The picture in Canada: finance roles are changing there, too.

The picture in Canada: finance roles are changing there, too Head office financial functions in Canada have evolved considerably in recent years, responding to changes in business environments. Changes in the specific market segments in which firms operate and the structural transformations in the general business environment have altered the roles and responsibilities of corporate financial managers. The automation of accounting systems and the advantages afforded by information technology have shifted the patterns of responsibility and decision-making.

These changes have resulted in financial management roles that are at once more "fully fledged" and less concerned with the minutiae of financial reporting. The environmental changes that have yielded more involved divisional managers and automated accounting systems have at the same time given rise to financial managers with more complex and complete policy roles. This expansion of responsibilities and the accompanying devolution of authority is referred to here as "professionalization."

Of the 110 companies that took part in a Conference Board of Canada survey, nearly half consolidated responsibility for the controllership and treasury functions at the chief financial officer level. However, more than one-third of the chief financial officers delegated prime responsibility for both functions to the appropriate corporate managers. Another one-sixth delegated responsibility for controllership and retained the treasury function.

Three-quarters of the CFOs in the survey had senior managers in addition to the controller and treasurer reporting to them. On average, CFOs had three such managerial subordinates at the head office. There was great variation in the functions performed by these managers, but management information systems and taxation were the two specialties most frequently cited. The breadth of responsibility of CFOs today is illustrated by the range of non-financial, general management functions reporting to them. These include corporate secretaries, corporate counsel, managers of external relations (e.g., corporate affairs or public affairs), and human resource managers.

The size of the financial management group in the sample firms varied greatly. Typically, the group consisted of between 30 and 150 individuals, with 44 to 87 percent of them working in the controllership function. Half of the companies in the survey employed four or more employees on the treasury side, to a maximum of 148.

Who's responsible?

Access to information about changes in the environment and an improved facility for responding to these changes have allowed senior financial managers increasingly to:

* Take on responsibilities concerning the strategic direction of the organization.

* Develop capabilities in new areas of financial activity.

* Delegate some responsibilities to their subordinates.

* Eliminate or automate activities requiring considerable resources or adding little value to the organization.

Corporate financial managers are far less burdened than they used to be with time-consuming tasks of gathering and reporting information to carry out financial transactions. These tasks have been "routinized," and in some cases eliminated, to allow financial managers to turn their attention and skills to the strategic direction of the organization. At the same time, the financial manager's role is more visible. The transition to more strategic activities is essential to reinforcing in line managers' minds the financial underpinnings of all operational decision-making.

The chief financial officer

The focus on strategic issues, and the consequent delegation of operational and intermediate-level decision-making, is illustrated in the activities most often assigned to the CFO. Three items that are at the core of the strategic direction of the firm--corporate standards, investor relations, and advice to senior management--top the list of CFO tasks.

Other items reflect the importance to companies of treasury concerns under the new financial dispensation. Long-term debt and equity financing and the management of pension funds are activities that indicate the need for non-financial corporations to be more active in the finance area. Guiding the acquisition and divestiture activities of the firm has always been a key responsibility of the CFO. In today's world, however, this task increasingly involves consideration of not just the strategic fit of one business unit with another, but also the implications for the company of holding or selling one asset or another.

These strategic and long-term activities also dominate the list of those activities that are more frequently assigned to another financial officer but that nonetheless account for a significant portion of the activities of a large group of CFOs. Here the pattern of concern with strategic planning and acquisitions and divestitures is repeated, as is the responsibility for advising top management.

The controller

Closest to the CFO is the controller, whose role is becoming more complex. For this manager, detailed financial activities predominate, but the top activities involve responsibilities to external agencies. This emphasis on external accountability is a mark of the importance the role now possesses. These are also activities that put a premium on communication skills over the technical knowledge of budgeting.

Following these items in prominence among the controller's activities is the responsibility for ensuring that both divisional management and top management have the financial information they need in the form in which they need it. In the context of a "loose-tight" management approach, this reporting and interpreting responsibility places the controller in a clearly pivotal role. It is interesting to note that the functions stereotypically associated with the controller--taxation and accounting--rank fifth or more among the most frequently assigned activities. Management information systems activities are not mentioned at all, although the explanation for this lies in the timing. Much of the CFO involvement in this area occurred prior to the five-year span incorporated in this study.

The treasurer

The treasurer's time in most companies is dominated by fewer, more narrowly focused financial management activities. There is also a large measure of agreement among companies on the duties of the treasurer: responsibility for the corporate issues surrounding the trend to innovation and securitization in financial markets. In a minority of firms, however, the treasurer has primary working responsibility for many of the long-term financial management issues that usually fall to the CFO. These include equity and long-term debt financing, pension fund management, and investments.

A different story

Over the last five years, professionalization has changed the portfolio of activities falling to each of the senior financial officers. The controller and treasurer now have increased independence and responsibility for their own functional areas. As illustrated in the table on page 21, the new activities assumed by each function are usually thought of as a part of that function. In large part, these activities have been delegated from the CFO, as that position has moved into a more general management role. Although the CFO frequently assumes controller or treasurer activities, survey respondents reported that this was usually a result of downsizing, illness, or sudden departure. It was thus not seen as a long-term or strategic move.

The factors that have most affected the financial management function over the last five years are also identified as having been important in involving financial managers in line decisions. Not surprisingly, production factors such as rising interest rates and the growing cost of labour and materials ranked high. It is of interest to learn that foreign competition ranked low. However, this seems to be a factor that will be of increasing importance in the future.

In recent years, corporate downsizing has altered the shape and focus of the financial group. More important, though, changes in the roles and responsibilities of the principal financial managers have meant that:

* Considerably more time and effort are allocated to strategic planning rather than to the traditional caretaking and record-keeping activities.

* The functional priorities tend to change over time as expertise is drawn into and diffused across the organization (e.g., artificial intelligence systems, financial intermediary activities).

* Cross-fertilization between functions and the development of specialized managers for certain financial activities have become essential.

* Greater involvement with and understanding of the production side of the organization have been developed.

Strong subordinates

The transition to the role of strategists means that the CFO must be able to pass along some responsibilities to subordinates. Without exception, the members of the CFO panel recognized the importance of having strong performers in the subordinate roles of treasurer and controller. However, a few CFOs admitted that this was not currently the case in their organizations. These CFOs noted that in the future these positions would require people with strong technical and managerial skills as well as an appreciation for operational issues. Thus, the CFOs on the panel have, in the words of one, "deliberately improved the quality of our financial people, both in the corporate office and . . . in the operating companies."

Treasurers and controllers must have comprehensive knowledge of their functions and up-to-the-minute awareness of new techniques and environmental developments. For example, a number of CFOs noted that their treasures were responsible for developing expertise in financing techniques (e.g., operating in the Euromarkets, dealing in the forward gold markets, managing foreign exchange risk, analyzing potential acquisition candidates), while controllers were changed with gaining extensive knowledge of information systems and new reporting requirements.

The corporate financial function acts as a funnel for new technologies and processes that can be applied across the organization, Thus, corporate financial managers scan the environment for these technologies, bring them into the organization, and gradually accustom other parts of the organization to using them.

The CFO of a diversified firm described the head office role in developing and implementing information systems this way: new techniques or services generally originate in the head office and the divisions absorb expertise and personnel on a "demonstrated ability" basis. With the explicit goal that all divisions of the organization should have capabilities in information technology, this CFO has charged his controller with facilitating the devolution of systems. This is just one area where the company has "intentionally improved the quality of divisional financial people". In another firm, a small group of information systems people has been deployed to accelerate the use of these systems, acting as a resource to users who can custom-design their use of corporate databases.

Compared to past practice, the roles of the CFO, treasurer, and controller have become relatively more entwined. One CFO noted that the standardization of information from sources such as banks and bokerage houses, in combination with fewer levels of management within the organization, have allowed financial executives to communicate with one another more readily through computerized systems.

The trend toward greater involvement with customers--understanding their businesses and the markets in which they operate--has changed financial managers' views of their role. For example, in one multinational organization, the CFO noted that the treasurer must provide flexible financing to young and growing customer companies. Within the control function, integrating production and control systems has become essential to remaining customer responsive.