The Relationship between Company Growth and CFO Performance

Don Mal

Accounting has traditionally been a key skill for financial leaders, but the ability to get insight from data and act may be even more important.

It must sometimes feel like leading a modern-day finance department requires not only a good knowledge of numbers but a degree in computer science, psychology and fortune-telling capabilities.

Given the demands of the job, it raises the question of how important an accounting background is to become a strong CFO. This has actually been explored in a paper that will be published soon in the Journal of Accounting and Economics which studied more than 5,000 finance execs between the years 2000 and 2010. Bentley University, which lead the research, summarized the results:

“The paper found that accountant CFOs are a good fit in low-growth industries such as heavy manufacturing given their conservative, risk-averse tendencies, while non-accountant CFOs thrive in high-growth industries more open to taking risks,” the paper read. “Being conservative and risk-averse are not necessarily bad attributes, particularly when one is in charge of such activities as financial reporting, budgeting, and cost control. However, risk aversion may impede future growth in industries where investment in growth is crucial.”

Margin Call

Bear in mind, of course, that 2010 predates a wave of technological changes in the way information is collected, managed and analyzed. Also bear in mind that most companies won’t choose a financial leader on a single study, however well-researched. There’s no question, however, that the rate of growth and the competencies of CFOs go hand-in hand.

For example, a recent post on Forbes provided some interesting insight into how the best finance execs not only keep their eyes on the numbers, but ensure they’re the right numbers and act accordingly:

A study by Patrick Reinmoeller, Professor of Strategic Management at the Cranfield School of Management and Vendavo highlights what it calls “a worrying lack of insight into margin among many organizations, and a clear link between low level of margin insight and company under-performance.” Its research finds that European organizations performing ahead of market expectations and creating more value for shareholders place a much greater emphasis on understanding and improving margin than their competitors.

Although this data was collected solely in Europe – where 47% of European CFOs said they don’t know how to increase margin quickly – the trends are probably not isolated to that region. The point is that whether you’re a CPA or not, you need to be able to get clear insight into the most critical data available to you. That insight, more than a particular academic background, is what will probably compel you to act – and will make you a top-performing CFO in the process.

It’s all about having the ability to analyze and quickly act on your data.

The post The Relationship between Company Growth and CFO Performance appeared first on Blog | Vena Voice | Vena Solutions.

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