The Role of a CFO: motivating people, managing assets and hedging risks. Денис ДубовцевЧитать онлайн книгу.
rather than the CEO, motivating them should rely on long-term strategic objectives, particularly the capitalization of the business. This approach helps to mitigate conflicts of interest, particularly reducing the risk of making short-term decisions to boost current business efficiency metrics. Often, in companies, reports may be manipulated, either intentionally or unintentionally, to meet annual bonus targets, leading to short-term initiatives beneficial to management but detrimental to the company’s long-term value. The task of the financial leader, alongside the board of directors and internal auditors, is to structure processes to strike a balance between short-term objectives and the company’s strategic goals, averting conflicts of interest among different staff groups and organizational objectives.
Employees engaged in financial management should be motivated by a substantial fixed salary to reduce reliance on variable components tied to the company’s annual performance. Variable components should be introduced for specific projects requiring extraordinary efforts, such as M&A deals, investment rounds, IPOs, audits, or due diligence[2] conducted within tight time frames. This approach applies not only to the financial director, but also extends to key members of the finance department.
Returning to the competencies of a financial professional, they must possess comprehensive knowledge of the business and its operations. A modern financial manager requires a broad perspective and a profound understanding of processes beyond finance and accounting. Even an accounting clerk or cashier and accounts manager must grasp the organization’s business processes, value creation chain, competitive landscape, and consequently, recognize their role in sustaining the company’s performance and growth.
The role of a financial leader also entails selecting the right people and consistently conveying to them the company’s tasks, values, and competitive position. From the employees’ perspective, there should be genuine interest in operational processes, the organization’s strategy, its products, and a recognition of the significance of their role in shaping the overall outcome.
This approach to motivating financial professionals fosters the development of a sufficient level of expertise and engagement in the business, instilling a healthy sense of perfectionism within their tasks and motivating them to pursue common goals. The head of the financial department should possess substantial independence within the management team to effectively oversee control processes and establish an information system for decision-making by product leaders, functional leaders, shareholders, and investors.
Therefore, by maintaining significant independence from business leaders and prioritizing long-term results, the financial leader can offer insights on performance indicators compared to other top executives at board meetings, exhibiting reduced susceptibility to the influence of short-term goals. In turn, this enhances trust in their assessments and significantly reduces, ideally eliminating, conflicts of interest.
Among the qualities crucial for a CFO, integrity is paramount – shareholders must trust that results are transparently and honestly communicated – even when it may not be personally advantageous. It is essential to establish a system where the judgments and decisions of the financial department leader are not influenced, directly or indirectly, by short-term motivating factors like quarterly or annual bonuses tied to company performance.
From the financial leader’s perspective, it is crucial to consider that, when presenting financial reports and company performance results to senior management, the board of directors, and shareholders, documenting conclusions in writing and sharing them among participants is advisable. This helps avoid misinterpretation of numbers and biased perceptions due to the «broken telephone» effect.
Hiring a CFO
The process of hiring a CFO is a significant undertaking for both the organization and the candidate. The company aims to find a qualified staff member who not only possesses the requisite skills and experience, but also aligns with its corporate culture. This alignment is particularly critical as the CFO substantially influences the internal service culture, encompassing areas such as HR and accounting documentation, payments, budgeting, financial analysis, automation, and more.
As an experienced financial leader seeking employment, it is imperative to pose direct, incisive questions regarding the company’s financial health and related processes during the job search. Before finalizing any employment decision, it’s essential to request key internal financial documents for personal analysis. Typically, these documents include:
1. Monthly financial reports used for operational decision-making by management.
2. An up-to-date financial model or the current one in use.
3. The latest set of documents submitted for regular board of directors meetings.
Understanding how significant decisions are made within the company is crucial. Clarifying which decisions are within the purview of the CEO and which involve the senior management team members, including the CFO, is vital. It’s also essential to delineate the responsibilities of other top managers: who falls under CEO-1, which decisions the leader makes independently, which ones are made jointly with the second-in-command or the CEO, and which ones are made jointly with the second-in-command or the CEO, and which decisions the CEO brings for discussion and voting among the top-management team.
In medium-sized and large privately-owned companies, decision-making mechanisms may lack structure and systemization, leading to interpretation challenges, decision delays, and personal risks for management personnel.
While the division of responsibilities between the company’s operational management and the board of directors is typically simpler and regulated by legislation, bylaws, and shareholder agreements, «gray areas» are still encountered here. The shareholders sometimes intentionally leave open issues in the internal decision-making process in order to retain additional leverage over the management. Having «gray areas» is not a problem, but it is crucial for senior management to understand where the boundary lies between their authority and the responsibilities of the board of directors and shareholders. They should also have a clear understanding of the segments within the «gray area».
Hence, during the hiring process, prospective financial directors should directly address pertinent issues with stakeholders. This includes inquiring about existing processes and procedures, decision-making approaches, documentation preparation, and the attitudes of leaders and the board of directors toward potential changes within the CFO’s domain.
Engaging in targeted discussions with stakeholders during the preliminary stages of collaboration allows decision-makers, such as the CEO, board of directors, and shareholders – those who ultimately make the decision to hire a financial director and interact with them – to understand and evaluate the motives and objectives of the potential CFO. This approach facilitates the selection of appropriate negotiation tactics and criteria for identifying suitable candidates.
It’s essential to acknowledge that hiring a leader entails a long-term commitment and, typically, no one is directly interested in deception. However, in practice, the opposite situation often arises: when choosing a partner for a long and fruitful collaboration, parties may, due to oversight or insufficient preliminary analysis, engage in self-deception. Correcting such mistakes can be arduous, time-consuming, and costly. With this groundwork laid, let’s proceed to discuss goal-setting and employee motivation.
Chapter 2
Motivation and Goal-Setting
Goals of the Finance Department
The cornerstone of any enterprise lies in meeting the demands of its clientele. Enterprises arise where needs are unmet and fade away when customers no longer require their offerings, often due to the emergence of alternatives or more efficient competitors. If a product becomes redundant or can be fulfilled without the enterprise’s involvement, customers will seek alternative solutions, potentially leading to the enterprise’s insolvency.
The principles guiding internal services within an organization should echo this viewpoint: it is imperative to continually identify and address customer pain points while striving to make this process as cost-effective as possible,
Due diligence is a process of forming an independent, objective opinion about the state of a business. This procedure involves analyzing investment risks, verifying key aspects of the business, assessing the accuracy of financial statements, and evaluating the extent to which internal control procedures and processes have been developed.