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Fast-Tracking Finance: Cardinal Rules for Becoming a Successful CFO

Today's business environment is constantly changing, and filled with demanding challenges and exciting opportunities. New CFOs are faced with difficult decisions on a daily basis. It is the ability to turn mountains into molehills or, in other words, to manage and defuse small problems before they become uncontrollable, that is a critical skill set, which separates successful CFOs from ineffective ones. Strong judgment and problem solving capabilities better position the CFO to provide strategic financial insight to the CEO.

What types of issues are generally stumbling blocks for new CFOs? Inaccurate numbers, poor guidance, and a rocky relationship with the CEO or Board will certainly make an already tough job even tougher.

Inaccurate Numbers

If the CFO does not trust the numbers from his Controller and accounting staff, he is essentially going into a fight blindfolded and with arms tied behind his back, when speaking to analysts or even peers in management. If credibility is lost quickly, the CFO's views will carry less weight. The entire finance organization can be tainted if internal financial or management information is inaccurate or if there is even the perception that it is inaccurate. Business leaders will disregard the finance function entirely and controls will suffer.

Poor Guidance

Another common trait of an unsuccessful CFO is a lack of guidance. These CFOs may have reliable financial information, but often completely overlook trends, ignore insights or simply refuse to acknowledge what the numbers are telling them. As a Controller, the focus is on generating the results. In the role of CFO, though, the focus shifts to explaining results to management and the investor community. Managing investor expectations is as much an art as it is a science. The way in which the new CFO establishes and revises guidance is equally as important as the guidance itself. If changes are expressed confidently and are well supported with a rational explanation, the investor community will view the company more positively. Changes in guidance that are not well explained, even upward changes, can cause the investor community to lose faith. This negatively impacts valuations, and can eventually hurt the company's credit rating and borrowing costs.

Rocky CEO and Board Relationships

The last characteristic of an ineffective CFO is a weak relationship with the CEO or Board. CEOs typically look to CFOs to provide strategic guidance on tough decisions. A relationship that is either too adversarial or too accommodating is a problem. A CFO needs to stand his ground when it comes to financial issues, especially if the CEO is leaning towards taking inappropriate action. On the other hand, the CFO must be able to work professionally with the CEO, even if they disagree. This can be especially challenging for a Controller who is making the transition to CFO. The CEO and Board may continue to view that person as being focused on numbers, rather than a peer C-level executive.

Successful CFOs

So, how do you become an effective, indispensable part of the management organization? Outstanding CFOs bring not only financial experience to the table, but also offer operational acumen and ingenuity. By providing strategic vision, the CFO's influence within the organization becomes self-evident. The most important ingredient to becoming a successful CFO is to understand that the role primarily supports the CEO as a "wingman" and acts accordingly. Never has there been a more critical moment to demonstrate operational skills in becoming a "co-pilot" to the CEO, rather than a "scorekeeper-in-chief." It is very important to evaluate the CEO's thinking, decision making, strengths and weaknesses. A CFO who thrives within upper management must fully understand internal operations and the core capabilities of the company, as well as its key customers and market drivers. Driving the strategy process and performance measures, while acting as a sounding board for the CEO is essential; the CFO must also have a complete and thorough understanding of financial data—past, present and forward-looking. All in all, a successful CFO is a strategic partner and chief-of-staff to the CEO.

Conclusion

Although the path to becoming a successful CFO is a challenging one of avoiding inaccurate numbers, poor guidance and strained relationships with the CEO or Board, the ability for the CFO to meet these challenges and others on the way to becoming the CEO's "wingman" will equate to success both personally and for the organization.

Harrison Yat contributed to this article.