The Divine and Unbeatable Nature of Data-Driven CFOs

Don Mal

Some are putting up CFOs on a pedestal, while others can’t wait to take them down a peg. What really matters is how they bring value to their organizations–and that should be the main characteristic they’re judged for. 

No one is saying financial executives have a “God complex,” but the influence of the CFO role is starting to generate almost religious fervor among some observers.

Take a recent article in Manorama, a newspaper based in India, headlined “It’s The Era Of CFOs In Corporate World.” The op‐ed piece by P. Kishore looks at how the leadership of finance departments has risen to such a degree of importance that there may be no stakeholder in the C‐suite with greater influence, including those with an even more senior title.

“There was a time when subordinates obeyed a CEO’s order as the Word of God. In the current set‐up, CFOs have the power to strike down that ‘Word’ if necessary,” the article said. “A CFO is responsible for the financial aspects of all company transactions, apart from overseeing auditing and accounting. She conducts surprise field visits to check whether the operations matched the data record.”

This portrait of omnipotent CFOs suggests financial leadership is simply a matter of continuing to wield power and enjoying the fruits of it. As more hard data about CFOs comes to light, however, the wisdom of their judgment will inevitably come under greater scrutiny.

As proof, just look at a research initiative from Duke University’s Fuqua School of Business, titled The Equity Risk Premium in 2016. It looks at all the variables CFOs say go into their decision‐making, and what level of caution they employ. A post on MarketWatch wondered if that level of caution is, in fact, too high:

It turns out the typical CFO doesn’t want to OK a project unless it offers a return on investment of at least 14% — even though their company can borrow for half that . . . Sure, you wouldn’t OK a project unless it offered a healthy return over your cost of capital. You want to make a profit, and you want a margin of safety. But demanding a return that’s twice your cost of capital is quite something.

There might be more to this data than meets the eye, of course, but it suggests that in some cases finance leaders lack all the information they need to feel confident in taking on the risks that their organization wants or needs to pursue. The value of leveraging technology to not only better organize and access data lies not only in de‐risking more decisions, but being better able to explain why something like a 14% return is the best possible course of action.

To err is human, of course, and despite the hype, CFOs are mere mortals. To achieve true data‐ driven decision‐making though? That’s as close to divine as we’re likely to get.

The post The Divine and Unbeatable Nature of Data-Driven CFOs appeared first on Blog | Vena Voice | Vena Solutions.

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