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Dr. Dale Flesher, associate dean, University of Mississippi Patterson School of Accountancy.

THE CFO LIFE — Importance of chief financial officers continues to increase

By BECKY GILLETTE

The role of chief financial officer has grown in importance in recent years, especially when talking about CFOs for large and\or public companies.

“The job is much broader than it once was,” said Burns Chair of Accountancy Dr. Dale Flesher, associate dean, University of Mississippi Patterson School of Accountancy. “If you are talking about a public company, the CFO has the most visible role in its relationships with shareholders, investors and analysts. People look to them as being the experts on the company. There is also a lot of legal responsibility because of the Sarbanes-Oxley Act and Dodd-Frank Act of 2010. And financial reporting is not their entire job. They are the internal financial people, as well as the external financial people. They are in charge of budgeting.”

Years ago, most people believed the assets of a company were a responsibility of the treasurer. But Flesher thinks today the CFO has taken over the treasury function, as well. The CFO can be called upon to give advice on whether the company has enough assets to invest in a new project—something that previously might have been considered a function of the treasurer.

“If a manager wants to buy a new piece of equipment, he has to get it by the CFO, who has to determine if it will be profitable for the future,” Flesher said. “He or she has to understand the entire business. The CFO oversees every aspect of the business.”

The general public may know the CFO is important, but not know how broad-based the position is.

“People see the public reporting side of things because the CFO is quite visible to investment analysts and gets quoted in newspaper articles,” Flesher said. “But I don’t think people know the responsibility for internal controls that are part of the CFO’s job. They don’t know that the CFO has to determine the potential profitably of future projects.”

CFO’s are responsible for internal controls such as addressing management inefficiencies, employee embezzling and outside attacks by hackers.

One of the most common certifications for CFO’s is the CPA degree, but there is also Certified Management Accountant (CMA).

“To me, that certification is a little more relevant to what a CFO does,” Flesher said. “That exam has everything on the CPA exam plus a whole lot more including financial issues, internal controls, strategic planning, budgeting, internal audits—all the things relevant to someone holding a CFO’s position. I see CMA as almost a necessary certification for a CFO to hold, in addition to being a CPA.”

Many CFOs rise to the position through careers in public accounting. The change is quite a shock after spending so much time in public accounting focused on accurate reporting of past results.

“The majority of the CFO’s time is spent looking out into the future forecasting, modeling, and evaluating,” said Mike Morgan, a professor of the Department of Finance, Real Estate and Business Law School of Business at The University of Southern Mississippi. “Technological improvements have aided the CFO tremendously. For example, the average level of inventory held by publicly traded firms in the 1980’s was about 80 days. Now it’s about 40 days. That’s literally billions of dollars in working capital that is no longer tied up. Technology has allowed firms to implement ‘just in time’ management techniques that were not possible several decades ago.”

Morgan said forecasting used to fall in the lap of an MBA with a spreadsheet.  It has become much more data and system driven now, thanks to technology.

“On the other hand, with all of this technology we have available, some areas seem to be stuck in the dark ages,” Morgan said. “You would think we could file annual reports with the SEC in a matter of days, not months. I think that is a function of the regulations that Congress continues to heap on companies. Technology seems to be leading to more and more data to analyze and requests for more and more reports, but information gets stale so quickly these days and it’s easy to fall into a trap of data overload.”

The CFO in small to medium size companies (100 to 1,000 employees) wears a lot of hats, said Morgan, who has served as a CFO four times during his career, most recently at Bomgar Corp. in Ridgeland from 2006-2014.

“The company may not be big enough for a chief operating officer, so a lot of operational duties might fall on the CFO,” he said. “A new CFO might end up being responsible for departments such as legal, information technology, facilities management and human resources. I’m not saying that’s the right place for these functions, but many times they end up there by default. That’s quite a lot to be responsible for when you have been doing accounting all of your career. That’s when it is critical to put highly competent people in place. The CFO can’t possibly be an expert in everything.”

Morgan has seen the world of finance change tremendously during his career. In addition to technology improvements, there has been a major shift in financial markets as a result of things like Sarbanes-Oxley.

“Start-ups used to aim for an IPO,” Morgan said. “That was the dream of every founder and the crowning achievement of every CFO. Now, the IPO is an endangered species. We still see a few, but for companies worth less than a billion dollars, the private equity firms have gobbled up many of the companies that used to go public. Companies just don’t want to deal with the enormous costs and the effort it takes to be a public company.”

Jay McCarthy said his role as CFO of the Mississippi Development Authority is different than it is with private sector companies. These responsibilities include negotiating deals with companies looking to invest or expand in the state; providing technical information and assistance to agency staff, economic developers, and businesses; determining agency policy regarding economic development incentives; and working as a legislative liaison when needed.

“The CFO at MDA is a critical position,” McCarthy said. “My role is to set the tone, spending priorities, budget and financial processes to ensure the agency runs efficiently and effectively.

“However, a good CFO is only as good as the staff he/she directs. The staff of the Accounting and Finance, Community Services, and Financial Services Divisions, who are my responsibility, are led by bright, experienced, and professional directors. The staff members of those divisions are hard-working and dedicated. Without these team members, the agency would struggle to be successful.”

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About Becky Gillette

One comment

  1. Becky, I think this is a great article and hits almost all of the areas in which a CFO is responsible. I’d like to point out the importance of the CFO being involved in the Employee Benefits strategic planning process. Specifically a company’s health insurance plan. With health insurance premiums increasing at an unprecedented rate, it is more important than ever to treat the health insurance plan as business unit. If not, most business are simply throwing away large sums of money into premiums with little to no impact on their business goals. It is my mission to promote this concept and generate awareness for these issues. I would love to discuss this concept with you if you have some time.

    Conner

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