Until recent times, chief executive officer (CEO) has been the top dog or the big bear in the corporate management hierarchy. Endowed with considerable power, the CEO has been the undisputed king within an organization, but not anymore.
Chief financial officer (CFO) is a relatively new position in the corporate world and although their functions may differ according to the policies and strategies of each company, they definitely have started eating into the positional powers enjoyed by CEOs.
There was a time when subordinates obeyed a CEO’s order as the Word of God. In the current set-up, CFOs have the power to strike down that ‘word’ if necessary!
One may get confused CFOs with conventional financial managers. The latter had a limited role to play in corporate governance, such as overseeing the accounting and audit sitting in an a/c cabin. But CFOs are vested with greater responsibilities, duties and authority than financial managers. A CFO is responsible for the financial aspects of all company transactions, apart from overseeing auditing and accounting. She conducts surprise field visits regularly to check whether the operations matched the data record.
Divisional managers need to obtain the mandatory approval from the CFO to go ahead with new projects. If the CFO rejects their proposal citing non-compliance with the company’s principles and strategies, the project would not see the light of the day. They might have burnt a lot of midnight oil before making a Power Point presentation and receiving the CEO’s nod. Unless they succeed to impress the CFO, all their efforts would be futile.
Even if the God answers your prayers, the priest would not be generous enough to bestow His riches on you, fat-cat corporate executives say referring to the role of CFOs. Significantly, it is in the public limited firms with a huge shareholder base where CFOs play a greater role in the financial stewardship of the business. Such companies are committed mainly to its shareholders as there is no concept of sole proprietorship. The CFO’s duty is to protect the interests of shareholders by checking unnecessary spending and nipping unprofitable projects in the bud. It is a trend that emerged in the 21st century.
Unlike regular finance managers, CFOs should combine financial acumen and experience besides having impressive educational qualifications. There are CFOs who are more qualified than CEOs and get paid more than the latter. Such situations, however, trigger questions on power equations within the organization. Multinational corporations such as Twitter and Google are grappling with such issues. These companies pay their CFOs millions of rupees in salary and bonus. If a company performs well, the credit now goes to the CFO as well.
Most of the companies realized the importance of putting an effective financial management system in place only after the global economic meltdown smothered the industry. Instead of endowing the CEO with all the power, companies decided to create the position of a financial gatekeeper similar to that of the Reserve Bank governor. If CEO is the pilot, CFO too occupies a seat on board and is supposed to perform the duties of the co-pilot. They should work in tandem to take the company higher, and decide when to take off and land.
The CFO is also responsible to the company’s Board of Directors and shareholders for all accounting and financial matters besides ensuring that the firm complies with financial regulations and standards.
Notably, the advent of CFOs has marked a huge drop in accounting frauds and overstatement of profits in companies across the globe. Since CFOs have at their disposal all available and accessible financial data, they can intervene in any matter related to the budget and financial affairs of a particular firm. They are also vested with the power to accept or reject any proposal and initiate action to cut costs. When a project approved by the CEO gets rejected by the Board members on the recommendation of the CFO, it would definitely make the former feel inferior.
Following the global trend, many companies in Kerala have brought significant changes in their top management by availing the services of CFOs to look after their business' financial health. Their main responsibility is to find ways to unlock the value of a business by tapping its maximum potential to reach greater heights.
Tailpiece: The world may never witness another scandal along the lines of ones that led to the bankruptcy of the erstwhile Satyam Computers and Enron Corporation. If Enron's CFO was convicted and went to jail for fraud, CFOs nowadays play the role of whistle-blowers by acting swiftly to report suspected financial irregularities within their firm.