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by Sarah Perrin 19 Oct 2006 Diploma in Financial Management Relevant to Feature article

According to a survey of FTSE500 companies commissioned by Cartesis, a business performance management software specialist, 45% of CFOs see corporate strategic planning as their top priority now, while 52% believe it will become their main concern in three years. Just under a third (30%) of survey respondents felt that financial management and reporting was currently their top priority, while just 10% said that complying with regulations was top of their agenda.

Cartesis highlights that this result demonstrates a clear shift in priorities for the CFO compared with last year, when coping with regulations and compliance were the key priorities. ‘The results reveal how compliance has shifted down the agenda of the CFO, to be replaced by more strategic goals,’ says David Gray, UK country manager for Cartesis. ‘Although the more tactical concern of compliance with the numerous regulations in the governance landscape remains a crucial part of the CFO’s remit, it seems they now are feeling more in control of the situation.’

The research strikes a chord with ACCA’s chief executive, Allen Blewitt. ‘That confirms the interactions I have been having with CFOs in many parts of the world,’ he says. ‘They have had their heads down and tails up as compliance issues have come through. Now they have people and systems and processes in place, and are coming back to their natural role, refocusing on wealth creation and growth, rather than being retarded by the heavy hand of compliance.’

Part of that strategic focus is being directed at the efficient operation of the finance function. ‘Outsourcing part or all of the finance function is now back to the forefront,’ says Blewitt. ‘Those who have already outsourced are quite highly focused on managing those relationships with their suppliers. Those who haven’t outsourced yet are actively looking at it now.’ He also senses that the cycle in software investment may have reached the stage where money may be spent on more strategic solutions. ‘People have been cautious because most investment has been around compliance and internal control,’ Blewitt notes. As he speculates, that may be about to change now that control systems and processes have been largely upgraded.

Gary Stapleton, finance director at 3M UK Plc, the global company behind brands such as Scotch Tape and Post-It® Notes, also sees a greater strategic emphasis being placed on his role, although he still has to pay attention to compliance matters. ‘I have been FD in the UK for coming up to three years,’ he says. ‘We got hit very heavily by Sarbanes–Oxley. That focus hasn’t gone away. But we now have more focus on strategic planning. It’s all about portfolio planning, which markets we want to be in, looking at adjacent markets... I am spending more of my time now externally focused and working on strategic issues than I was a year ago. We are very actively looking at acquisitions and business partnering opportunities, and I am more actively involved in those than I was. There is a big focus on strategic planning, but compliance and tax and pensions issues don’t go away.’

Michael Hughes, global head of audit at KPMG, sees the move back to strategy as part of a long-term cycle. ‘Over the past 20 years, before Enron, there was a lot of movement by CFOs out of the strict finance function, with them becoming much more commercial and more involved in contributing to the strategic debate from a finance perspective, but in a wider sense,’ he explains. ‘They were vacating compliance, passing it down to the next tier, to the controllers. The period immediately following Enron changed that, with the concerns of the market around control and the veracity of information, the pressures from audit committees who rely on the finance director and who were driving the finance director to respond to the compliance agenda. All of that was forcing finance directors to refocus on compliance. I think the heat is now coming off that.’ As Hughes notes, once companies affected by Sarbanes–Oxley, or any other new compliance requirements, have made the necessary initial step change in processes and practices, then compliance becomes more business as usual. ‘So the pendulum is now swinging back to where it was four or five years ago,’ Hughes concludes.

‘We are seeing the pendulum swing,’ agrees Suzzane Wood, head of the CFO practice at headhunters Heidrick & Struggles. ‘Partly that’s because the need for governance and regulatory issues to be dealt with has increased the depth of expertise in the finance team, so that’s freed up the CFO’s time to be more of a business partner. CFOs had to recruit more control/regulatory/compliance people to take care of Sarbanes–Oxley, and so on. Having spent the past couple of years strengthening their team, they are able to spend more time now on strategy. The CFO has created more space to operate as a business partner.’

Skills sets
The change in focus has implications for the CFO skills that now come to the fore. ‘The pendulum will swing back towards skills sets not associated with the traditional accountant,’ Wood notes. ‘It’s swinging away from CFOs with an accounting background. Given there’s been so much emphasis on risk, compliance, International Financial Reporting Standards, etc, we’ve been forced to recruit people with that expertise. However, the CFO with that support below him does not now need to be an accountant. The CFO’s focus will be more on strategy and business partnership.’

Wood also notes that company boards in recent years were not keen to appoint as a CFO anyone who had moved off into a business role and then wanted to return to finance. They wanted someone who had been working up to the minute in finance. Now, the opportunity to gain broader business experience and then go back to finance is returning. ‘It will be safe to go into a business role and then come back into a finance director role,’ Wood confirms.

Blewitt also notes that CFOs who rise to the top will need to have the appropriate capabilities. ‘Some CFOs are more comfortable with a risk-based approach,’ he says. ‘But the good CFOs who will really go somewhere have to have a much wider and forward-looking view. We have been saying this for years – the best CFOs have a forward rather than an
over-the-shoulder focus.’

Despite the general excitement about the return of a strategic focus, there is no suggestion that compliance no longer matters. And there is still ongoing speculation whether Europe may introduce Sarbanes–Oxley style regulation itself, thus stoking the compliance fires once more. However, if the US begins to cool its own approach, that may help to dampen European enthusiasm for such a move.

Blewitt believes there may be signs that the US is losing some of its own compliance zeal. If so, this is welcome news. ‘It would signal to the world that we have reached the peak of heavy-handed regulation,’ he says. ‘All CFOs should watch what happens with Sarbanes–Oxley. If there start to be some modifications, that would be a very good sign for the CFO.’ 

Sarah Perrin is an accountant and writer. This article was first published in accounting & business, June 2006

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