It’s the final week of our blog series ‘7 emerging trends that are changing finance’. This week we take a look at CFOs in the spotlight. CFOs and finance organizations have been thrown into the spotlight due to a rise in power, the growth of institutionalized investors, and a handful of high profile scandals that shook up the business work in the early 2000s.
Previous Posts on 7 emerging trends that are changing finance:
7. CFOs in the spotlight
The new public role of the CFO
Before the mid-1980s, managing a company’s investors was relatively easy for CFOs. Shareholders were generally an easily defined group with clear motivations and expectations. But with the growth of sophisticated private equity firms in the mid-1980s, coupled with a transformation of share registers, CFOs now had to deal with institutionalized investors, which comprised the majority of shareholders at large firms by the mid-1990s. While the CFO’s influence had been growing internally for decades, this shift in stakeholders pushed many CFOs into the public spotlight for the first time.
Since the growth of institutionalized investing in the mid-1980s, CFOs have played an important role in managing these relationships, and as the demands from Wall Street increase, so will the need for CFOs to directly engage with investors. According to a CFO insights report by Deloitte51, today’s CFOs should plan on spending at least 20% of their time in investor relations.
Of the emerging roles of the CFO, this new public persona is often one of the largest challenges for many of today’s finance leaders, who are often known more for their discretion than their yearning for the spotlight. This challenge can be compounded by investors who have competing interests. It is the job of the CFO to set the strategy for the business, both short- and long-term, and set expectations with investors.
Need for speed
With increasing pressure from investors, the demand to improve reporting speed and accuracy is at an all-time high, even as the complexity of this process increases. For companies with over a half million dollars in revenue, 44% have more than 11 systems that are generating information for their close process, yet the top performing companies are still able to turn around their financial reports with great speed. Top performing companies were able to release their earnings an average of 15 days after their annual consolidation financial statements, compared to a mean of 25 days and 36 days for bottom performers. The average total cost to perform annual financial reporting cost was $0.24 per $1,000 revenue for companies with the fastest annual cycle time, 44% lower than those with the slowest annual cycle time.
New technology has gone a long way to help finance professionals increase the efficiency of financial reporting. Though the power of the cloud, finance organizations are now able to easily aggregate financial data from business units around the globe.
Controlling the information flow
From a leaked text to a tweet heard ‘round the world, being a finance leader in today’s very public environment is not easy. Not only are they always on record, but their employees are as well. The unintentional release of confidential information can be devastating to a business and their most senior finance leader, who is now personally responsible and liable for their company’s financial reporting. As the saying goes, “loose lips sink ships.” It is important for employees to be aware of their surroundings and understand when it is inappropriate to discuss work matters.