A CFO Conundrum — Compliance or Strategy?
The role of the Chief Financial Officer (CFO) fascinates me. Especially in South Africa.
There is hardly a listed company in South Africa where the CFO is not a charted accountant. The qualifications are listed as CA. SA. Not many would disagree that accounting education is appropriate for that role. However, I think that has come about because of a legacy educational issue and must be examined.
I have been in the role of a part-time CFO of an insurance company for several months. There is a duality or perhaps a balance that is required. The balance is between compliance and strategy.
Compliance is accounting and requires a thorough understanding of the reporting standards. It is primarily backwards looking. However, more and more, accountants are sneaking in forward-looking measures in the interest of “transparency and full disclosure”.
The strategic element of the CFO’s role is almost entirely forward-looking. It has little to do with accounting other than historical performance, which largely impacts future performance; thus, a solid understanding is vital.
The skills of the forward-looking strategist versus the backwards-looking compliance officer are quite different.
The historically poor education standards in South Africa have meant that those who do well in maths often end up accountants or engineers. Since maths education is so poor that leaves very few people who can fulfil a financial function in a business who are not accountants. Interestingly, later in life, many engineers find themselves doing an MBA to make the jump into finance. I did that 20 years ago.
My skills are not on the side of the compliance scale. My skills are on the side of the forward planning and strategic finance needs of a business related to valuation, acquisitions, capital investment and capital structure.
In the corporate world of listed companies, a business often has the resources to acquire the skills to meet compliance and strategic needs. This is usually not the case in start-up and SME businesses. What skills you employ in the CFO role becomes more delicate. It is a case of one or the other, compliance or strategy.
The default is to outsource the accounting and compliance, and the founder or CEO takes on the complete burden of strategy. If the Founder/CEO has strong financial knowledge, this arrangement can work well.
My work as a CFO has been around preparing a business for sale and discovering performance insights from financial data. The challenge here is managing the relationship between an entrepreneur and the business.
What is tax-efficient for an entrepreneur is not value efficient to the sale of a business. In other words, an entrepreneur must give up certain tax advantages to get full value on the sale of a business. This is a tug of war that requires an entrepreneur to be fully committed to selling.
If compliance is a box-ticking exercise, strategy is an action exercise. A strategy is not worth the paper it is written on if no action is taken to deliver on its promise.
Calling Entrepreneurs…take action and get yourself the support of a strategic CFO. That is some shameless marketing 😉