The CFO Role: Less Accounting & More Strategy - Including People Strategy

A look at the state of finance departments across US companies over the last few years reveals an interesting mix of stability and change.

On the one hand, looking across other key positions and departments, the finance department has proven to be consistent from a staffing and churn perspective. Having a full finance department is a requirement of doing business. Even throughout the pandemic and other macro economic shifts the past several years, the finance department has not faced any materially more or less churn in their roles or pattern changes in hiring. Looking at the trends below, you almost would not even notice a pandemic occurred. HR, sales, technology and nearly all other departments had booms and busts over the past 36-48 months but finance? There was barely a shuffle.

At the same time however, the nature of finance departments and their scope of duties has been shifting and growing in many cases as CFOs absorb strategy responsibilities previously owned by other company leaders like digital, staffing, HR and others. Even in the light of these changes, the finance department expenditures on the whole are moving in the opposite direction and decreasing year over year. For a department that preaches fiscal conservation, they have taken their own advice.

While there may appear to be some degree of contradiction in describing the situation as both steady and in flux, the reality is that the work that financial professionals do and the accompanying expertise they provide have become increasingly recognized and valued, meanwhile technology is enabling those same professionals to do their jobs even faster, better, and often more cheaply than ever before.

These conditions have made it possible for finance departments across the country to continue in their work largely undisturbed by wild market disruptions while taking on more and greater challenges that go well beyond the purview of traditional financial operations and are reshaping in real time what it means to be or work in support of a Chief Financial Officer.

CFOs By The Numbers

First, lets ground ourselves.

• There are more than 130 thousand Chief Financial Officers in the United States;
• Average CFO tenure was about 3 and a half years, which was the shortest tenure of among C-level executives;
• In the 10 years between 2012 and 2022, the percentage of Fortune 500 and S&P 500 CFOs that ascended to CEO increased by almost 45%;
• In the 5 years between 2016 and 2021, more than half of the largest 2,500 companies in the US experienced 1 turnover in their CFO role, and 16% of those companies saw 2 CFO departures during that window;
• Approximately 72% of US CFOs are men; and
• Average age for CFOs in the US is 51 years old.
  
  

As positions change, January is the bellwether of job change graphs like the one below because it includes not only the portion of job leavers that would naturally seek new employment in any given month, but also represents the pent up quit/retirement demand from the year before as a result of employees waiting for their full-year incentives and bonuses to vest in the new year before leaving their position.

The pandemic had not yet begun meaningfully begun to affect the US economy through January of 2020, and while the remainder of that year saw a meaningful decrease in job movement among financial professionals as lockdowns, supply chain collapse, and general uncertainty all peaked, January of 2021 roared back in a major way, representing a groundswell of confidence in financial job security that has remained largely stable since that recovery spike normalized.

External Hires Favored Over Internal Promotions

For financial executives and controllers alike, the last 4 years have thoroughly solidified the practice of leaning into external hiring over internal promotions to fill vacancies and skill gaps.

Over the last 4 years, for both financial executives and controllers, the percentage of candidates that have moved up from within the company has been very steady - wavering less than 1% plus or minus from each average over the period. Further, the average internal hire rate was more than 25% and less than 33.3% for both financial executives and controllers as well. In other words, so far this decade, only between 1 of 3 and 1 of 4 new hires for financial professionals were internal promotions, and there is no indication that trend is shifting soon.

On the flipside, of course, about 70% of financial executive hires went to outside candidates over the past four years, while about 74% of controllers were brought in as external hires, so the majority of career advancement opportunities for financial professionals currently involves looking beyond their current employer.

Finance Department Expenses Dropping

In the 10 years during which the data represented in the following graph was collected, finance department expenses dropped by 25%, and that percentage was slightly greater among the top quartile of companies that had the largest finance costs over the course of the decade.

The significance of those overhead reductions cannot be overstated, both in terms of securing job stability for professionals within the industry as well as in making it possible for financial professionals as individuals and department teams to broaden their domain and influence within their respective organizations.

What is less clear, however, is where the credit for those expense reductions should land. While a significant portion of the improved efficiency is certainly the result of technological innovation, the onboarding of new responsibilities and the offloading of previously held responsibilities makes it more difficult to ascertain what portion of the decreased finance department expenses were simply transferred onto other departments.

CFOs Are Absorbing Additional Responsibilities

The following graph illuminates a few interesting points about how the nature of the CFO role has been evolving in recent years.

CFOs are generally shifting their focus toward strategy and away from auditing and compliance, but it’s also important to note that the CFOs are onboarding more responsibilities than they are offloading, so the net effect is an overall increase in influence for the CFO position within organizations.

Perhaps relatedly, CFOs have been expanding their scope of influence into aspects of business operations that have been increasingly relevant to the overall viability of an organization, like investor relations and technology-centric issues including cybersecurity, IT, and enterprise transformation. As a result of this forward-looking shift in focus, the position of CFO is well-positioned to continue growing in importance in the years ahead.

Where does people strategy fit in for a CFO?

People and benefits represent one of the largest expenses for companies, prompting CFOs to engage more deeply and frequently in human resource management. As companies strive to optimize their financial performance, the management of personnel costs—salaries, benefits, training, and development—becomes crucial.

This direct involvement of CFOs highlights a strategic shift towards a more integrated approach where financial management and human capital strategies are closely aligned. Given that employees are also considered a company's greatest asset, contributing significantly to innovation, productivity, and competitive advantage, the role of the CFO has expanded to ensure that investments in human capital are aligned with overall business objectives and financial goals.

Despite HR budgets typically representing less than 2% of a company's total budgeted expenditures, the impact of effective human resource management on an organization's success is disproportionately large.

While less than 20% of HR teams report in to the CFO, the alignment has gone up considerably the past decade.

Going Forward: Top Concerns For CFOs To Keep An Eye On

1. Talent Shortages: More than 3 out of 4 US CFOs that were surveyed had experienced difficulties recruiting staff with sufficient financial talent or experience.
2. Cash & Liquidity Planning: Properly preparing for potential economic downturn is all the more challenging after 2 years of calls for relatively imminent recession failed to come fruition and yet a relatively near-term recession certainly remains possible.
3. Cost of Capital: Although the Fed is likely to begin bringing down interest rates sometime this summer, capital costs will probably remain a top concern for financial executives for the foreseeable future.

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