The excellent people at the Board Intelligence Think Tank – a small unit, led by the wonderfully energetic Scarlett Brown, attached to a provider of technology to assist board information and so decision-making – have produced a great paper setting out the changing role of the Chief Financial Officer in business. It’s the latest in an ongoing project exploring the CFO’s role in relation to sustainability. In particular, the paper highlights the ways in which those in these crucial business roles need to consider fairness. Most vitally, it includes a 5-point ‘fairer future toolkit’.
At its heart, this fairer future toolkit calls on CFOs to think about value in their business beyond the short-term financial. Instead, it urges them to think about broader relationships that will foster value for their company over the longer-term. After all, their role, just as every other director of a business, is to promote the success of the company – not simply drive short-term financial returns, let alone inflate the share price. Slightly abbreviated versions of the five points of the toolkit are:
- Measure & report on social value
- Make non-financial metrics matter
- Flex your spending muscles
- Take a long, hard look at your tax strategy and conduct
- Use your voice to tell a different story
The paper is powered by interviews and roundtables with more than 150 CFOs from across the full range of businesses, and its driver is a recognition that the role of the CFO has changed and is changing. No longer a pure numbers role, especially not simply in relation to just the financial numbers, the CFO has for some time needed to be thinking about risks and strategic planning – and the need to recognise the importance of stakeholder relationships in both. With the advent of more systematic requirements for reporting of sustainability factors, this need to think more broadly is only growing.
There are close parallels here with a recent blog from recruiters Odgers Berndtson on the private equity industry. Not least given the big rise in the cost of debt, the authors argue that private equity needs to move on from its focus on financial engineering and short-term returns to the opportunities for value creation through operational performance, particularly through investing in people. “PE leaders should shift the focus from pure cost-cutting to operational efficiency, allowing for long-term profitability without sacrificing jobs,” they say. Later they add: “As scrutiny on PE practices grows, we expect more demand for leaders with proven experience of balancing financial returns and responsibility.”
There are quotes throughout the Board Intelligence paper from the CFOs of an impressive array of businesses, and there are fuller versions of many of the interviews from which these come at the home page of the think tank’s broader project on CFOs’ role in building a fairer future.
There is clearly most agreement on the first two of the five points. On 1, which in full is “Measure & report on social value (even though it’s hard)”, Andy Agg, Group CFO of National Grid, says: “It makes complete sense to apply the finance function’s skillset to non-financial data. It provides reassurance that it has been subject to the same series of robust controls and standards that we apply to financial data.” And on 2, “Make non-financial metrics matter – for everyone”, Jeff Davies, Group CFO of Legal & General, says: “CFOs are recognising that it’s their responsibility not only to report against things like sustainability or diversity and make sure the numbers are accurate, or help decide what the target should be, but also to help the company achieve those targets.”
If this sounds to some like a power grab, actually I’ve heard the same from corporate heads of sustainability – many of them welcome having passed over responsibility for reporting to finance and agree it’s the better place to carry that burden. However, it may still be early to be talking about the ‘same series of robust controls and standards’ as applicable to emergent metrics as to the financials. Having worked closely with a client on attempted assurance of its Task Force on Climate-Related Financial Disclosures (TCFD) report, neither the measures nor the assurance of them are yet mature.
It appears that the second two points of the toolkit are more contentious – or at least that fewer CFOs of purely commercial organisations are prepared to go on the record about them. Key to 3, “Flex your spending muscles (for good)”, is responsible and long-term relationships with the supply chain (I’ve written previously about the economic madness of late payment by large business). “Supply chain fragility is an issue post-Covid. But the strong relationships we built with suppliers through the pandemic — by making sure we were communicating with them and paying promptly or earlier — have really helped us now,” says Brad Greve, CFO of BAE Systems.
It’s a shame more CFOs don’t seem willing to talk about responsible tax (another topic on which I’ve written previously). It shouldn’t be controversial to discuss and deliver on 4, “Take a long, hard look at your tax strategy and conduct”. Sadly, it still seems an area on which corporate executives acknowledge the need to change, but rarely go on the record about. But as Joel Ripley, CFO of Schroders Personal Wealth says: “If you don’t pay your fair share of tax, what’s the point of being environmentally responsible? It’s in the CFO’s gift to make sure our company’s tax conduct is responsible and ethical.” Happily, at least off the record, other CFOs do seem to recognise their role in this area. “They see their role as setting the right tone for the company’s tax conduct — deciding if it is responsible and ethical, and taking action when it falls short,” the report states.
The fifth and final point of the toolkit, “Use your voice to tell a different story” is perhaps the most interesting because it is less immediately tangible than the others – but may be all the more powerful because of that. The influence of the CFO is vast in most organisations and can be used to help the business focus on what matters, especially if the CFO chooses to focus on areas that are not traditionally the purview of finance. “The CFO can raise the profile of sustainability and responsible business simply by being a visible part of the debate. I’m on the steering committee for our ‘Do What Matters’ plan. As CFO I have to be able to clearly articulate the business case for pursuing these objectives, while also demonstrating commitment to these aims in investment allocation,” says Declan Hourican, CFO of TSB Bank.
The Board Intelligence paper is clear evidence of a great deal of fresh thinking, and it is certainly thought-provoking. Hopefully CFOs broadly rise to its challenge to address their opportunity to help deliver a fairer future.
See also: What’s the purpose of purpose?
Talking with the taxman about fairness
People matter – but not like that
I am as ever happy to confirm that the Sense of Fairness blog is a purely personal endeavour.
What does the CFO’s changing role mean for you?, Board Intelligence Think Tank, 17 April 2024
What is the role of the CFO in creating a fairer future?, Board Intelligence Think Tank
How to balance returns and responsibility in private equity, David Bell, Pieter Ebeling, Annemarie Depue, Odgers Berndtson, 30 April 2024
The Sense of Fairness blog 