Why the CFO Should Be a CPA -- Or Not

What happens when you bring together a bunch of articulate senior finance and other corporate executives, management consultants and area specialists from academe and the Singapore government?

 
You get a lively – but civil – debate.  
 
“You want to be an auditor, you have to be a CPA,” said one participant at a recent roundtable organised by CFO Innovation in association with CIMA, the Chartered Institute of Management Accountants.
 
“You want to be a doctor, you need to have a qualification. At some point in time, the CFO industry will have to regulate itself. What is a CFO? Who qualifies to be a CFO?”
 
“But why do we care?” a CFO countered. “We don’t regulate the CIO or the CEO. It’s just a role in business. It’s not a qualification. How many CFOs are running IT, for example?”
 
“I don’t think there’s a CFO industry,” said a management consultant. “I don’t think you can put the role of the CFO into a straitjacket. It depends on the nature of the business, on your service delivery model.”
 
“But I think CFOs should have a decent appreciation of finance and accounting,” argued another finance chief. “If you’re a great business partner, but you have a blow-up in finance, you’ll lose your job. Appreciation of fundamentals is very important.”
 
“I agree, but I think it is very hard to make this structural and tie it back to qualifications,” said yet another participant. “I think, as a baseline, it is recommended that CFOs should know accounting. But you should never get to a point where you legislate that a CFO must be a CPA.”
 
Bumpy Road
The two-hour roundtable in Singapore on April 29 tackled one of the hottest issues in CFO circles today. In conferences and informal gatherings, the buzz is around the expansion of the finance function from transactions processing, accounting and compliance to value-added areas such as analytics, strategy setting and business partnering.
 
For multinationals like Bank of America Merrill Lynch, that journey is already well under way. “I see myself as a completely transformed finance person after roles in product origination, product sales and business strategy from the days when I first joined the bank,” said Naveen Agarwal, the bank’s Head of Finance for Global Wealth Management, Asia and India. “My business partners expect me to work around [those] full lines.”
 

For some others, the journey is just beginning. “This is pretty new to our company,” said one finance chief who looks after seven countries across Asia. “We’re not there yet, but we’ve got to do it.”

 
According to this CFO, “some in the business regard the idea of finance being a business partner as a threat and source of interference.” Finance is also hamstrung by deficiencies in soft skills. In recruiting additional staff, this CFO is discovering that many finance professionals “lack talent, in terms of communications skills, interpersonal skills, managing conflicts, negotiation skills and presentation skills.”
 
What Is Business Partnering?
Tim Hird, Managing Director of Asia at recruitment firm Robert Half, has been conducting search engagements for finance and accounting positions across Asia for the past 15 years.
 
“CEOs, general managers and global CFOs typically refer to four roles: steward, operator, catalyst and strategist,” he said. “As steward, finance makes sure the company is in compliance with regulatory requirements and practices good corporate governance. As operator, finance drives cost savings, efficiencies and business process improvements.”
 
It is the roles of catalyst and strategist that directly relate to business partnering. “They’re really more of the forward-thinking, partner-to-the-CEO type of roles,” said Hird. “As catalyst and strategist, finance works closely with the business to reach, or exceed, financial goals.”
 
Business partnering is about knowing the company inside out, the competition, the market and the industry. “It’s all about creating the financial targets and sitting with the business partner, the sales guys, the account regional manager on how to make the plan and beat the plan,” said Michele Madonini, VP Finance & Controller, Asia Pacific & Japan, at Hewlett-Packard Singapore.
 
Business partnering is also about getting involved in client-facing activities. At DHL Supply Chain Asia, CFO Craig Roberts said his country CFOs are sometimes asked to speak to a potential customer’s CFO. “It’s quite a recent innovation,” he said. “It’s almost like the CFO is the dealmaker. Suddenly, things that weren’t apparent to the business development guy are more apparent to two finance guys talking to each other.”
 
Standing Up to the Business
If finance becomes close to the business, isn’t there a danger that it will lose its objectivity and independence? Will finance become so invested in the business that it will cut corners in compliance and accounting to reach or exceed financial goals?
 
“Some CFOs feel extremely concerned about letting subordinates become more comfortable with their business managers and have a closer relationship with them than with the CFO,” observed Aubrey Joachim, who was CIMA’s first Asian-born president in 2009-2010. While he advocates such close partnership as part of business partnering, he also stressed: “The independence must be there.”
 
Finance must be able to stand up to business and warn that a course of action is too risky or violates good corporate governance. One way to ensure this is to structure finance into two streams: a division that focuses on accounting and compliance (steward and operator) and a second one that does business partnering (catalyst and strategist).
 

Under this structure, the finance business partner works closely with sales and other parts of the business, and “someone else will think about staying out of jail,” one participant quipped – that finance person would be in the steward/operator stream.

 

Despite the bifurcation, the roundtable participants agreed, finance should not report to the business. “I report to the global CFO and that’s part of the reason for our independence,” said a participant. “The finance guy can speak his mind without being beholden to the business. There certainly is a matrix structure, but at the end of the day, if there’s an issue in-country, my finance guy can come to me knowing that we can talk about it independently.”

 
Added this participant: “I have heard my regional CEO say to me so many times: ‘Gee, I wish you reported to me, I’d fire you tomorrow.’”
 
That said, business partnering should also promote more collaboration. “In my experience, it is possible eight out of ten times to find some middle ground without compromising your independence and objectivity,” said Bank of America’s Agarwal. “If we genuinely identify something as not being in the best interest of the business, our opinion is immediately given credence.”
 
The Right Staff
One key challenge is finding and keeping the right finance talent. “There are finance people who love this work [business partnering],” said one participant. “Getting them to have the base of fundamental accounting experience early in their careers can be quite a challenge. There’s a risk that you recruit people who don’t have that foundation and they get caught out later on. Then you’ll have control issues.”
 
The finance business partner need not know all 250 pages of the accounting standards, one participant suggested, but he or she should have an appreciation of the general principles. If specialist advice is required, the finance partner should know who in the finance function (or outside consultants) to go to – and translate the specialist advice into language business understands.   
 
Soft skills such as communication, presentation and management skills are essential. “From my experience, modern-day companies are looking for strategists with strong leadership ability and the communication skills required to influence internal and external stakeholders,” said Hird of Robert Half.
 
The reality is, however, that people who work with numbers tend to be less effective with words. “You would need some level of soft skills that perhaps somebody who just want to do bookkeeping would not want to obtain,” observed one participant. “The skill sets are quite different – the ability to consult, the ability to work with people – between a business partner and a pure accountant.”
 
“We can’t assume that everybody in finance wants to be a strategist, want to be a business partner,” this participant pointed out. “There will be some who are very happy being accountants, who would really go into a deep dive and do an excellent job of bookkeeping, of auditing or the risk management part of it.”
 
The reverse case is also true. “If you hire a person to come in to do controllership and accounting-type tasks, retaining him or her becomes difficult if that person aspires to a business partnering or advisory role within the organisation,” said Sam Wong, Partner, Performance Improvement, at Ernst & Young Advisory.
 

“The challenge is to convince the accountant to cross over,” said NUS Business School Vice Dean Ho Yew Kee. “I have this theory that when students enter university and choose accounting, it is a self-selection bias. Many accountants are primarily goalkeepers and you don’t see goalkeepers scoring goals. Getting them to partner with the business to do creative or high value deals becomes very difficult.”

 
At some point, said Ho, some people decide they just want to be good goalkeepers for life or they want to become business partners. He suggested that organisations should create paths that give these employees identification opportunities as to what they want to do and allow them to fully develop themselves in their chosen finance stream.
 
What About the CFO?
Inevitably, as the discussion progressed, the talk turned to the evolving role of the CFO. Given finance’s journey towards business partnering, the traditional practice of sourcing CFOs from the accountant ranks may be waning. Some CFOs these days used to be investment bankers, private equity specialists, market analysts, economists, engineers and even marketers.
 
Ho said that whatever their background, the CFO should still master accounting in addition to the business partnering role. “I think having a strong accounting and finance background to be a CFO is a must because corporate reporting is just so challenging,” he said. “If you are a CFO and you have not gone through the gamut of financial reporting, it’s very, very tough.”
 
This was point where the debate arose about what the qualifications of the CFO should be in the current environment. The consensus was that the finance leader need not be a CPA.
 
But it may be a good idea for the CFO communities, bodies like CIMA and other sectors “to take a look at what it takes to be a CFO,” suggested Low Peck Kem, Director, National Human Resources Division at Singapore’s Ministry of Manpower. “Do you need some appreciation of accounting, some appreciation of risk management?”
 
“One possible approach is to develop a Workforce Skills Qualification (WSQ) for finance, similar to one that the Ministry has developed with the Workforce Development Agency for the human resources sector,” she added. “This will involve spelling out the competencies required to be an accountant, an auditor or a CFO.”
 
Singapore has made known its ambition to become a “Global-Asia Financial and Business Hub,” in the words of the government-appointed Committee to Develop the Accounting Sector (CDAS). That may be an achievable dream, if the high level of discourse by Singapore-based CFOs and other finance experts at the roundtable is any guide.
 
About the Author
Cesar Bacani is Editor in Chief of CFO Innovation. This article is based on the forthcoming CFO Innovation Insight Roundtable report, Transforming Finance: The Asia’s CFO’s Journey Towards Business Partnering. He was the moderator of the April 29 roundtable with 13 CFOs, CEOs, management consultants and area specialists from academe and the Singapore government. 
 

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