Cfo and ceo better together ima 2013 10-23

Partnership of CEO and CFO

Institute of Management Accountants

10/23/13Steve Little

1

Principal Consultant, Strategic Solutions Group, InfoWorks, Inc.

30+ Years Experience (Ingram, Andersen Consulting, Fleetguard)

CEO, Chairman, Executive Management

Consulting

Strategy

Business Analytics

Technology

Non-Profit Boards

Bible League International, Crete, Illinois

World Bible Translation Center, Fort Worth, Texas

10/23/13Steve Little 2

Professor at Lipscomb

University

Policy & Strategy

Principles of Management

Business Statistics &

Management Science

Research

The China Experience


Proverbs 31:10-31 (heavily paraphrased)

A CFO of noble character who can find? She is worth far more than generous stock options.

Her CEO has full confidence in her and is always well informed. She brings him good, not harm, throughout her tenure as CFO.

She develops a good staff and works with eager hands.

She is resourceful, providing for every company need and ensuring that her staff is equipped to be successful.

She considers a company, with due diligence, and buys it; out of the increased earnings she funds strategic initiatives.

She sets about her work vigorously; her spreadsheets, analyses, and business acumen are more than sufficient for her tasks.


She sees that her investments are profitable, and her cash flows do not disappear when times are bad.

In her hand she holds the iPad and grasps the stylus with her fingers.

She opens her door to all who need counsel, she does not turn a deaf ear.

When the economy stumbles, she has no fear for her company; for all necessary preparations have been made.

Her CEO is respected by all stakeholders, including the shareholders, where he takes his seat among the board directors.

She compiles the annual report, presents it to the shareholders, and meets with Wall Street analysts quarterly, providing impeccable guidance.

She is known for her integrity and skill; she is enthusiastic about the days to come.


She speaks with wisdom, and faithful instruction is on her tongue.

She watches over the affairs of the company and does not eat the bread of idleness.

Her colleagues arise and call her blessed; her CEO also, and he praises her: “Many CFOs do noble things, but you surpass them all.”

Fancy spreadsheets can be deceptive, and earnings management is fleeting; but a CFO who knows, respects, and speaks the truth is to be praised.

Honor her for all that her hands have done, and let her works bring her praise throughout the company and at the annual Lipscomb-sponsored Updating the Professional Accountant conference.


The role of a chief financial officer (CFO) has been evolving in business. No longer is the CFO only the senior finance guy or gal. In many growing businesses, the CFO is the partner of the CEO in helping lead the company to meet business goals. The CFO may supervise departments --such as human resources or information technology -- in addition to handling the finances. The CFO may also help steer a company through mergers and acquisitions or an initial public offering.

~ Inc., February 16, 2010


The biggest challenge that CFOs face in working with their CEO…

Moving from tactical to strategic may be the biggest challenge, since the CFO needs to act as the financial headlights for an organization. The CFO must be part of the leadership team, participate in value creation, understand the organizational mindset, operations and people management, and visualize what change may lie ahead. CEOs look for a business partner, coach and advisor in a CFO who provides a finance-driven perspective in how a company can set and achieve its goals.

~ Bates Communications


You must be at ease with the aloneness being CEO requires.

You are the primary role model. You set the tone. You must be the standard bearer of corporate culture.

You must possess exemplary personal values and habits.

You must possess a healthy ego and genuine humility. You must put the success of the organization above your own.

You have primarily position, not personal power.

You must possess high emotional intelligence.

You must put a highly effective leadership team in place. You are responsible for team performance. You are responsible for everything else on your watch.



You must serve, cultivate and answer to many

constituencies.

You must lead development of the mission and vision.

You must continue to learn.

You need an outside confidant. You need an outside

executive coach as situations arise.

You are responsible for successful execution by the

organization. You must personally execute everyday.

It’s bad execution. As simple as that: not getting things done, being indecisive, not delivering on commitments.

Failure to put the right people in the right jobs…then waiting too long to fix the people problems.

The motto of successful CEOs: People first, strategy second.

Execution is most important. Strategies quickly become public property.

~ Ram Charan and Geoffrey Colvin, Fortune, June 21, 1999

How can a good CFO keep the CEO from failing?


"Selecting a winning CFO is one of the most important

aspects of a CEO's job," says Amy Errett, a serial

entrepreneur who has hired several CFOs in her various

businesses. Errett is now a partner with Maveron, a

venture capital firm started by investment banker Dan

Levitan and Starbucks Corp. chairman Howard Schultz.

"A great CFO is an integral part of creating a world-class

management team that can make or break a business.

Finding exactly the right person is a difficult task and

requires a CEO's ability to understand the most

important skills you are looking for in recruiting this

critical job."

~ Inc., February 16, 2010


Leadership skills. At the CFO level, these skills are paramount, as this executive will lead teams and manage people.

Experience in specific industry. This may be important to your business, although you may want to broaden these criteria to include hiring someone in a similar industry.

Accounting skills. More and more CFOs are certified public accountants (CPAs). One reason this qualification may be helpful to your business is due to the changing regulatory environment, both in the U.S. and the push for global accounting standards.

Communication and presentation skills. A CFO must have the skills to deal with a board of directors or outside investors to present complex information in a way that can be understood. (Example)

Involvement in industry organizations. This is an important way for a CFO to benchmark your business against best practices in the industry.

~ Inc.


http://www.youtube.com/watch?v=inDf6-TUq5s

What are the characteristics of the super CFO?

Deep understanding of the business

Knowledge of the high tech industry and market dynamics and operational drivers of success

Strong analytic focus

Flexibility

Communication and team-building skills

Customer orientation

Appreciation for change management

~ CFO Enterprise, LLC


Additionally, a solid CFO will have the skills and the experience to manage several functional areas within an organization:

Finance and Accounting

Internal Controls

IT

HR Responsibilities

Legal

Customer Service

Banking Relationships

External Accountants and Attorneys

Special Analysis and Reports

~ CFO Enterprise, LLC


What advice do you give CFOs who want to move into the CEOrole someday?

To move into a CEO role, the CFO must be operationally driven and have leadership skills to drive change. CEOs are typically outward and forward-looking folks with a clear vision of where they want to lead their company, and a strategic CFO will be similar in these leadership traits and bring a holistic viewpoint to the future success of the business.

~ Bates Communications


1.Uncompromising integrity and ethical standards — A good CFO must be honest, ethical and able to develop and maintain the trustand confidence of all constituents. It's not in the job description, but a good CFO knows he is the custodian of everyone's money. The best CFO understands he owes allegiance to all constituents and that sometimes his role is to deliver bad news to the CEO — even if it means risking his job — because it will benefit the stakeholders.

2.Financial accounting, cash management and corporate finance competence — A successful CFO must possess fundamental accounting knowledge, cash management skills and the ability to manage the financial function. A CFO need not be a CPA, but the person absolutely must know how the numbers are generated and be able to communicate effectively with managers, creditors, shareholders and others.

~ 10 Qualities of an Effective CFO, Rating System Shows Who’s Up to the Jobby Marc Pfefferle (TMA International Headquarters)

Jun 1, 2003


3.Basic business knowledge and strong understanding of company operations — To be effective, a CFO must understand business fundamentals, a company's basic operations and its business model. A CFO who merely reports numbers and has no interpretive ability does not add value.

4.Strategic vision and leadership skills — The best CFOs can think strategically, help create and execute business plans and demonstrate strong leadership within the financial departments and with the management team as a whole. The CFO can't just be a "numbers guy"; he's got to be a negotiator. CFOs who stay in their offices all day, demonstrate no executive presence, hoard information or are arrogant or condescending are generally ineffective.


5.Problem-solving abilities — A CFO's knowledge of the company, its resources and the numbers is critical in formulating a plan to secure a company's future. Good CFOs look for "win-win" situations, rather than trying to get a "good deal."

6.Communication skills — A CFO must be able to communicate the financial performance and resources of the company to all key constituents orally and in writing. A good CFO will give you the answers before you ask the questions; a bad CFO will make you feel that if you hadn't asked, you would never have found out.

7.Strong work ethic — A CFO must be willing to work long hours when necessary, processing a tremendous amount of work product while paying extreme attention to detail. A CFO who only works eight-hour days will not accomplish the objectives.


8.Self-confidence and willingness to take a stand — To gain and keep the trust of all constituents, including the company's employees, the CFO must be self-confident without being arrogant. That means the ability to transmit appropriate messages to appropriate audiences, a willingness to admit mistakes and the ability to offer input without insisting on being right.

9.Results-oriented mindset — A company needs a CFO who is committed to results first. The CFO who elevates process above all impairs his ability to see problems, which is a problem in itself —especially in times when the company's procedures are likely part of what got it into trouble in the first place.

10.Reliability — A CFO who works reliably under pressure to produce timely, accurate information and is willing to do whatever is necessary to bring about results is invaluable. The right CFO not only wants change, but also can help set the ball in motion.


Close to perfect financial reporting

Expert advice on accounting and financial matters

No mistakes or surprises

Quick, right answers (and more critical…right questions)

Honest-based loyalty, and ability to carry forward the CEO/Company flag

Internal and External eyes and ears for CEO

Highly communicative, coupled with brutally honest counsel/conscience for the CEO


Make sure the C-Staff knows and respects the significance of the role of the CFO

Don’t let any C-Staff member make any plans or decisions which have financial implications without the involvement and sign-off of the CFO

CFO needs to be used by CEO as a sounding board

Don’t treat the CFO as a “numbers guy” (and definitely no bean-counter jokes)


Frequent surprises are a deal-breaker

Character issues

Bad advice and bad answers are a deal-breaker

Fudging “bad” numbers – yield not to temptation, or be terminated

Disloyalty/violating the CEO’s trust, confidence and confidentiality

Disloyalty/violating the CFO’s trust, confidence and confidentiality

Forgetting that the gap between #1 and #2 is significant

Failure to enunciate and model CEO rule for all C-Staffers: No “ex parte’” decisions – that is, all situation-relevant C-Staff stakeholders must be involved in any decision-making that affects their respective areas – this could mean the CEO and CFO + 1, or all C-Staffers en masse


Legal

Ethical

Achievable

Risk Appropriate

Net Present Value Enhancing


L

Within the letter and intent of the laws of the land (from tax laws to the Foreign Corrupt Practices Act)

Within guidelines and regulations (GAAP, IFRS, SEC, etc.)

Consistent, fair application of company policies

Honored contracts


E

Fair

Consistent with behaviors expected/desired of employees, customers, suppliers, communities, and other stakeholders

The Golden Rule (Not the one that says, “he who has the gold, rules.” It’s the other one)

Example for discussion

Should companies pay a living wage?


Living wage (principle of need)

Equitable wage (principle of contribution)

Sustainable wage (principle of economic order)

Just Wage vs. Minimum Wage


A

Given the company’s resources, can we deliver what is promised?

Funding

The right people (skillsets and availability)

Access to needed technology

The right plan, methodology, or approach

Appropriate expertise

Needed level of organizational and individual commitment/motivation


R Can we survive/thrive even if the initiative fails?

Can we survive/thrive without the initiative?

Do we understand the risks?

Did Netflix understand the risk when they changed their pricing structure?

Did RIM understand the risk of not aggressively innovating? Did they understand the risk of a significant outage in service?

Often, the most critical initiatives are those involving significant innovation…where it is difficult to identify and assess risks…

What can the CFO do when risks cannot be well defined? 10/23/13Steve Little 29

N

Will this initiative enhance NPV?

Resources are limited. Compared to other opportunities, does this imitative provide a favorable risk-adjusted NPV?


Leaders vs. Managers

10/23/13Steve Little

31


"There is a profound difference between management and leadership, and both are important. To manage means to bring about, to accomplish, to have charge of or responsibility for, to conduct. Leading is influencing, guiding in a direction, course, action, opinion. The distinction is crucial."

And in one of his most famous lines, he added,

"Managers are people who do things right and leaders are people who do the right thing."

~ Warren Bennis


Leaders use their hearts to lead and

Managers us their heads to manage

Think in terms of: Leaders = Change Managers = Stability Together = Controlled Change

Vision without action is a daydream.Action without vision is a nightmare.

~Japanese Proverb

Leadership & Management

Cfo and ceo better together ima 2013 10-23