Over 100 CFOs and business leaders from around the world took part in roundtables and in-depth interviews to contribute their insights into how the traditional role of the CFO is changing, resulting in the report ‘Chief value officer – the important evolution of the CFO.’
CHIEF VALUE OFFICER – THE IMPORTANT EVOLUTION OF THE CFO
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About this report The chief financial officer (CFO) role is fundamental to organisations and their stakeholders. The role continues to evolve and reshape as the emphasis of organisations changes. The role of a chief value officer (CVO) is one that is increasingly used in the context of the broader reporting that organisations are now undertaking. Is the CVO role an extension of the CFO role or is it unique? What constitutes value anyway? To explore those two questions, this report draws on the views of nearly 100 finance leaders from across the globe, representing a wide variety of organisations from large global corporates to start- up businesses. The finance leaders included not-for-profit and public sector organisations as well as publicly listed and private equity backed entities.
Foreword The CFO represents the pinnacle of one of the branches of the accountancy and finance profession. CFOs are fundamental and highly respected members of the business community and the role that they play creates integrity and trust in the financial affairs of their organisations. Increasingly their organisations are being asked to consider the implications of the necessity of creating sustainable organisations that deliver value to a broader range of stakeholders and to report on a broader basis. This is a requirement that most CFOs are already starting to satisfy. It requires a deep understanding of their organisation and a comprehensive set of technical and interpersonal skills, as highlighted in their profile in ACCA’s Career Navigator, for example. It is important, in any discussion in organisations of creating or redesignating a CVO role, to acknowledge that much of what might be included in such a role is probably already being undertaken by the CFO. This is not to be complacent, and it is important to recognise that those already undertaking CFO roles will benefit from continuing education programmes in key areas to maintain their skills. The future of the profession relies upon the development of the next generation of CFOs, ready to replace those able individuals currently in the role, when the time comes. While the ever-broadening role may seem daunting, the good news is that the accountancy and finance profession is ready to provide support through mentoring programmes and continuous learning activities. It is essential for finance and accountancy leaders to play their part in ensuring that the next generation is prepared for this crucial role. Acting as mentors, for example, is an essential element and it should be recognised that many CFOs willingly give their time to this activity already. Networking and peer-to- peer discussions are also key elements in that career journey. As the CFO role develops, so does the important consideration of the value that organisations generate. CFOs are the stewards of value. May we be the first to recognise this.
Helen Brand OBE chief executive, ACCA
Albert Lopez global head of business services and outsourcing, BDO Global
Carly Bleathman partner, business services and outsourcing, BDO UK
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Contents
Executive summary
6
3. Developing the relevant skill sets
22 22 23 23
3.1 The imperative of developing the necessary skills
Key actions summary
8
3.2 For the current CFOs 3.3 The next generation
1. What do we mean by ‘value’
9 9
1.1 Defining value 1.2 A model of value
Conclusion
24
10 11 12 13 13 14 15 15 16 16 17 18 19 20 20 21
Responses to three questions What is a Chief Value Officer?
26 27 28 29
1.3 The enablers of value 1.4 The converters of value 1.5 The recipients of value
Is a CVO a CFO?
1.6 Value vs. profit
Why would I want to be a CVO?
1.7 Linking value to values (and strategy)
Acknowledgements
30
1.8 The chief value officer today 1.9 A consistent view of value?
References
32
2. The changing CFO role 2.1 The historic CFO role 2.2 The evolving trend
2.3 The reality of the CFO role 2.4 CFO, CEO and COO 2.5 Value across the C-suite 2.6 The CFO role for the future
2.7 The CFO role in the context of the CVO
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CHIEF VALUE OFFICER – THE IMPORTANT EVOLUTION OF THE CFO | EXECUTIVE SUMMARY
‘We look at value from a finance point of view of the numbers. But we realise over time there are many stakeholders who do not necessarily look at the monetary view or the value of the company in that way.’ CFO based in East Africa
Executive summary
Organisations are increasing being asked to consider, and to report upon, more value-centric aspects of their operations. There is also an increasing requirement being placed upon many organisations to report against non-financial aspects of their operations. With a focus for many organisations on purpose and value, there is a trend to asserting the need for a new C-level executive, the chief value officer, or CVO. Is this a role that the CFO is already fulfilling or is this a new role? Drawing on the opinions of nearly 100 CFOs and other senior business leaders from across the world, this report suggests conclusions on this debate. Before considering what the role of the CVO might embrace, it is important to consider what we may mean by the term ‘value’. The following model (Figure ES1) seeks to explain the fundamentals of the concept.
Three key messages from this report n The concept of value is fundamental to the management of performance in organisations and its adoption is a key element in their path to a sustainable future. n Chief financial officers are increasingly adopting a value centric approach in their work and this represents an evolution towards a chief value officer role away from a traditionally financially focused remit. n The development path for those aspiring to be chief financial officers requires an increasingly broad range of experience which embraces both formal and informal learning activities which professional bodies and practices need to engage with.
FIGURE ES1: A model of value
Investors and other financial stakeholders
Customers
Employees
Community
Regulators
Performance management and measurement
Operations and processes
Data
Technology
Social and relationship
Financial
Manufactured
Intellectual
Human
Natural
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CHIEF VALUE OFFICER – THE IMPORTANT EVOLUTION OF THE CFO | EXECUTIVE SUMMARY
Value in an organisation is produced by a series of enablers which can be represented by the six capitals in the Integrated Reporting Framework originally instituted by International Integrated Reporting Council (IIRC) as a proxy. These capitals are ‘converted’ by the operations and processes of the organisation into value and reported upon by using data and technology in real-time performance management. In turn, this reports the value to a series of stakeholders who are broader than, but include, the financial stakeholders. The role of the CVO is to support the development of components of the organisation’s value- creation strategy and to monitor progress against this. Value is a long-term concept and one that is aligned to the creation of sustainable organisations. The reality is that for most CFOs the achievement of the strategic goals of an organisation that embraces economic, environmental and social equity is a fundamental part of their evolving role. This is at the core of generating value.
CFOs are increasingly acting as strategic leaders and advisers in their organisations. The CFO role is one that has moved significantly from the traditional view, while retaining the core responsibilities. Figure ES2 provides a view of the currently required skill set for the role of the CFO. For many CFOs, this role, together with that of other C-suite executives, embraces the concept of value management. CFOs are the accountable face for the delivery of value in their organisations. The evolution of the role is driven, in part, by the expectation of the stakeholders with whom the CFO engages. While there is a debate as to whether there is a separate CVO role or if it is an extension of the CFO role, many of the CFOs who contributed to this research argued that they were already fulfilling that role.
On this basis, while there is always more to learn, there is no need to rebrand the role, but CFOs need to ensure that they step up to satisfy the required value agenda. A failure to do so will lead to a marginalised finance team and CFO role, as the CVO requirement will be fulfilled by others and finance teams will remain focused upon historic reporting with less value add. It is important to accept that there is a perception issue, as exemplified by the extracts in the ‘Responses to three questions’ section at the end of this report, which give a very traditional view of a CFO role. This does not align with the value-centric view that many senior finance leaders believe is the CFO role of today. The opportunity exists not only for those currently in post but also for those who aspire to be the next generation of CFOs, for their roles will be very different from that seen through the lens of ‘tradition’. Using a range of career development actions is essential as the pathways followed in the past provide only some of the attributes expected (see section 3.1). It is important that today’s CFOs appreciate the challenges in the development path that their successors now face.
FIGURE ES2: The reality of the CFO role
Stakeholder management
The CVO role is an important evolution of the CFO role.
Consulting skills
‘I think that if a CFO does not become a chief value officer, then they are going to continue to be that back-office function where all the decisions are going be made without the involvement of a financial lens or a perspective on the resources of the organisation needed. So, I think it is important that the CFO does evolve [in]to the chief value officer’. CFO based in the US
Financial acumen
Business acumen
Value acumen
Data acumen
Project management
Change management
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CHIEF VALUE OFFICER – THE IMPORTANT EVOLUTION OF THE CFO | KEY ACTIONS
Key actions The following table suggests some actions that leaders of organisations may take to embed value-based concepts in their management and to develop their finance teams appropriately.
ACTION
REPORT SECTION
What is value – a sustainable future ‘I think value for me is in two parts…and I think the traditional one, obviously, is growth. I do have investors that have the perspective that they have put money in this business and they are expecting a return and that’s primarily, as a CFO, probably also [the] call. ‘It’s demanded of the CFO that they understand how the organisation is creating and growing that return. But beyond that, and one of the themes that is emerging for us specifically, is … “what are the other components of value within the communities in which we operate and the responsibility that we have as a business to ensure sustainability so that you can continue to derive value and growth from this community?” ‘In my mind, it is becoming very clear that, as a CFO, it is quite important to have an eye on all of those aspects. We are moving towards [involving] employees now [in] identifying what [our] purpose should be… in relation to …our core business. Then it becomes easier to do good while making money because that is more sustainable. We are finding those things that we are good at as a business, which is creating connectivity…in creating this sort of platform. But in doing that we can link it very clearly to economic uplift for the community [and] for the country, and that means then that we have a secure future – one where you can continue to operate in this environment and continue to generate profits.’ A CFO based in Africa
Consider the organisation’s definition of value and how this may be applied across the range of recipients of value identified. Consider the value-based outcomes of the organisation’s sustainability transition plan. Assess how each of the six capitals works to create value for the recipients of value. Consider how real-time reporting across the capitals can be incorporated into performance-management processes. Appreciate that performance management needs to reflect value across the six capitals and therefore increasingly relies on a combination of financial and operational data. Establish a democratisation of data across the organisation, enabling a collective view of performance and value to be established.
1.2
1.2
1.3 and 1.5
1.4
1.4
1.4
Formalise the link between ‘value’ and ‘values’, through strategy.
1.7
Establish a ‘responsibility – accountability – consulted – informed’ (RACI) model across the C-suite covering the different aspects of value.
2.5
Establish a leadership structure that focuses upon value.
2.5
Embed the concepts of value into the risk-management and governance processes in the organisation, including within the remit of the non-executive directors. Consider the development path for those currently in the finance team to ensure that they have embraced the concepts necessary to perform their expected role.
2.5
3.1 and 3.2
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CHIEF VALUE OFFICER – THE IMPORTANT EVOLUTION OF THE CFO | 1. WHAT DO WE MEAN BY ‘VALUE’
1.1 Defining value
1. What do we mean by ‘ value ’
value / ' vælju ː / The noun ‘value’ is defined in three relevant ways by the Oxford Learner’s Dictionary: n ‘how much something is worth in money or other goods for which it can be exchanged n ‘how much something is worth compared with its price, and n ‘the quality of being useful or important’ (Oxford Learner’s Dictionary 2023). As a verb it is defined as: n ‘to think that somebody/something is important; and n ‘to decide that something is worth a particular amount of money’ (ibid). From these definitions it can be surmised that the term ‘value’ relates to the relative importance of an item or service that might, or might not, be measured in financial terms. What one individual may perceive as the value of an item or service may be different from another’s view. The laws of economics dictate that the scarcity of an item and its usefulness to an individual or organisation dictate their perception of value. In the second definition of the noun, above, the concept of a premium of value over price (or cost) is introduced. In defining the term itself the subjective nature of the discussion is inescapable. This report seeks to identify the role of the CVO as the latest C-suite role in an organisation and to determine whether the emergence of this role represents an extension of the CFO role or is indeed unique. Whichever view you, as an individual, may take, there is a clear element of overlap, as indeed there are in many C-suite roles. Often, the execution of the activities that any individual might associate with a particular job title is more important than the role itself.
‘VALUE IS IN THE EYE OF THE BEHOLDER.’ UK CFO
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CHIEF VALUE OFFICER – THE IMPORTANT EVOLUTION OF THE CFO | 1. WHAT DO WE MEAN BY ‘VALUE’
imperative, it falls increasingly to the CFO to ensure that there is a balance between financial and non-financial drivers. As an all-embracing concept, value optimisation may necessitate taking decisions that are not, in strict terms, financially optimal. In facilitating an understanding of the concept of value it is necessary to consider each of the three levels of value listed above.
Considering whether the CVO role is an evolution of the CFO role and therefore one that is naturally the role of the finance and accountancy profession requires the examination of two aspects, firstly, what we might consider in line with the concept of value and, secondly, how the CFO role is itself developing. If there is a CVO role, what is the value that the role is managing? The CVO role is clearly a discussion point in several professions, however. For example, the Next Level Purchasing Association posted an article in 2018 entitled ‘Could CPO [Chief Purchasing Officer] Role be Replaced by Chief Value Officer?’ (Next Level Purchasing Association 2018). 1.2 A model of value For organisations, there is no single definition of ‘value’ covering either how it is generated or the nature of the stakeholders who may be considered as its consumers. Many of the roundtable participants were keen to stress that value itself is highly contextual for the organisation, its sector, size and location. A CFO from mainland China noted that value, besides the economic value that everyone thinks it can bring to enterprises, also includes the remaining value that lies in the sustainability that it can bring to society, the environment and the talent employed in the enterprise’s operations, all of which benefit from the enterprise’s activities. The so-called value brought to society and the environment is not directly obtained by the enterprise but is generated through the principles established by regulatory markets and authorities. There are, nonetheless, some fundamentals that must be included in a model of value. The model in Figure 1.1 defines three levels of value: n the enablers – the facets of the organisation that represent the assets used to create value n the convertors – the processes by which the organisation combines inputs and creates products and services, and n the recipients of the value that the organisation generates.
Creating and maintaining value is a cyclical activity, so there is a process of return of value from the recipients to the enablers. This process is also summarised in Figure 1.2. The generation of value is a continuous process and this makes it a longer-term activity than, for example, an annual profit or loss calculation. This factor was not lost in comments made by many of the roundtable participants. While for many the financial perspective may be the key
FIGURE 1.1: A model of value
Investors and other financial stakeholders
Customers
Employees
Community
Regulators
Performance management and measurement
Operations and processes
Data
Technology
Social and relationship
Financial
Manufactured
Intellectual
Human
Natural
FIGURE 1.2: The value cycle
Defined
Created
Delivered
Sustained
What people perceive as value
Vision and values of organisation
Products and services
Measured and reinvested
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CHIEF VALUE OFFICER – THE IMPORTANT EVOLUTION OF THE CFO | 1. WHAT DO WE MEAN BY ‘VALUE’
1.3 The enablers of value The six capitals of the IIRC’s Integrated Reporting (<IR>) Framework (IIRC 2013) provide an initial basis for the enablers of value in an organisation. Several roundtable participants referred to the Framework in their initial comments. Indeed, two academic institutions that provide courses for the CVO use it as their basis (Audencia n.d. and University of the Witwatersrand n.d.). That of the University of the Witwatersrand builds upon the work of Mervyn King in his book The Chief Value Officer: Accountants can Save the Planet (King and Atkins 2016). The concept of these enablers is that they represent the levers that an organisation uses to create value through its activities. Each organisation will use them in a different combination according to the product or service it provides. Several of the roundtable participants commented that whereas a ‘traditional’ view of the valuation of an organisation, for example when a transaction was undertaken, would have been based upon the physical assets that it used, it is increasingly the value of the intangible assets, as represented by the intellectual capital as well as its human capital, that constitutes the most approrpriate valuation of an organisation. The concept of value is closely aligned to how an organisation uses each of these capitals in combination to generate a future revenue stream which provides benefits. Some roundtable participants even went as far as singling out the human capital as the key. Their assertion was that the human capital, the people of the organisation, working together with the other capitals create the organisation’s commercial advantage. A CFO working in the not-for-profit sector commented that value is a matter of, ‘what are we doing with the resources we have? How are we improving the lives of others? How we are fulfilling the deliverables of our mission’.
FIGURE 1.3: The six capitals of the IIRC’s Integrated Reporting Framework
Social and relationship
Financial
Manufactured
Intellectual
Human
Natural
The definition of a sustainable organisation (Figure 1.4) is also closely linked to these enablers of value. A sustainable organisation is one which creates long-term value by taking into consideration how it operates in its ecological, social and economic environments. The progression of value in an organisation is therefore determined by how the six capitals are worked in combination to lead to such a sustainable future. This was a factor echoed by several roundtable participants. Such a view of value makes the link between a purely financial objective, which might be associated with the economic aspect, and the need to balance this with the broader social considerations and those of environmental protection. 1 A CFO from Africa commented that, ‘sustainability is [a] key that we cannot run away from, and in addressing the issue of sustainability, you are basically looking at an organisation, considering all its stakeholders over and above the shareholders and ensuring that you know the likely impact upon them’. A UK CFO commented that: ‘there is obviously the impact we can have in improving the environment, and on the social side it is the value either internally or outside in communities. This value to those stakeholders…is very different to the financial value that you [already] know’.
FIGURE 1.4: The three domains of sustainability – the triple bottom line
Social equity
Economic viability
Sustainability
Environmental protection
1 The social aspects of value and the responsibility of organisations, and in particular finance functions, is considered in ACCA 2023.
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CHIEF VALUE OFFICER – THE IMPORTANT EVOLUTION OF THE CFO | 1. WHAT DO WE MEAN BY ‘VALUE’
1.4 The converters of value The enablers of value are not themselves enough to create and sustain value in an organisation. Today’s organisations increasingly use a combination of people, process, technology and data to take the six capitals and create value from them (Figure 1.5). Some roundtable participants contended that the strategic importance of data to many organisations in creating and sustaining value meant that it should be considered as an additional capital in the IIRC’s <IR> framework. While that might be appropriate in certain circumstances, it is better to think of data, once retrieved from the technology platforms that facilitate its collection, being converted into information. This conversion is a stage in the value- creation process and interacts with each of the other capitals. Indeed, it is the processes through which that data passes that create information. As organisations increasingly integrate analysis and artificial intelligence (AI) into their processes, it is the human analysis and validation of the outputs that creates the value. If one considers developments such ChatGPT, while these are phenomenal as technical feats, they would not be very impressive without either the immense amount of human-created information on which they are trained, or effective use and verification on the output side. Data is an intermediate material on the way to realising and creating value, however it is processed in any particular organisation.
The value itself is only realised if there is an appropriate level of performance management and measurement in the organisation to benefit from it. Value cannot be created simply by having the data and processes on their own and it is the interpretation of the outputs and the resulting actions that produce results. Many roundtable participants reflected that the production of historical results, while of some benefit, was not always relevant to an organisation that was looking to create value. There are two dimensions to this. Firstly that, as the events of the first four years of the 2020s have shown, there is a significant level of uncertainty in geopolitical and economic conditions. Organisations need to respond dynamically to external threats. Reflecting upon what happened a month or six weeks ago may not facilitate adding value. Secondly, there is a desire by many stakeholders to receive information in as near real time as possible. Periodicity is no longer a valid concept. Waiting to get the ‘numbers right’
at a certain point in time does not add value. The decision made may not change. It should be noted that there is a counter argument to this assertion, which is that trends do need to develop, and constant changes of direction can destroy as much value as rigidly sticking to a course. In their roles as the providers of performance information across the organisation, finance teams need to understand the importance of the provision of real-time information, often through self-serve applications, across the capitals. This implies that information is needed that reflects performance across all the six capitals, which increasingly requires relating operational and financial information in an integrated manner. The democratisation of data across organisations is essential to creating value. The process of democratisation of data enables everybody in the organisation, irrespective of their technical know-how, to work with data comfortably, to be confident in talking about it and, as a result, make data-informed decisions and build customer experiences powered by this data, thereby creating value.
FIGURE 1.5: The converters of value
Performance management and measurement
Operations and processes
Data
Technology
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CHIEF VALUE OFFICER – THE IMPORTANT EVOLUTION OF THE CFO | 1. WHAT DO WE MEAN BY ‘VALUE’
1.5 The recipients of value In a traditional view of performance and value, the profit goal was seen as sufficient for organisations. That is no longer the case and, as illustrated in Figure 1.6, an organisation has many recipients of value. This is not to say that investors and other financial stakeholders are not the recipients of value. Indeed, many of the roundtable participants whose organisations are private-equity-based observed that, for them, ‘value’ is considered to be the impact of the multiplier of EBITDA and that their responsibility as CFOs is to maximise the growth in value, as represented by that multiplier, to the end of the investment period for the benefit of the investors. That said, they also acknowledged that in so doing they needed to create an organisation with a positive future, indeed a sustainable future, which would continue to generate profits after a sale or other transaction had taken place. It can be contended that such future sustainability relies upon the interaction between investors and the other recipients of value. A CFO in a private-equity-backed organisation commented, ‘we will eventually exit [at] some stage and the way we are trying to create value is not only obviously, through the valuation of our business based on financial metrics [but also] … we view how our potential acquirers perceive us and the multiple they might put on our business, which is more determined by the value of what they see [as] the potential in our business going forward’. The next group of recipients are represented by the customers . In the customer-centric operating model, the quality of the products and the resulting customer relationships are essential. Several CFOs, for example those working in service industries, commented that factors such as the NPS were fundamental parts of their assessment of the value that their organisation created. Two examples given by CFOs serve to illustrate the interaction between the social and the value agendas. In the first how the growing of a declining crop has led the organisation to
FIGURE 1.6: The recipients of value
Positive cash flow Profit / EBITDA Sustainability
Quality of product Customer relationships
Good jobs Secure employment
Benefit in locations Infrastructure
Compliance Risk management
Investors and other financial stakeholders
Customers
Employees
Community
Regulators
The final recipient of value are the regulators with whom the organisation interacts. Regulators, which may also include governmental organisations other than purely financial regulators, are increasingly requiring disclosures about, and hence involvement in, the non-financial aspects of organisations. This reflects the importance of the actions of organisations in addressing issues such as net zero goals, but also literacy and health-care goals both in organisations and their supply chains. Indeed, frameworks as such the draft European Sustainability Reporting Standards (EFRAG 2022) may be said to reflect this broader view of value. 1.6 Value vs. profit A UK CFO expressed what can be considered to be the classical view, commenting that, ‘the traditional definition is that if you grow financial capital then you have generated value’. A CFO from Australia also noted that, ‘you would hope that…value is reflected in the share market. Often it isn’t, and there is a disconnect[ion] between the value in the market and the intrinsic value [of the organisation]’. A discussion point for many of the roundtable participants was the relationship between value and profit. Many saw the maximisation of profit as remaining the core focus of their organisation, because profit creates the ability to invest in the future. Some amended this view by expressing the view that the pandemic had reinforced the need to focus on liquidity rather than regarding profit as the sole focus.
provide markets for alternative products to sustain the livelihoods of their growers; and secondly how bringing mobile communications to remote communities also acts as a stimulus for economic growth thereby sustaining the investment in renewable energy required. Any balanced scorecard that reflects value needs to include such assessments of the quality of the customer relationships. Employees are also receivers of the value created by organisations. Employees expect to be satisfied in their employment and to benefit from it – the concept of a ‘good job’. 2 Value can also be related to the attraction of potential employees to the organisation. Employees can be considered to be not just those direct employees, but also those contracted to work with the organisation but who are not directly employed, as well as those in the supply chains. As with employees, there is also a social element of value, which lies in the interaction between the organisation and the communities in which it is based. A traditional view of this might once have been just the impact of corporate and social responsibility (CSR) programmes. It has expanded significantly beyond this. By using concepts such as the ‘social licence to operate’ (see ACCA 2023) organisations are appreciating the value that their activities create, or destroy, in the communities in which they are based. In its purest form, this may be how the organisation ensures the future viability of its workforce, through education and environmental programmes.
2 The concept of a ‘good job’ and the broader social implications of value are considered in ACCA 2023.
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CHIEF VALUE OFFICER – THE IMPORTANT EVOLUTION OF THE CFO | 1. WHAT DO WE MEAN BY ‘VALUE’
1.7 Linking value to values (and strategy) A further consideration is the link between the concept of value and the values of an organisation. Organisational values are a set of core beliefs held by an organisation. They act as guiding principles that provide the organisation with purpose and direction and set the tone for its interactions with its customers, employees and other stakeholders.
It is important to see these two concepts as complementary rather than mutually exclusive. They may represent a short- term (perhaps annual) focus on profit maximisation against a longer-term perspective suggested by the concept of value. It is possible to reconcile these two perspectives. The work of organisations such as the Impact Economy Foundation (Impact Economy Foundation n.d.) illustrates one way of doing this. A CFO whose organisation is private-equity-backed commented that organisations need to: ‘continue to perform and grow, and to do so in a more productive and effective way, either using technology or automation. AI, for example, is creating huge amounts of value for us as a business, [and] also for our clients and our stakeholders’. A European CFO commented, ‘value is directed to a different actor into the system. In Europe people are looking at profit, but it is much more important to demonstrate a level of ethics towards sustainability. It is another pressure on the CFO who only looks at profits’. A CFO from Africa discussed a perspective for assessing value against profit in terms of performance, commenting that ‘[the] usual direction [CFOs] are coming from has been measuring the value of a company either by the performance of the shares or your bottom line. In doing that everything is monetised. But now the longer-term [perspective] looks at the social impact, it goes to look at the environmental aspects, and when you are looking at those things an annual cycle may not be adequate’. This participant then questioned whether finance teams were ready for the task and concluded that perhaps they were not. The changing role of the finance team is discussed in section 2.6.
Figure 1.7 illustrates the potential linkage and the role of the strategy of the organisation. As has been explained, the value that an organisation delivers to its recipients is through a range of channels and is executed by using a range of capitals as the enablers. The strategy of the organisation reflects the direction in which it seeks to progress. Any discussion of strategy will have a range of outcomes which should embrace some, if not all, of the recipients of value who were outlined in section 1.5. To execute that strategy, the organisation needs to establish a common purpose that can be exemplified through its values. There is, therefore, a strong correlation between the concepts of ‘value’ and ‘values’. A CFO commented that, ‘I think there is a balance to be struck [between] short term, the medium term [and the] longer term. The sustainability aspect comes into that conversation as well, because I think that as organisations start looking at a more balanced scorecard, integrated reporting approach [to] how they actually perform… they are also considering how they report on value creation’. This participant continued, ‘the long-term does not compromise your short-term performance and everything that you are doing there. It is about having that sustainable plan’. Whether the CVO role exists today is a question – or is it an opportunity?
FIGURE 1.7: Value and values
Strategy
Value
Values
THE STRATEGY OF THE ORGANISATION REFLECTS THE DIRECTION IN WHICH IT SEEKS TO PROGRESS... TO EXECUTE THAT STRATEGY, THE ORGANISATION NEEDS TO ESTABLISH A COMMON PURPOSE THAT CAN BE EXEMPLIFIED THROUGH ITS VALUES. THERE IS, THEREFORE, A STRONG CORRELATION BETWEEN THE CONCEPTS OF ‘VALUE’ AND ‘VALUES’.
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CHIEF VALUE OFFICER – THE IMPORTANT EVOLUTION OF THE CFO | 1. WHAT DO WE MEAN BY ‘VALUE’
1.8 The chief value officer today A CFO noted that, ‘the CVO description had been batted around for many years and you think if it is…heading in that direction, you want to…be ahead of the game’. A search of a number of online recruitment-agency job boards 3 for CVOs produces few roles with this title. Instead, these searches tend to identify roles such as the ‘chief operating officer’, ‘chief procurement officer’, ‘chief technology officer’ and ‘chief financial officer’ as their nearest matches. The inference therefore is that while the term exists as a discussion point in the development of a C-suite role, there are few actual roles that currently exist with this specific title. A similar search of job titles in LinkedIn (conducted 1 April 2023) produced only a select few individuals who used this job title to identify themselves. Such an analysis does not necessarily mean that the organisations are not considering the role and it may be expected to appear in roles soon. What is relevant is that, as organisations develop, value is being considered as an alternative aspect of many existing roles.
1.9 A consistent view of value? The discussion of value in this section has been at a conceptual level. The CFOs in several of the roundtables discussed whether it was appropriate to have a conceptual framework for value or whether more substantial guidance was needed. As has been commented, for most of the roundtable participants, the concept of value was highly contextual to the organisation, its economic circumstances, its sector and its size. For that reason, any guidance on value must be capable of embracing this degree of variation. Yet, there is also a view that, as the term is increasingly being used, there needs to be some level of consistency in what is meant by it. Several participants argued that a ‘guiding principle’ should be established to give consistency at a high level while enabling flexibility of interpretation at a detailed level. A CFO from the public sector commented that for that sector the concept centred on value for money: how do public services serve their communities best? While at first glance this may appear to differ from the analysis of value provided above, it can also be interpreted as requiring a different definition of stakeholders, so the ‘value for money’ concept is embedded in the overall value concept. A CFO from Africa who has worked in both the commercial and not-for-profit sectors commented, ‘I tend to think that “value” is a very volatile [concept] because “value” for a profit-making organisation and “value” for [a] social enterprise means different things. Trying to come up with a definition that cuts across makes it difficult because you view value from a stakeholders’ perspective, at the end of the day’. If such a definition were to be in place it would help cement the role of the CFO in relation to value in organisations.
The changing CFO role – a perspective ‘The role is changing, and I have seen it in so many forums where they say … CFOs make the best CEOs [chief executive officers] because they have in mind what will the number look like? That is what the stakeholders want to have comfort in. ‘Even if my CEO spoke in a meeting, the chairman would look and ask me, do you agree…? [Agreement] coming from the CFO gives the comfort that somebody has looked at the mathematics behind all this storytelling and that [the CFO is] comfortable. ‘The role is evolving, and I think it is high time we start to move the CFO mindset away from just the financial reporting to see how we influence the numbers before they get to the trial balance. Because if you are looking at it from a ‘cake recipe’ [model] and every time I bake the cake [it] turns out [the same], unless I go back to change the recipe the outcome will always be constant. ‘Unless the CFO goes and changes the recipe of the cake and [is] not just waiting by the oven to get the cake out of the oven, the outcome is never going to change. We have to get involved in the day-to-day and I think that is where the CVO title becomes more appropriate. We [must] have the change in mindset to say it is not just about financial reporting, it is not just about finance-related roles, but you are able to influence so many strategic decisions that are of value to the organisation’. CFO based in Africa
AS ORGANISATIONS DEVELOP, VALUE IS BEING CONSIDERED AS AN ALTERNATIVE ASPECT OF MANY EXISTING ROLES.
3 A search was undertaken of job boards in the US, UK, Singapore and on various global sites on 1 April 2023.
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CHIEF VALUE OFFICER – THE IMPORTANT EVOLUTION OF THE CFO | 2. THE CHANGING CFO ROLE
‘Value in the past was very straightforward. It was “show me the money”, and actually it was real money…that you could count with your hands. We have moved away from that because we have digital value money. We also have other values and we have struggled with the concept of the value of goodwill, which only ever crystallises when somebody’s prepared to pay for that goodwill. What is the value of ESG? ‘Is the value that somebody puts on your organisation the same as my value? It is not financial value. It could be ethical value, it could be equality value through your contribution to the local community. All sorts of interactions become valuable to somebody, and it all depends on which stakeholder that is.’ UK-based CFO 2.1 The historic CFO role The public perception of a CFO role may well be of an individual in an organisation who is responsible for the production of the financial statements and the integrity of the financial information that underpins these. The individual who discharges this role has a high level of ethical standards as the member of a professional body and that inspires a degree of trust. They understand in detail, and apply, the financial reporting standards as applicable to the organisation and so they are the key contact with the external auditors. The more enlightened individual, perhaps one who has interacted with the CFO in an organisation, may well see them as the keeper of the purse strings and often, as many roundtable participants commented, as ‘Dr No’ – the person who says that the organisation cannot afford to undertake the suggestion made. In that regard, they are approached with caution. Many of the roundtables referred to this perception of the role as one of the challenges in addressing the difference between a CFO and a CVO. This is why there may be a
2. The changing CFO role
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CHIEF VALUE OFFICER – THE IMPORTANT EVOLUTION OF THE CFO | 2. THE CHANGING CFO ROLE
Figure 2.2 provides an alternative view of the CFO role as the guardian against the risks the organisation faces and the steward of its assets. In both cases, the CFO is not necessarily the owner but is strategically involved. The CFO is the reporter of performance in its broadest sense of both financial and operational performance and, in this role, provides information to others, both internally and externally, enabling them to form considered and evidence- based opinions on the relative strengths and opportunities for the organisation. In presenting this information, the CFO
perception that they are two different roles (see the commentary in the section ‘Responses to three questions’) rather than that the CVO role is either a natural evolution or a reality of the CFO role as it currently exists. The danger is that the traditional attitudes expressed in ‘Responses to three questions’ reflect the general public’s view of the CFO role, which is significantly different from the perception of the roundtable participants. A CFO from the Middle East commented, ‘from my perspective, the role of finance is definitely transforming towards more business support, business value add[ing], rather than just finance retrospective reporting’. 2.2 The evolving trend A CFO from Canada commented: ‘I think as the CFO we must recognise that we are now becoming a contortionist. The world is changing, and the expectations of our roles are likewise evolving’. ACCA has conducted several pieces of research on the development of the CFO role. In 2020 it published jointly a paper with the Institute of Management Accountants (IMA), The CFO of the Future (ACCA / IMA 2020). That report appraised the role of the CFO and concluded that, among other things, the role had evolved in breadth to include several key activities (Figure 2.1). At the core of this model of the CFO role is financial acumen, the level of trust and integrity referred to in section 2.1. That core value remains indisputable. It is what additional responsibilities the role carries and, indeed, how that core role is discharged, that is the focus of the discussion on the CVO role. One aspect of the CFO role which was highlighted in the ACCA / IMA (2020) report was the range of stakeholders with whom the CFO engages. This is highlighted in Figure 2.1. Both internally and externally to the organisation, the CFO role is a voice for the organisation, building upon the inherent trust in, and ethical perspective of, the role.
is the strategic adviser, often monitoring the organisation’s performance in line with its strategic objectives. At the core of this is the role of ‘change agent’: the person charged with supporting, or driving, change within the organisation. For some organisations this may be transformational change, for others it might be strategic change. It means being a key focal point and super-connector for the organisation. How much of this role embraces the leadership role over what we might consider as creating and maintaining value?
FIGURE 2.1: The role of the CFO – as defined in ACCA / IMA 2020
FIGURE 2.2: An alternative view of the CFO role
Guardian of risks
Steward of assets
Strategy & business acumen
Risk & control
Transactions
Financial acumen
Technology & data
Change agent
Consulting
Investor management
Leadership
Supply chain
Reporter of performance
Strategic advisor
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CHIEF VALUE OFFICER – THE IMPORTANT EVOLUTION OF THE CFO | 2. THE CHANGING CFO ROLE
2.3 The reality of the CFO role Most of the roundtable participants considered that their role has moved significantly beyond a traditional perception of the role. In fact, it has progressed beyond the definition offered in ACCA / IMA 2020. Some commented that the pandemic had been a significant factor in changing their role. The economic uncertainties had caused their organisations to increasingly seek their advice as relevant to the rapidly changing circumstances. In providing the advice that was being sought there had been a significant refocusing away from assessing historic data to predicting potential outcomes by analysing data and developing forecasts that present a range of options. The pandemic and post-pandemic disruption in supply chains and increased geopolitical uncertainties have meant that the level of certainty of the 2010s has not returned. The need for critical advice has been increased. The CFO now has a forward-looking rather than a backward-looking role. One CFO commented, ‘I think disruptions are going to intensify over time. We need to be aware of the risks of devaluing as well and what can impact that. It is not just that you are not selling things. It is a much bigger picture around “how do the customers perceive your business?”, or “[are you] adding value to your employees more than just what they are getting paid?”’ A CFO from Australia added, ‘CFO’s are not driving the lag indicators, which are the financial results: they are driving the lead indicators, which are often not financial results’. For many of the roundtable participants the CFO role is encapsulated in Figure 2.3. The core need for financial acumen remains, together with responsibility for the financial processes, performance management and external reporting. The CFO requires an increasingly deep understanding of the business model. One CFO, who had transitioned to the role from being an audit partner, commented that one of the first realisations upon taking up the role was the depth of the understanding of the business model that the role required, beyond their initial expectations.
The CFOs also see that they have a responsibility for value creation in the organisation: not just for its financial performance but also for other aspects of value. Some of the CFO contributors saw this discharged solely through the reporting requirements for non-financial disclosures, while others categorised it as a stewardship of all the assets that produce value. All agreed that to discharge this element they needed to be actively involved in the management of data across the organisation to ensure that there is an appropriate level of integrity. This applied especially to non-financial data that might form the basis of external reporting. For some CFOs, this represented a particular challenge, especially, as one commented, because for many aspects of reporting against the required environmental disclosures they are essentially dealing with ‘single entry bookkeeping’ when an accountant’s premise of internal control is firmly based on the concept that ‘double entry’ provides the checks and balances. Ensuring that the data has an appropriate level of integrity is something that other functions were not used to and therefore it falls to the finance team to control the
data flow. This was something that other CFOs noted was exacerbated by a lack of up-to-date systems, with many calculations being performed on ‘unreliable’ spreadsheets. To support these core roles, the CFO needs to be a strong project manager and an effective change leader. Finally, there is an expectation that the CFO is an effective communicator, a key stakeholder manager. This requires a breadth of consulting skills that include influencing, conflict resolution and strategy development. Running through all these aspects of the role is a moral and ethical core. A CFO from Southern Africa commented that it is, ‘interesting how the CFO is normally the one with the moral compass. That resonates with the term “value” and understanding the long-term consequences of the decisions that you take today: “doing the right thing”’. Value and how the organisation represents itself to others is at the heart of the CFO role of today.
FIGURE 2.3: The reality of the CFO role
Stakeholder management
Consulting skills
Financial acumen
Business acumen
Value acumen
Data acumen
Project management
Change management
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