CHIEF FINANCIAL OFFICER (CFO)



The chief financial officer (CFO) is the primary executive officer responsible for the financial management of a corporation. Depending upon the company's size, structure, and diversification, the role of the CFO may encompass a wide variety of responsibilities and functions which include the management and administration of financial, internal control, and accounting issues, in addition to acting as an external interface to the investment community and various governmental agencies. "CFO" is a generic term describing a variety of titles and offices such as vice president-finance, vice president and treasurer, executive vice president, and controller.

In managing the corporation's financial interests, the CFO is primarily responsible for the management and protection of corporate assets. To assure the continual growth and prosperity of the corporation, the CFO participates in the development of short- and long-term planning strategies along with other senior executives to provide them with an understanding of the company's financial outlook, as well as an analysis of regional, national, and global economic conditions that will affect the company's position. Afterward, the CFO will oversee the creation of budgets and business plans based upon these long-term strategies.

Asset management includes the investment of surplus profits, as well as the acquisition of funding from external sources for those companies that lack sufficient internal resources. In investing corporate assets, the CFO ensures that capital is invested in areas that are not exceedingly risky, and yet provide a yield that is competitive. In order to support new initiatives, research and development, and sustainable growth, the acquisition of additional capital may be accomplished through the sale of stock and the acquisition of loans from banking institutions. At the same time, the CFO must develop an acceptable debt to equity ratio in order to ensure that the company does not become overextended.

Another important function is the development of standard accounting policies, procedures, reporting methods, and internal controls, as well as effective data management systems and strategies. Because the company's financial data forms the basis for nearly every decision made by a chief executive officer (CEO), the CFO must ensure that standards are in place that allow for the consistent manipulation, accounting, and reporting of financial data. The CFO must develop and maintain effective data management systems that facilitate the storage and manipulation of the data. In addition to providing the company with a thorough and accurate picture of its financial conditions, the CFO must establish internal control methods to ensure that accounting policies are being followed to minimize the company's exposure to fraudulent activities. As well as providing internal management, the CFO may act as an interface for various external groups, organizations, and agencies by maintaining and improving the company's standing in the investment community, maintaining a market for the company's stock, and fostering good relations with both the investment community in general and with the company's own investors.

The role of CFO continues to evolve in the rapidly changing business environment of the late 20th century, growing wider and more demanding. Now, a CFO must not only monitor his or her own company's financial performance but also continually compare that performance against that of the company's competitors and keep a sharp eye out for prospective acquisition targets. Greater demands have been placed on CFOs because of greater financial reporting demands placed on corporations by government agencies and the investment community. Furthermore, as globalization spreads, more and more CFOs must contend with the increasing financial complexities brought about by operations scattered around the world. The trend toward outsourcing has engendered yet another layer of complexity. Finally, technological advancements have created additional challenges as well as new opportunities for enhancing processes and systems at optimal cost. Overall, the changing environment has made corporate management increasingly dependent upon the expertise and advice of the chief financial officer, securing that person's place at the very highest levels of management.

[ Bradley T Bematek

updated by David E Salamie ]

FURTHER READING:

Hampton, John J., ed. AMA Management Handbook. 3rd ed. New York: AMACOM, 1994.

Price Waterhouse Financial & Cost Management Team. CFO: Architect of the Corporation's Future. New York: Wiley, 1997.

Walther, Thomas, and Henry J. Johansson. "Reinventing the CFO." Strategy and Leadership 26, no. 2 (March-April 1998): 40 +.

Walther, Thomas, and others. Reinventing the CFO: Moving from Financial Management to Strategic Management. New York: McGraw-Hill, 1997.



User Contributions:

Comment about this article, ask questions, or add new information about this topic:

CAPTCHA