From CFO to CVO (Chief Value Officer)

The economic reforms that came about in the early 90’s heralded globalization, liberalization and privatization. Most countries opened their markets as per the GATT agreement, facilitating international trade. Prior to this, companies were largely domestic, handling opportunities and challenges within the country. As such, a vast majority – 80% to 85% – of the company’s fair value sat on the balance sheet. 

The CFO’s role was therefore primarily a controller; handling the controls and compliance of the company, and a performance manager; keeping the company on track with robust and timely performance tracking. The value reporting and value protection nature of these roles has helped CFOs keep the company safe from controllable losses, accurate and timely recording of transactions, reporting to internal and external stakeholders, establishing an efficient finance function, and having oversight of the fixed and working capital.

Post economic reforms, international trade saw an uptick, and every nation hosted multinational companies. Nations now felt the impact of events that occurred beyond their borders. Due to this globalization, the CFO now had to take on two additional roles of co-strategist or co-pilot and value manager, in addition to the two roles of controllership and performance manager. 

In the co-pilot role, the CFO partners with the business teams to jointly grow the business. The CFO looks at how to increase the organization’s market share, increase margins, develop a resilient business model, and also oversees growth initiatives and M&As, for instance. 

Despite the growing scope of the CFO, it has been difficult to quantify the impact a CFO has on the P&L. For finance to add value that could be independently measured, the CFO had to take on the role of value manager. In this role, the CFO looks at managing the effective tax rate, finance cost, interest cost, driving cost-reduction initiatives, and improving return parameters on equity or assets, for instance. 

Key enablers that have facilitated success across these four roles: 

• An engaged, capable, and winning team
• Collaborating effectively with other key functions such as cybersecurity, risk, treasury, or sustainability on a joint agenda to drive increased value 
• Understanding how to adopt digital capabilities in the finance function 

Continued disruption over the past five years has significantly impacted the global economic and business environment. Where the once popularly referred to VUCA (Volatile, Uncertain, Complex, Ambiguous) world has now emerged into a BANI (Brittle, Anxious, Non-linear, Incomprehensible) world. The Covid-19 pandemic, the geopolitical instability in Russia and Ukraine, trade wars between nations are all examples of events that cause issues like supply chain disruptions. With increased geopolitical conflict and environmental uncertainty, more governments also want to become food secure, so there are domestic protectionism policies coming into effect. Recently, for example, India has curbed the export of white rice. In addition, there are issues like decade high interest rates and inflation rates that are impacting how we do business today. 

As a result, the role of the CFO has shifted to further elevate the value contribution by finance. It is no longer just about protecting value, but also unlocking and creating value for the company in a BANI environment. 

Roles of the CVO:

First, the assurance advocate. This is a merging of the controllership and performance manager roles, where the CVO gives assurance to the organization that all the necessary controls and compliance are in place, and that the organization is on track against its plans. 

Second, the business transformer. Considering how volatile and uncertain the world is, the CVO can no longer afford to analyze the organization’s existing business model only when reviewing budgets. This evaluation needs to happen on a frequent and ongoing basis – every fortnight or every month. Proactively monitoring changes to the economic environment, will assist the CFO in continuously strategising on transforming the business model to ensure it is agile, resilient and competitive despite headwinds. 

Third, the sustainability ambassador. In view of the growing global climate concern, sustainability and ESG have become key business enablers. Disruptions from floods, cyclones,  heat waves, and other adverse weather events impact business performance, and therefore need to be addressed. In addition, regulators and investors alike are looking closely at the way organizations are operating, and not having a solid ESG strategy in place could mean restricted access to funding and investment. Companies with a sustainability agenda are also attracting the best talent as the next generation of the workforce place preference on working for companies with a purpose. It is therefore crucial for the CVO to play an active part of ESG initiatives in the organization. 

Fourth, the data and digital champion. The CVO needs to evaluate new and emerging technologies, understand use cases and best practices, and adopt the relevant tools in order to keep the organization ahead of the curve. For instance, the CVO would need to understand how Generative AI is going to change the way businesses operate, and what the implications are for their own organization. The CVO would also constantly leverage digital to build a data-centric organization, where data, superior data analytics and data-driven decision making are enterprise assets.  

Lastly, the economist. Due to myriad economic changes worldwide – political reforms, currency devaluation, peak inflation, interest rates hikes – the CVO needs to understand the impact of these key macroeconomic changes and relay that understanding to the organization. The CVO would use their expertise to prepare the organization to be more resilient, so it is better equipped to handle the impact of these global changes. 

1 Build Commercial Acumen 

Gone are the days where a CFO could remain in their comfort zone, behind a desk, focusing on reporting and analysis. The CVO of today has to go to the market, build an excellent understanding of the business, and in doing so understand how to make the organization more agile. 

2 Understand Economics

In a highly interconnected and interdependent world, having a pulse on the macroeconomic environment and global issues will be crucial for a CVO to contribute towards building a resilient business model. 

3 Build Capability Around Sustainability and Digital

Sustainability is essential for businesses to thrive in the future, yet it is a field that you probably don’t have a background in. Not to mention, regulations are constantly evolving. Don’t shy away from getting out of your comfort zone to learn and build capabilities in spaces such as ESG or digital. Your ability to learn will add immense value to the role.