what can be done more effectively that way, while internal departments should focus on their economics and adopt a customer-oriented competitive approach, considering market conditions and external competitors.

If an internal function like legal or recruitment lacks customer focus and performs poorly, internal clients may seek external specialists for the same services, leaving internal teams idle. To assess employee performance adequately, tools such as basic financial dashboards with efficiency metrics, departmental and team income and cost comparisons against market benchmarks, along with customer satisfaction indicators, are essential. This includes developing methodologies for calculations, data collection, interpretation from various sources, process automation, and engaging with end consumers, who are also internal clients of the financial department, and evaluate the services provided. Customer orientation and marketability of obtained services are paramount.

The tasks outlined above undoubtedly fall within the purview of the CFO and their team, presenting a new challenge for the profession. It’s crucial to not only realign oneself but also to transform the work and mindset of teams (if not done already) and assist the entire company in this transformation. This underscores the pivotal role of the CFO, the primary responsibility of the financial planning and analysis manager, and the key function of financial business partners.

From Accountant to Business Partner

What does the modern approach to financial management entail? It’s a system-building endeavor where every process within a company, every business initiative, should contribute to achieving its strategic goals, both quantitatively and qualitatively. While financial management is often perceived as solely quantitative, focused on numbers, in reality it goes beyond that.

Modern financial management primarily revolves around setting and achieving strategic business goals, emphasizing a select few critical quantitative and qualitative objectives, and adapting plans flexibly to rapidly changing external factors and competitive landscapes. It delves much deeper into business processes compared to traditional «accounting» financial management.

The conventional financial department typically comprises accounting, finance and treasury. In modern companies, these departments are augmented by automation and financial system support, along with financial coordinators handling month-end closures with client-contractors, monitoring accounts receivable, and managing client credit limits. Moreover, financial directors have expanded responsibilities encompassing shareholder and investor relations, corporate governance (often incorporating the ESG agenda or «Environmental, Social, and Governance»), legal services, compliance control, risk management, and HR document flow.

A recent trend has emerged: service departments are supplying businesses with functional experts – internal business partners – who are incentivized by the company’s overall performance, possess a deep understanding of operations, and aid employees in commercial departments with issues related to the corresponding internal service (or external if outsourcing is involved), be it HR, logistics, finance, legal affairs, and more, tailored to the industry.

Distinguished from regular employees in service departments, business partners boast extensive experience and expertise in related functional or commercial fields. They possess profound insights into the production process and are relentlessly focused on achieving departmental and company objectives.

Typically, a financial business partner is a former financial controller or experienced financial analyst. Although accountants less frequently assume this role, it presents personal, professional, and career advancement opportunities, safeguarding against professional obsolescence. This aspect will be explored further on.

A financial business partner aids business units or subsidiaries in addressing operational budgeting and long-term planning tasks, calculating unit economics, and conducting financial modeling. They operate as a financial team member within a business unit, closely supporting functional or business leaders in collaboration with internal financial services.

Having a specialist within the business unit benefits the financial team. They immerse themselves in operational tasks, assist financial coordinators in period closures with clients and counterparties, manage budgets within the unit, analyze actual versus planned results, and engage in ongoing planning.

Becoming a business partner necessitates a broad, forward-thinking perspective, a steadfast focus on the company’s overall results, strategic goals, and future development, transcending the narrow goals of a service function. Successful business partners must be subject matter experts, possess deep insights into the company’s processes, be well-versed in the competitive landscape, exhibit independence, responsibility, agility in learning, and undoubtedly, substantial professional experience.

Given the geopolitical shifts, economic structural changes, and the evolution of the financial profession since the turn of the 21st century, I firmly suggest that any modern financial manager or forward-thinking accountant aspiring to maintain competitiveness in the job market will need to transition into a business partner role in the foreseeable future.

Allow me to share an example of one of my colleagues. Initially a traditional accountant, she temporarily had to leave her profession due to relocation. After working remotely in a call center for some time, she showcased her capabilities and earned the opportunity to serve as an accountant in a company where she started as a remote call center employee and later became a team leader.

Her profound understanding of operational processes, gained during her stint in the call center, swiftly propelled her beyond her accountant role, essentially transforming her into a business partner. Eventually, she rightfully assumed the position of chief accountant in the company. She diligently enhanced her English language proficiency, revamped conventional rigid accounting approaches into customer-centric and service-oriented ones, and broadened her scope of responsibility beyond traditional accounting to encompass methodological aspects.

Additionally, she spearheaded the establishment of an active and expanding professional community through a chat in Telegram, which not only assists colleagues and enhances the quality of the accounting environment in her home country, but also contributes to the development of her personal brand.

This example illustrates a challenging yet commendable journey from a conventional accounting role to a multifaceted, self-developing financial business partner – a role emblematic of the future.

The Profile of a Modern Financial Manager

Adapting to modern demands in today’s professional landscape, possessing deep expertise and experience in a single field is no longer sufficient for maintaining long-term competitiveness in the job market. Versatile professionals are sought after almost universally. This shift is largely driven by the acceleration of business processes, widespread automation, digitalization across industries, and the heightened need for businesses to conduct rapid, high-quality analysis of vast datasets.

In the post-COVID digitalization era, characterized by dwindling investments and the imperative for businesses to achieve financial independence in a globally fragmented economy amid ongoing military conflicts, modern professionals must embrace T-specialization. This entails having expert knowledge and experience in a primary responsibility area, along with general skills and varying levels of understanding in related complementary fields, all while continually learning and enhancing existing skills.

For instance, a financial analyst should excel in financial analysis, demonstrate proficiency in professional-level Excel and PowerPoint, possess strong information search and analysis abilities, and effectively present information in both textual and visual formats. This forms the foundational skill set.

Furthermore, complementary skills might include the ability to create SQL queries to access database information for report preparation and conducting statistical analysis of large datasets (commonly referred to as big data).

An additional specialization could (and should) involve proficiency in utilizing common visualization interfaces such as Power BI and Tableau. It’s not only about utilizing these interfaces, but also configuring complex graphical visualizations and analytics dashboards, establishing auxiliary databases, and designing the overall analytics system architecture.

Without doubt, any modern financial professional intending to thrive in their field for the next 10–20 years should possess a high level of English proficiency (if not their native language), even if their immediate role does not require oral or written communication in English. English serves as the international language of business and science. I firmly believe that daily self-study, analyzing current changes and innovations, and maintaining a forward-thinking and strategic mindset are impossible without independently studying relevant presentations, books (such as this one), lectures, articles, and other sources in English.

Continuous learning is imperative, with professionals autonomously identifying the directions and courses necessary to maintain competitiveness while considering their own strengths, weaknesses, and career development plans. In my opinion, taking professional and personality tests to understand one’s inclinations and shortcomings is beneficial. Additionally, having a career development plan and regularly reviewing and analyzing it is essential for long-term career planning. Modern business evolves so rapidly that «retraining» into a new specialty may be necessary not just once, but multiple times. Therefore, continual learning, retraining, and ongoing education are indispensable throughout one’s professional journey.

Allow me to share my own career track as an example. As I completed my school education at the close of the previous century, banking, international economics and legal studies were considered the most prestigious higher education paths. With guidance from my parents, I chose a specialty that integrated legal and financial aspects, crisis management, which was deemed relevant after the 1998 crisis.

I ventured into the banking sector, managing relationships with large corporate clients and gaining experience in supporting banking operations and structuring financing deals across industries such as machinery, production of equipment for power plants, shipbuilding, pulp and paper, and other heavy sectors. I spent five years in a leading foreign bank in Russia and another seven years abroad, in two Western European countries.

A decade into my career, it became evident that the banking industry was increasingly subject to strict regulation and operational automation, reducing the need for manpower. Consequently, a surplus of unemployed experienced specialists would emerge, leading to wage decreases due to heightened competition. Recognizing this, I considered my profession at the time, where I had found success and earned a good income, to offer limited prospects for career advancement. I viewed employment in modern technology companies digitizing traditional industries with mass customer demand as more promising.

After exploring entrepreneurship and gaining corporate finance experience, I transitioned to managing technology startups. Here, I developed skills in company finance management, scaling operations, and honed managerial competencies in leading a growing team amidst annual doubling or tripling of workloads and rapid expansion across various geographies. Concurrently, I mastered related skills in database management, IT tools, and product development. I view this as proactive career planning and self-development towards becoming a T-shaped specialist.

Leading career development experts are already discussing the future for π-shaped specialists (greek letter «π», which also defines the mathematical constant 3.14). Unlike T-shaped specialists, who possess expertise in one core professional skill, π-shaped specialists deepen expertise in two professional areas, typically related.

For instance, for a financial analyst, this could entail expertise in financial analysis and database management, financial planning and econometric modeling, or statistical analysis coupled with profound knowledge of marketing tools and related fields. For a manager, it might involve developing process automation skills and studying and implementing flexible management methodologies (agile management).

As is evident, the demand for specialists encompasses not only polished communication skills and the ability to effectively engage with all types of employees and stakeholders (soft skills) but also expertise in automating routine processes and data analysis (data management), coupled with a willingness to continually develop in this direction. The trend towards an increasing demand for «negotiating analysts-automators» is unmistakable.

Motivating Financial Staff

Among the primary areas of focus for a financial director, I prioritize people management. This is not arbitrary; in today’s world, a business’s success hinges on its human element. I firmly believe that a leader who recruits individuals less intelligent than themselves is making a mistake. In every pivotal position within the financial department, there should be a specialist who possesses a deeper and more nuanced understanding of their area of responsibility than their manager – the CFO.

The «people first» priority applies not only to product development, core production, and operational functions but also to internal business processes like financial management. I will continue to adhere to this principle throughout the main discussion.

Since the quality of people and their dedication to their work directly impacts your business and its success, strategic priority should be given to enhancing the efficiency of this resource, both in the short and long term.

Undoubtedly, every position should be occupied by individuals genuinely passionate about their profession, driven by dedication rather than merely a paycheck. If you, as a financial professional, find yourself disengaged from your work, uninterested in your daily tasks, and lacking the eagerness to independently and willingly develop in your profession, it’s imperative to reassess your priorities and goals and seek alternative avenues for your energy and time.

Given that – excluding sleep – work comprises the most substantial and productive portion of our lives, engaging in a job one dislikes is imprudent. However, the intrinsic satisfaction derived from work does not diminish the importance of fair monetary compensation. Ideally, compensation should cover all basic needs for oneself and one’s family, considering the high level of skill required.

There are instances where the salaries of accountants and financial coordinators may be lower compared to those of other staff members within the company, aligning with market standards. Unfortunately, if the market dictates such circumstances, then commercially-oriented organizations may be unable to offer significantly higher compensation. To maintain motivation and enhance the standard of living for such specialists, they should proactively seek self-improvement opportunities to expand their expertise and scope of responsibility.

As the CFO – unlike other senior managers – primarily serves shareholders rather than the CEO, motivating them should rely on long-term strategic objectives, particularly the capitalization of the business. This approach helps to mitigate conflicts of interest, particularly reducing the risk of making short-term decisions to boost current business efficiency metrics. Often, in companies, reports may be manipulated, either intentionally or unintentionally, to meet annual bonus targets, leading to short-term initiatives beneficial to management but detrimental to the company’s long-term value. The task of the financial leader, alongside the board of directors and internal auditors, is to structure processes to strike a balance between short-term objectives and the company’s strategic goals, averting conflicts of interest among different staff groups and organizational objectives.

Employees engaged in financial management should be motivated by a substantial fixed salary to reduce reliance on variable components tied to the company’s annual performance. Variable components should be introduced for specific projects requiring extraordinary efforts, such as M&A deals, investment rounds, IPOs, audits, or due diligence[2] conducted within tight time frames. This approach applies not only to the financial director, but also extends to key members of the finance department.

Returning to the competencies of a financial professional, they must possess comprehensive knowledge of the business and its operations. A modern financial manager requires a broad perspective and a profound understanding of processes beyond finance and accounting. Even an accounting clerk or cashier and accounts manager must grasp the organization’s business processes, value creation chain, competitive landscape, and consequently, recognize their role in sustaining the company’s performance and growth.

The role of a financial leader also entails selecting the right people and consistently conveying to them the company’s tasks, values, and competitive position. From the employees’ perspective, there should be genuine interest in operational processes, the organization’s strategy, its products, and a recognition of the significance of their role in shaping the overall outcome.

This approach to motivating financial professionals fosters the development of a sufficient level of expertise and engagement in the business, instilling a healthy sense of perfectionism within their tasks and motivating them to pursue common goals. The head of the financial department should possess substantial independence within the management team to effectively oversee control processes and establish an information system for decision-making by product leaders, functional leaders, shareholders, and investors.

Therefore, by maintaining significant independence from business leaders and prioritizing long-term results, the financial leader can offer insights on performance indicators compared to other top executives at board meetings, exhibiting reduced susceptibility to the influence of short-term goals. In turn, this enhances trust in their assessments and significantly reduces, ideally eliminating, conflicts of interest.

Among the qualities crucial for a CFO, integrity is paramount – shareholders must trust that results are transparently and honestly communicated – even when it may not be personally advantageous. It is essential to establish a system where the judgments and decisions of the financial department leader are not influenced, directly or indirectly, by short-term motivating factors like quarterly or annual bonuses tied to company performance.

From the financial leader’s perspective, it is crucial to consider that, when presenting financial reports and company performance results to senior management, the board of directors, and shareholders, documenting conclusions in writing and sharing them among participants is advisable. This helps avoid misinterpretation of numbers and biased perceptions due to the «broken telephone» effect.