The changing role of chief financial officer

With economic conditions in turmoil, marked by high inflation and slowing Gross Domestic Product (GDP) growth, managing this financial landscape is becoming more challenging.
So, the role of a CFO is like that of an unsung hero, skillfully maneuvering through the ups and downs of finance, striving for stability amidst economic uncertainties.
Since the Covid-19 pandemic, firms have borrowed money at historically low interest rates, which has allowed them to borrow cheaply and in abundance.

Data from Uganda Bureau of Statistics (UBOS) shows that borrowing rates reached a record low of 6.50 percent in June 2021, after averaging 11.32 percent from 2011 to 2023. 
However, instead of using their high profits to boost investment, many companies have been returning these profits to shareholders. 

But now, the tides are changing. A new economic era has dawned, characterised by tighter profit margins and more expensive debt.
In the realm of the Uganda Securities Exchange (USE), things are taking a somber turn. Less than half of the major Ugandan firms listed on USE managed met sales and earnings expectations in the last quarter, according to published financial statements.

The situation is compounded by specific examples, such as Centum Investments Limited, whose share price plummeted after they announced an earnings miss and revised their guidance downwards on July 22, 2023.
Similarly, Uganda Clays, a building materials manufacturer, also faced a similar fate in the first quarter of 2023. As a consequence, analysts are revising their profit forecasts downwards.

Adding to the complexity of the situation, debt issuance has slowed, and the yields on Ugandan corporate bonds have become highly risky, according to Uganda Capital Markets Authority chief executive officer Keith Kalyegira. 
“These bonds offer slightly higher yields than government bonds but have a risky proposition for investors,” he told Prosper.
All of these factors combine to disrupt the traditional calculations that companies must make regarding saving, spending, and returning profits to shareholders. The landscape has shifted, and businesses are grappling with tough decisions and uncertainty.

“Things are changing, concepts are changing, integrated thinking, integrated mindset, sustainability, climate change, Artificial Intelligence [AI],” Mr Sanjay Rughani, Standard Chartered Bank chief executive officer, described the dynamic business environment.

Rise of chief value officer
In the intricate world of business, the worth of chief executives is primarily tied to the value they bring to their stakeholders who are now calling for the evolution of the Chief Financial Officer into something even more profound—a Chief Value Officer (CVO). 

This new breed of executive is tasked with seeking and delivering value to all stakeholders, embracing a holistic approach that transcends mere financial metrics.
The role of a chief value officer entails creating value for a company’s stakeholders or shareholders whose demands are becoming dynamic including sustainable dividends.

“A CVO should cautiously make decisions for a population he or she can’t feel or see that includes different generations including Gen Z, Baby boomers, Gen X. Understanding your customers is very important and you have to get yourself in that space,” Mr Sanjay noted.
Although value is crucial for organisations and in a conventional view of performance, it is in terms of profit, the Association of Chartered Certified Accountants (ACCA Uganda)’ 2023 report on the evolving role of a chief financial officer, says there needs to be a shift.
Value is for the customers, according to the report, which drew opinions from close to 100 finance leaders from a range of organisations around the world, including not-for-profit and public sector organisations as well as publicly listed and private equity backed entities.

A UK CFO expressed what can be considered to be the classical view, commenting that, “the traditional definition is that if you grow financial capital, then you have generated value.”
“You would hope that…value is reflected in the share market. Often it isn’t, and there is a disconnect[ion] between the value in the market and the intrinsic value [of the organisation],” a CFO from Australia countered.
The connection between value and profit was a topic of discussion for a large portion of the round table attendees.
Many saw profit maximisation remaining the core focus of their organisations, because profit creates the ability to invest in the future. 
But for some, the pandemic had reinforced the need to focus on liquidity rather than regarding profit as the sole focus.

“See these two concepts as complementary rather than mutually exclusive. They may represent a short term (perhaps annual) focus on profit maximisation against a longer-term perspective suggested by the concept of value. It is possible to reconcile these two perspectives,” part of the report noted.
A CFO whose organisation is private-equity-backed commented that organisations need to: “continue to perform and grow, and to do so in a more productive and effective way, either using technology or automation. AI, for example, is creating huge amounts of value for us as a business, [and] also for our clients and our stakeholders.”

A CFO from Africa, on the other hand, discussed a perspective for evaluating value against profit in terms of performance, noting that the usual direction where CFOs are coming from has been measuring the value of a company either by the performance of the shares or your bottom line.
“In doing that, everything is monetised. But now that the longer-term [perspective] looks at the social impact, it goes to look at the environmental aspects, and when you are looking at those things, an annual cycle may not be adequate.”
This participant then questioned whether finance teams were ready for the task and concluded that perhaps they were not. 

The CFO changing role 
The role is undergoing a transformation, and this sentiment has been echoed in numerous forums where it is asserted that CFOs are ideal candidates for CEOs. This is because CFOs possess a keen understanding of the numbers and prioritise what stakeholders seek for reassurance and confidence. 

“It is high time we start to move the CFO mindset away from just the financial reporting to see how we influence the numbers before they get to the trial balance. Because if you are looking at it from a ‘cake recipe’ [model] and every time I bake the cake [it] turns out [the same], unless I go back to change the recipe, the outcome will always be constant,” the CFO based in Africa noted.

“We have to get involved in the day-to-day and I think that is where the CVO title becomes more appropriate. We [must] have the change in mindset to say it is not just about financial reporting, it is not just about finance-related roles, but you are able to influence so many strategic decisions that are of value to the organisation,” he added.