What are the roles and responsibilities of a CFO?

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The CFO role was named for its original function of overseeing an organization’s finances, but it’s now seen as a cross-cutting common denominator linking every part of an organization.
A piggybank
A piggybank

CFO may stand for chief financial officer—but long gone are the days when the CFO’s purview was just finance.

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Michael Birshan and Kapil Chandra are senior partners in McKinsey’s London office, Andy West is a senior partner in the Boston office, and Kevin Carmody is a senior partner in the Chicago office.

For over a decade, McKinsey has conducted a biannual survey to take the global pulse of people in the CFO role. According to the most recent survey, the role is rapidly evolving. As their jobs expand, CFOs today have opportunities for leadership as never before—working together with C-suite peers, line managers, investors, and boards to focus on performance and capabilities, rather than just numbers.

Read on to find out how CFOs can meet modern challenges, based on McKinsey research and insights.

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What’s the core responsibility of a CFO?

For years, the simple answer was that the CFO leads a company’s finance function. But the role has expanded tremendously. Today’s CFO is a key colleague across businesses and functions, and is the CEO’s strategic partner in maximizing value creation. The CFO helps with shaping portfolio strategies, undertaking major investment and financing decisions, and communicating with key stakeholders—all while leading a multitalented and technologically savvy finance team. Communication is a key part of the role, both with investors and boards. This goes beyond earnings calls: CFOs are responsible for building credibility for the strategic direction of the company.

The CFO and finance team can also model good financial and team-building practices for teams across the entire organization. This can include demonstrating to other teams the linkages among individual, team, and organizational performance.

Another critical aspect of the CFO job is dealing with risk. Managing risks associated with cash, capital, resource deployment, accounting compliance, and strategy remains core to the role even as it expands into nonfinancial realms.

Congratulations, you’ve started a new job as CFO. What are the first things you should do?

No matter how long you’ve been working at an organization—or in finance—your first day as a CFO is going to be a whole new ball game. McKinsey has developed seven key mindsets and practices that new finance leaders might adopt to help ensure long-term success.

Scope the challenge. CFOs should form an independent, fact-based view of the resources, support structures, and activities that the organization has in place to create value—as well as which ones actually do create value. Then they should make sure all C-suite colleagues, business unit leaders, and the board of directors are aligned. This may be more difficult than it seems as leaders’ conclusions can be clouded by incomplete information and biases.

Adopt a bias for action. A company can’t achieve or sustain a competitive advantage by staying in place. The best CFOs are constantly looking for ways to create more value for the competitive landscape of the future—not the present. They do this by committing to innovation and allocating resources to digital transformation for all functions of the company.

Make space in your portfolio for a few bold bets. This bias for action could yield some big changes, even to core business functions. An effective CFO should make sure that every aspect of the business is always on the negotiating table—and should always be subject to a “grow or go” mentality. The best CFOs understand and communicate that it’s a losing bet not to take any risks.

Teach and translate. The best CFOs focus on frank dialogue with the CEO, the board, and the top team about the economics of the organization and clearly explain the consequences of making various trade-offs. Communicating in a way that everyone can understand means avoiding financial jargon. But avoiding oversimplification is equally important.

Be proactive about risk. As we’ve seen, risk is necessary in business. But some risks are outside the control of even the best-prepared executive. The effective CFO will help their organization respond to crises and build up organizational resilience for the long term. McKinsey research shows that the companies that fared best during the 2008 financial crisis were those that used a number of interventions to balance out performance and position themselves for a strong recovery.

Think strategically about ESG. Environmental, social, and governance (ESG) concerns should stem from an organization’s unique business model. At a minimum, companies can use ESG to comprehensively consider ways to mitigate risk. Beyond that, the best CFOs approach ESG as a growth play. McKinsey research shows that more than 80 percent of C-suite leaders and investment professionals expect ESG programs to contribute more shareholder value in five years than they do today.

Pull together for talent. The best CFOs collaborate closely with their colleagues, particularly the CEO and chief human resources officer (CHRO), to direct capital toward attracting, teaching, and retaining talented employees.

Learn more about McKinsey’s Strategy & Corporate Finance Practice.

What role should CFOs today play in innovation?

Innovation is usually not an ideas problem. People at all levels of an organization have plenty of ideas—they just lack the resources to see them to fruition. The challenge is unleashing innovators by giving them the resources they need, including money, people, time, leadership attention, and physical assets.

Innovation can also be a process problem. That means an innovation is only as good as the process set up to accomplish it. CFOs are uniquely positioned to mobilize new projects, because their success depends on their mastery of efficiency and productivity—more so than other C-suite roles. Because the CFO signs off at each stage of a new process, they are uniquely suited to help implement a stage-gate process toward innovations.

Circular, white maze filled with white semicircles.

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That said, McKinsey’s CFO survey indicates that some employees perceive CFOs as a barrier to innovation. A CFO can change these perceptions by recognizing and rewarding a culture of innovation—not necessarily a culture of success. That means celebrating people who take risks and demonstrate leadership, rather than celebrating only when innovations succeed.

What role do CFOs today play in ESG initiatives?

In the past, digital transformations were primarily about cost, so naturally, the CFO was ultimately in charge. These days, however, digital transformations extend to ESG goals. McKinsey’s latest CFO survey indicates that CFOs want to play a larger role in shaping ESG programs and better align social and climate issues with the company’s overall direction. And the data shows that when CFOs are engaged in ESG initiatives, they do better: there is a 20- to 30-percentage-point higher alignment between ESG initiatives and strategic goals when CFOs are actively engaged in ESG topics.

Learn more about McKinsey’s Strategy & Corporate Finance Practice.

How can CFOs go digital in the smartest possible way?

You’ve heard that digitization is critical. But CFOs shouldn’t just go digital because they’ve heard it’s the right thing to do. Instead, the most efficient CFOs take a sharp, critical look at the costs and benefits of digital use cases. Instead of making decisions based on what digital tools or systems are available, they should look specifically at what their organization or function will need in the short and long term, and then examine the costs and benefits of adopting digital technologies to serve those needs.

For digitization to work, two key prerequisites should be in place: process standardization for automation and a clear view on how automation benefits will be captured. In many cases, automation also requires putting the proper data architecture in place, which ensures consistency across all regions, functions, and key performance indicators.

Why should CFOs be closely involved in capability building?

Capabilities are the mindsets and behaviors an organization needs to reach and sustain its full potential. Capability building—or developing the skills an organization needs to succeed—are critical to overall performance. To thrive in today’s fast-paced environment, leaders should treat capability building as a strategic weapon to create competitive distance as well as to materially enhance employee well-being.

From a CFO’s point of view, low employee satisfaction can lead to low productivity, which in turn can lead to low morale. That can quickly lead an organization into a spiral. To build agility in the marketplace, organizations need to retain smart, strong people. To do that, leaders should focus on building satisfaction.

To foster satisfaction, CFOs should serve as talent magnets and chief inspirers. They should use data to identify skills gaps and allocate talent to fill them. Then they should take a holistic mindset, teaching basic financial acumen beyond the finance function to make the entire organization better attuned to what drives performance. Empowering employees to do their jobs more effectively can increase satisfaction—and overall performance.

According to a recent McKinsey survey, 64 percent of senior executives already support employee capability building. But only 40 percent report that senior executives are directly involved in providing opportunities for employees to apply new skills.

Learn more about McKinsey’s Strategy & Corporate Finance Practice, and check out finance-related job opportunities if you’re interested in working at McKinsey.

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