January 1, 2008

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The Modern CFO

Pamela Ostermiller

January 1, 2008

Remember when Mom forced you take oboe lessons and soccer and try out for debate, all in an attempt to make you “well-rounded?” Well, CFOs, Mom was right. The challenges facing today’s financial leaders make it necessary to bring every talent card to the table. A quick perusal of the online bookstore of CFO magazine will reveal a couple of things right off the bat. First, an executive in this role – or anyone wanting the position – should have a broad range of job skills and interests. Second, be prepared to provide ample spare time for cozying up with a book. In genres arcing from company growth to IT value, the numerous recommended reads include W. Chan Kim and Renee Mauborgne’s Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant; Malcolm Gladwell’s The Tipping Point and Blink; Achieving Business Value from Technology: A Practical Guide for Today’s Executive by Tony Murphy; and Thomas Friedman’s The World Is Flat: A Brief History of the Twenty-first Century. Such a library might as well shelve The Joy of Cooking and Tolkien’s trilogy, considering the ever-widening skill set that companies are asking of today’s CFO. In 2008, you’ve got to be a wizard in more ways than one. This topic has been bouncing around board rooms for a few years now, gaining ground after Enron’s failings were revealed. The CFO position began to swell and change from someone held accountable for reviewing and reporting on a company’s past performance to someone – a highly ethical someone – ready to predict and engage in the future and be a public face of the company along with the CEO. Steward and Strategist “It used to be that CEOs were the evangelists and CFOs were looked at as the enforcement arm of the finance group,” says Steve Erikson, former CFO and current vice president of operations of Altiris, a division of Symantec that helps companies manage their endpoint computers. “That has not necessarily changed. But it is more and more imperative that the CFO understand the value drivers of the company. It is a source of security for investors to know that a CFO is not only working the back end, but that the CFO understands the markets and is driving decisions.” A 2005 Deloitte survey of CFOs revealed that there has indeed been a shift in the tasks CFOS spend the most time performing. The survey sought to understand the perceived role of the CFO from the perspective of both the CEO and CFO, and to understand how the finance function split its time across transaction processing, risk management and control, and decision support. It revealed that the traditional function of the CFO is now of lesser importance than ever, and included a pyramid diagram of the role of the CFO. In the top tier were “Steward and Strategist” and in the bottom level, among other tasks, were “Recorder and Reporter.” The single biggest block of activities undertaken by the finance function today, the survey revealed, is still transaction processing with, on average, 46 percent of time consumed. Yet in Deloitte’s 2000 survey the time spent on transaction processing was in excess of 60 percent. “Over a five-year period therefore,” the report says, “it has been a significant refocusing of finance time from transaction processing (made possible by increased investment in technology and reorganization of finance activities) to risk management and control (driven by increased regulation over the period).” Old Days, Good Old Boys While the position of CFO is much more demanding, it is more challenging, dynamic and attained via more customized pathways. David Anderson, CFO of vSpring, a venture capital firm in Cottonwood Heights that invests in technology and life sciences companies, says that, for starters, the route to becoming an accountant has changed. “Fifteen to 20 years ago, it was different. You attended school and you would get recruited by big accounting firms,” Anderson says, who himself graduated from Utah State University with a degree in accounting and went straight to work for one of the Big 8 in Utah, which later became Ernst & Young. “I wanted to become a partner in a big firm, be part of the old boys’ network, get a membership to the country club, and that was it.” Today, partners have to bring in sales and business marketing experience, and being a CFO has changed from an advisory position to being a cog in a large corporation. From a pure CFO’s perspective, Anderson continues, the role has most markedly changed over the past five to seven years, especially if you look at a lot of public companies. “Your skills have to expand. Today’s CFO can migrate into the position of CEO,” he says. “Historically, you were the head bean counter. Today, the job expands into all different areas of a company.” The Skills How does one know if he has the right tools to win, or keep, the job of CFO? How does one cross the bridge from accountant to star CFO? For starters, check the classifieds. The qualifications listed on a recent online job posting for a CFO position in Denver were more than a page long and went far beyond bean counting, replete with action words including plan, develop, participate, manage, evaluate, execute, enhance, assess, provide, improve, establish, create and desire. And instead of working behind the scenes, the new Super CFO must have “strong interpersonal skills, effective communication skills both written and verbal, as well as presentation skills.” In the November issue of CFO magazine, writer Alix Stewart outlined the essential skill set the modern CFO must attain, many of which could be applied to any job at any level, such as working well with the boss, knowing how to say no, developing interpersonal skills and using time efficiently to make the most of the work day, monitoring tasks such as replying to emails carefully, not wasting the day replying to every unimportant email. Anderson says that, even today, a person should start with the basics: education. “One thing that has happened is that states require advanced degrees for a CPA license now. Utah is one of them.” He adds that many potential CFOs today are obtaining masters’ degrees in accounting and finance, then pursuing an MBA to help them prepare for what lies ahead. And once you attain the position and want to keep it, Anderson says, “It’s a matter of rolling up your sleeves and getting involved.” The Tools Elizabeth Acton, CFO of Comerica, wrote that a CFO must be a team member first “serving as a bridge between business line units management, the board and shareholders.” In addition to being a strong partner with the CEO, a sounding board, and an agent of change, Acton also stressed the importance of being technologically sophisticated and knowing the financial tools of the trade. “Financial reports must be generated accurately, as always, but more quickly than ever before.” Fortunately for companies, there are a variety of systems available, being used to some degree of success and some disappointment, according to the Deloitte survey. “Many organizations have, over the last five years, invested heavily in accounting and reporting systems, or the more comprehensive Enterprise Resource Planning (ERP) solutions.” The survey sought to discover which systems were in use and if companies and CEOs were benefiting from them. The survey revealed “of the respondents, approximately 42 percent were getting full benefit from their investment, whereas over 45 percent felt they were getting only partial benefits. Over 10 percent indicated that they were getting no benefits.” While savvy systems can assist a company in getting improved information and controls, greater flexibility, and reduced financial close times, they can also offer a better standardization of processes, which in turn has benefits all its own. The role of the CEO, in fact, relies on processes. “It’s important to have analysis, understanding that can be applied,” says Anderson. “It’s important to have processes, to institutionalize things, how transactions are processed. Then, everything we do is not a one-off, so that we have lead processes in place.” High Pressures, High Turnover Anderson adds that, as a result of the raised intensity and responsibilities of the job, CFOs are experiencing shorter tenures. “CFOs are asked to be involved in these other areas, then undergo additional scrutiny, yet are not given additional resources,” he says, referring to The Sarbanes-Oxley Act passed by Congress five years ago that loaded finance chiefs with duties and responsibilities. So the CFO is asked to be super, then handed a chunk of kryptonite. This dilemma in not exclusive to Utah. Nationwide, 11 percent more CFOs left their jobs or were terminated in 2006 than in 2005, according to Liberum Research of New York. Earlier this year, the Portland Business Journal quoted Frank Moscow, an executive recruiter local to that area, as saying that CFOs “get none of the credit and all of the blame…In today’s regulatory environment, it’s got to be the most thankless job in the executive suite.” In our June issue, Utah Business magazine will highlight outstanding achievements among CFOS with its first-ever CFO of the Year program. This prestigious recognition will salute financial executives who possess a unique blend of strong financial skills coupled with far reaching economic vision to lead a company to greater fiscal heights. Recognition will be given to CFOs from small and large organizations in four categories: public companies, private companies, government and non-profits. An effective CFO is one who forms a seamless leadership team with the CEO and company executives. The CFO of the Year will understand a company’s current value, successfully utilizing market forces and looking to make the most of the organization’s future potential by forecasting tomorrow’s economic climate. Utah Business will honor those financial controllers who display the ethical standard necessary for a company to be successful with today’s compliance standards and whose leadership, vision and financial acumen make them stand out as a true leader. For more information, or if you know of someone who fits the above guidelines and has made a strong impact on business, send an email to editor@utahbusiness.com or fax us at 568-0812, Attn: Editor. Deadline is March 1st.
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