The Anatomy of a CFO

LinkedIn Pulse

By Joe Olson, Director

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The last few years have been a remarkable case study on the evolving role of a CFO. Instead of the functional finance & accounting expert that is protecting the company and primarily “keeping score”, many of this next wave of CFOs are serving as the public face or “financial evangelist” for their organization.

While I do not have a CPA, I have had the privilege of working on some amazing CFO projects (Airbnb, Tesla, Zappos and many more) that give me a fairly unique perspective after speaking to hundreds of the best CFOs in the world.

In the past, there were two primary paths to a CFO role:

  • Getting a finance/accounting degree, spending 4-6 years in public accounting, being recruited over to a client and climbing the ranks
  • Going straight from college to a top tier development program such as a General Electric, Honeywell, IBM, etc.

The “sexier” path was getting into an Ivy League school, getting your MBA and then becoming an investment banker. These stories have been discussed many times; but, the core attitude of spending 10-15 years of keeping your head down and just grinding hard appears to be a bit antiquated with the newest generation of the workforce (also the regulatory environment has justifiably impacted an investment banker’s earning potential). As a result, the mysticism around technology (ie Silicon Valley) has created a new breed of CFO that is much more public-facing and strategic – leading to a much higher level of external interaction. The danger is that businesses still need to be protected with the proper controls and discipline, which can limit the traditional CPA background to more of a Controller/Chief Accounting Officer type of role.

The Banker turned CFO:

Some recent examples of bankers making the transition include Laurence Tosi (Blackstone to Airbnb), Kristina Salen (Fidelity Investments to Etsy), Ruth Porat (Morgan Stanley to Alphabet), Anthony Noto (Goldman Sachs to Twitter), Sarah Friar (Goldman Sachs to Salesforce to Square) and many more. If you look at this list, these companies are included in almost any article describing the balance of internal financial controls with a heavy focus on growth-orientation.

Many times, the banker is an indication that a technology company is looking to push toward a large financing initiative (public or private). One of the major traditional challenges to recruiting Bankers has been the significant cost involved; but, with the high valuations of companies like Airbnb, Uber, Snapchat, etc, it gives these organizations the opportunity to make the economics work.

The Turnaround/Operational CFO:

This profile is typically brought in by a Private Equity firm and/or a Board of Directors when a company needs to either sell off unnecessary assets or focus on a high level of margin control while pushing toward profitability. These CFOs need to be able to deal with a tremendous amount of chaos and have a very heavy risk profile. One of the biggest challenges for a financial leader can be to deal in a very ambiguous environment – this is the world that a turnaround CFO lives in daily. These CFOs need to stare death in the face while maintaining macro-awareness and managing their CEO/BOD and team’s expectations.

In this environment, we are typically going to look at industries such as Airlines, Manufacturing, Transportation and Distribution – these are all areas where there has been a balance of decaying business models and rapidly decreasing physical assets. Someone who grew up in this industry is going to have the right level of cultural awareness and technical credibility to translate their learning to an adjacent market environment. Many times, this role will be more closely aligned to a President or a COO level of responsibility in order to have the proper ability to positively impact the business/streamline decision making.

The Foundational CFO:

This CFO fits more under the classic CFO model where they likely have a CPA and they spent their formative years in a great training ground like General Electric. The typical connotation in technology is that this is a less strategic path (ie “cog in the machine”), but I would argue that there is a tremendous amount of value here as long as the CFO is able to apply these fundamentals in an inclusive manner. Foundational CFOs typically come from environments where there is a strong voice of finance (Amazon, eBay, GE, etc) and executives grow up being very accustomed to fiscal accountabilities throughout their P&L.

Regardless of background, the CFO should be the human glue that allows for any functional area to speak the same language about the business. The common denominator for any of these paths is that there needs to be a strong relationship with the CEO and management team. The most critical aspect of CFO success rates in a 12-24 month period of time is their connection with the CEO/BOD and the subsequent (or lack of) empowerment throughout the rest of the organization. If the CFO is on an island without that support, the rest of the business functions will begin to operate in silos and it becomes more and more challenging to have the proper controls around the business.

As the public markets are becoming increasingly critical of recent growth-oriented models that value revenue over profitability (unit economics argument), it becomes even more important that the CFO provide a culture of operational creativity and financial rigor. How does the business manage risk? What are disturbing trends that we are seeing in our acquisition/retention model? How do you apply traditional finance & accounting principles to other quantitative aspects of the business – sales, marketing, product development and much more? If the CFO does not create (or is not empowered) to build a strong voice of finance within the organization, many of these models are created by independent SWAT teams that become unwieldy as the business scales. Be the voice of data by listening to your business partners, understanding their needs and then working to apply scalable processes that not only properly measure but also drive value for the company.

There are clearly many different types of CFOs and there is a much longer discussion about what types of organizations make sense for these individuals (and vice versa). I also believe that it is possible for someone to have 2 or even all 3 of these characteristics. With that being said, these are the three primary delineations that I have come across. A strong CFO needs to understand the business, communicate well both inside and outside of the organization, manage conflict, attract talent (this role is impossible without a strong team), control chaos and be solution-biased (as opposed to becoming a consistent roadblock).

 

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First Published on: Linked In Pulse.

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