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Developing CFOs as whole leaders.

In the memorable 1939 Metro-Goldwyn-Mayer (MGM) movie, "The Wizard of Oz," the scarecrow, tin man and lion searched far and wide for a brain, a heart and courage, respectively. Interestingly, it's been proven time and again that however elusive these qualities are, the best business leaders have them. Simply stated, the most successful leaders lead with their head, heart and guts.

Indeed, CFOs don't all have the same leadership abilities, and their differences can result in various outcomes--both negative and positive. To illustrate this point, what follows is a tale of two CFOs, Wes and Will--both of whom are real, and only their names have been disguised.

Wes is the CFO of a Fortune 500 organization with decades of experience in finance and business. He's intellectually brilliant and conducts himself with integrity and high ethical standards. Few other names in business can match him as a recognized corporate leader, and he takes pride in the accomplishments he's achieved in his career. When it comes to understanding the financial aspects of the role of a CFO and acting as the face of the company to Wall Street, there are only a handful of CFOs in the world who can match his accomplishments.

Will is also a CFO of a Fortune 500 company with a track record and background similar to that of Wes. Will is also one of the keenest minds in corporate finance today, and has risen through the ranks of finance in a variety of roles to the top finance job in his firm. As a strategist and manager in control, finance and treasury, Will has demonstrated the ability to lead and communicate with credibility and impact.

Wes and Will have similar, fairly typical CFO responsibilities in large, complex global organizations. Both men are responsible for the overall financial integrity of their organizations and reporting accurate results and forecasts. It is their responsibility to maintain financial control, partner with their CEOs and communicate strategy and results to their boards, on which both serve as full members.

Additionally, both of these CFOs are similar in age, career stage and level of respect and admiration they garner from the outside world. With all their similarities, there is one important way in which these two leaders differ dramatically: Wes is about to be pushed into a retirement he did not choose, while Will is being seriously considered to succeed his company's current CEO.

With so much in common, why do Wes and Will face such different futures? To put it simply, Will leads with his head, heart and guts. He is what can be described as a "whole leader." He has become what CFOs must be in order to manage the complexity of their role--a whole leader able to demonstrate skills in three areas: head (providing strategy, direction and purpose), heart (understanding, working with and developing others) and guts (doing the right thing based on clear personal values).

Whole leaders have all three of these key components, whereas partial leaders have only one or two. Will is a whole leader, and Wes--as smart, competent, and technical as they come--is only a partial leader. Will is going to the top job, and Wes is likely going to the golf course--way earlier in his career than he anticipated!

The Changing Role of the CFO

Developing the qualities of a whole leader, like Will, has become both a business imperative and survival skill for today's CFO. In fact, CFOs who want to have a wide variety of career options available--those who want to have some control over their own career path and the ability to write their own career endings--will need to adapt to an increasingly complex regulatory, legal, political and interpersonal environment by developing qualities that have not often been considered high priorities for CFOs.

As business leaders face greater ambiguity and fewer constants daily, partial leaders--even CFOs--will often find their career paths going the same direction as Wes's. Not every CFO who is a whole leader will become a CEO, but very few CFOs who are partial leaders will find that option even open to them.

No one questions that the CFO's role is changing. Let's start with the always complex position the CFO must occupy between the CEO, business unit leaders and the board of directors. Understanding human relationships, motives, agendas and style is a prerequisite for success--typically the "heart" skills of compassion, empathy and intuition.

Then, there are new challenges the CFO must address in communicating information and setting clear boundaries in an increasingly transparent and connected world of analysts, investors, traders and employees. The CFO must demonstrate leadership guts: the ability to make decisions with insufficient data and establish a clear point of view based on values rather than just analysis. Setting strategy, making trade-off decisions, understanding changing accounting regulations, reporting and compliance requirements and mastering new financial instruments--such as derivatives and hedging--require leading with one's head.

Finally, factor in the need to build and lead a strong finance function with new capabilities, the need for decision-making tools outside the center and the need to manage the compliance/growth paradox, and even the strongest CFO may feel daunted.

The real question faced by CFOs of today (and tomorrow) is how to grow into the role with the leadership capabilities that will help them achieve an outcome like Will's. The answer? Become a whole leader--a leader who demonstrates head, heart and guts.

The Cognitive Factor

As both Will and Wes demonstrate, cognitive skills are still an imperative for today's CFO. A recent Mercer/Russell Reynolds Associates study concluded that globally, the number of CFOs with either a CPA, MBA or both increased between 2000 and 2004. Dealing with increased governance and compliance issues and accountability to investors and shareholders calls for greater cognitive abilities than ever before.

The cognitive challenge for today's CFO, however, is unique. It requires continuously rethinking traditional business models and challenging how the finance function adds value to the business.

Wes insists on strong boundaries between the finance function and the rest of the company, and has fashioned himself as the ultimate "cop on the beat," who, in his heart, believes he needs to keep business leaders from doing dumb things.

Will views boundaries between the enterprise and finance as permeable, shifting and evolving. Getting things done as a CFO now involves leading and serving on teams that cut across organizational entities and continually integrating the enterprise, business unit and finance worldviews.

Today's CFO needs to be more than just the "finance guy." He or she needs to understand the overall enterprise and continually build the partnership between finance and the enterprise. He needs to trust while verifying, challenge while partnering and lead while also following.

While Wes is intellectually brilliant, he still sees himself as the final guardian of the business, and it is from this strong belief that his boundaries and those of finance become rigid. His perspective is subtly not oriented to the enterprise. He sees his role as financial and regulatory because he was trained that way, in a finance function that has not evolved, and while he is technically competent, he is naive about the real workings of the complex pattern of interdependent relationships that constitute most of today's companies.

Wes has created around himself an air of invulnerability--a sense that he knows everything and there is nothing anyone can teach him. Although he is often the smartest guy in the room, he is often uninformed about what others think and feel. He is a partial leader.

On the other hand, Will has successfully integrated his knowledge of both the finance and enterprise aspects of his organization to gain a full working knowledge of how other leaders see their business, the company, and their hopes, fears and aspirations. As a result, he has subtly evolved how finance partners with and serves the company--not just to preserve financial integrity but to use the tools and skills of finance to significantly create competitive value.

Will participates in the game "on the field," and does not merely "keep score in the stands." Though Will is technically competent, he sees those around him as equally smart as he is--maybe smarter. He has built a network of allies and experts who give him insights and feedback that Wes has never been able to obtain; and those allies and experts have helped Will develop a complete enterprise perspective of his organization.

Building Relationships

Often overlooked in the maturation and development of world-class CFOs are the heart aspects of leadership: the capacity to truly connect, empathize and work with others. In less-complex organizations (with strong silos, clearly defined roles and functions and linear strategic plans), trusting, transparent relationships and the ability to create them was a nicety, not an imperative. However, it's a fundamental requirement for today's CFO to develop strong, positive relationships and establish trust across a network of people at various levels.

The detached, imperious, always-objective leader--who was the guardian of company assets and took an adversarial approach to finance--was expected and even admired. Today, that CFO leader has preceded Wes into retirement, or will be joining him shortly.

Effective CFOs are more than enforcers, and the best ones know that their humanity is an important part of their leadership effectiveness. Leading in a diverse, complex and constantly changing world requires more than strong analytical skills. The best CFOs have learned to balance people needs with financial control, to develop integrated customer solutions by fostering trust across boundaries within the enterprise and to work with non-financial business leaders and people of other diverse backgrounds.

While the primary relationships the CFO is expected to develop are still those with the CEO and the board, new emphasis is required on other relationships from internal and external sources. Existing in a finance vacuum is no longer effective for the CFO.

Wes has fallen short in creating open relationships with real trust. His company has moved beyond him, because he finds himself unable to move beyond his head skills. He has become enmeshed in an archaic world view and is unable to satisfy his increasingly impatient stakeholders.

Sadly, even his relationship with his CEO is poor; the CEO in Wes's company doesn't fully trust Wes's judgment and wonders if he is truly aligned with the company's strategy. The board is beginning to take notice, and to the business heads, Wes is an obstacle to be overcome or circumvented in the best interests of the company or their own business units.

Conversely, Will has proven himself masterful at creating and building relationships based on mutual trust. Will's CEO trusts him implicitly and completely, and by seeing himself as a partner to the business units, Will has developed relationships with the business heads as well so that they see him as an ally rather than an adversary.

Will has also created a network of influence both internally and externally that consists of all kinds of people from a variety of roles--HR, legal, marketing, etc. This network helps. He keeps an enterprise perspective--one that includes people and not just numbers. Will sees himself as a learner, someone who is never finished developing, and views those around him and below him as a source of knowledge and insight.

A key to Will's success is his humility. He sees his role as CFO as only one part of who he is. When things haven't gone well in Will's career or with his company, he has successfully separated himself and his identity from those circumstances. He was able to integrate those experiences and use them to grow, learn and adapt. Wes, on the other hand, just learned to manage those kinds of circumstances. Wes became his role; Will retained his humanity.

Ultimately, because he leads only with his head, Wes believes that numbers need to be understood and people need to be controlled. Will, because he leads with his head, heart and guts, believes that people need to be understood and numbers need to be controlled.

Ethics, Integrity and Risk

In the wake of the various corporate scandals of recent years, and wide media coverage of the events, consumer confidence in business leaders is at an all-time low. Employees and consumers view corporate leaders with suspicion and distrust, and for the CFO--the guy or gal traditionally responsible for the company finances--it can be a challenge to simultaneously balance the financial needs of the company, take the risks required for growth and maintain consumer confidence.

However, just as it's no longer enough to focus only on numbers and ignore people, today's CFO will need to find new ways to balance risk and reward in an era of undefined risks and unclear rewards.

Effective CFOs use intuition as well as fact in the decision-making process. Since so many CFOs are head-oriented leaders--having been trained on the facts at hand--learning to respect intuition can be a challenge. Intuition isn't just jumping off a cliff with no safety net; it's the process of looking at different scenarios, taking into account the facts at hand and recognizing that the potential reward of one scenario over another makes the risk of that scenario worth taking.

This balance of risk and reward takes guts, and CFOs who hope to add value to their organizations learn to push themselves in this direction. There are recurring patterns in business events and life cycles that can often be grasped but not fully explained, and the best leaders know this well.

Another aspect of leading with guts is the capacity to act with unyielding integrity. While most CFOs believe they act with full integrity, true integrity is more than just telling the truth about business facts. Possibly the greater challenge for today's CFO is the ability to be honest about what he or she is thinking and feeling. Such an ability takes guts and requires a certain amount of risk in human relationships.

Wes and Will both act with high ethical standards and strong integrity. Wes, however, holds his cards close to his vest. He is manipulative in that he hoards critical information--positioning himself and the finance function as more influential as a result. He finds himself unable to rely on other people, and he cannot bring himself to establish trusting relationships that will enable him to develop a network of interdependencies. Wes would never break an ethical or legal code, but he cannot take the risks that endear others to him, and so he is often deprived of what he now needs.

Will, on the other hand, has approached his work in a different manner. Early on, he learned to establish trust relationships by sharing information and relying on the competence and abilities of others to do their jobs.

Will recognized that the source of power and impact for a CFO has changed and will continue to change, and that there are more and more aspects of the business that the CFO can influence, but is unable to exert control over. He adapted to that changing role by acknowledging his vulnerabilities and desire to grow--and, as a result, he grew into a stronger, respected and more influential leader.

The 'Whole' CFO

Ultimately, what the CFO of tomorrow needs to become a whole leader is people skills and real courage. Of course, the discussion of these attributes is nothing new; the idea has been around for decades. What has changed, and what is new, is that the CFO of today and tomorrow is now being evaluated as much on aspects surrounding people and courage as he is on his cognitive abilities and technical aptitude.

In the end, Wes's role as CFO of a Fortune 500 company has made him very financially successful. Unfortunately, Wes thinks he is too old to change. He's from the "old school," he says, and looks now toward retirement because he doesn't think he can make the changes required of him. Wes looks forward to his Arizona retirement with one regret: that he was unable to write his own career ending.

The CFO who isn't quite ready to retire yet can learn from Wes's experience. It is indeed possible to redirect a career path that isn't going the way it should. The first step is to acknowledge the need for change, seek out some honest feedback and listen to it, establish an honest dialogue with the CEO and find a coach who can offer new ideas and help reconceptualize the role of CFO. Executive coaching can help direct the CFO's efforts toward learning his or her own derailers and taking corrective action before those issues compromise his or her own effectiveness.

Second, start taking real risks to grow relationships. Let go of controlling information and put forth information and ideas that will help open doors to new and better ways of relating to people, both internally and externally. Create a network of influence and real partnership that includes more than just finance people. The only way to develop guts is to take risks and stretch toward new experiences, assignments and environments that force a CFO to rely on others and invest in relationships.

This is a true tale of two CFOs--however, soon there will only be one. Will's career ending has yet to be written. While he may not necessarily become the CEO of his company, he has developed whole leadership skills that will serve him well wherever he eventually lands. With his focus on partnership and people, Will can leverage his technical skills into a future with a wide range of opportunities and options to match his ultimate goals.

David L. Dotlich is President of the Mercer Delta Executive Learning Center, a global provider of senior executive programs. He is coauthor of five best-selling leadership books, including Head, Heart & Guts: How the World's Best Companies Develop Complete Leaders (Jossey-Bass/A Wiley Imprint, May 2006).

RELATED ARTICLE: Overcoming Derailers

CFOs facing a changing world and business climate will often find that the very personality traits that helped them achieve success will also be those that potentially can cause the greatest damage to their careers. Some derailers common to CFOs include:

* Focusing too much on results and numbers and ignoring people;

* Relying too much on his or her own technical aptitudes and not enough on the strengths of others; and

* Hoarding information in the interests of looking like "the smartest guy in the room."

To avoid falling victim to one of these or other personal derailers, CFOs must focus on managing their derailers by:

* Focusing attention on the private moments of self-doubt: CFOs need to look at those moments when their derailers appear and examine them outside the heat of the moment.

* Identifying the pattern: By examining those moments when the derailers appear, a CFO can see the triggers and patterns that precede those derailers and begin to manage those situations effectively before they get out of hand.

* Presenting evidence linking the derailer to a negative work outcome: CFOs need to be confronted with data that clearly demonstrate how derailing behaviors have negative work outcomes.

In all these areas, a good executive coach or trusted colleague is essential to the process. Such a person can point out derailers when they appear, tie them to patterns of behavior or specific work outcomes and act as a guide in the process of learning to manage these derailers.

RELATED ARTICLE: Self-Diagnostic: Does Your Organization Lean Toward Whole or Partial Leadership?

An organization that focuses primarily on just one or two aspects of leadership development leans toward partial leadership. Using the following questions, assess if your company leans toward just one or two aspects of development, or if it instead focuses on a whole leadership approach--one that integrates head, heart and guts.

* What percentage of your leaders would you categorize as "the smartest person in the room?"

* Does your company factor heart or guts criteria into recruiting?

* Does your company's performance-review process emphasize any heart or guts criteria?

* Does your executive-development effort emphasize skills, training and the classroom?

* What adjectives are used to describe your CEO?

* What traits do the top leaders of your company have in common?

* Would you categorize your culture as being primarily head, heart or guts?

* How will future business challenges impact the mix of head, heart and guts leadership requirements?

RELATED ARTICLE: takeaways

** CFO leadership in today's complex organizations is a business imperative that comprises individuals with "whole" leadership skills in three areas: head, heart and gut.

** The need for CFOs with cognitive skills is growing, as evidenced by a Mercer/Russell Reynolds study showing CFOs with either a CPA, MBA or both increasing since 2000.

** Effective CFO leaders are required to build relationships with not only the CEO. New emphasis is required for releationships with internal and external sources.

** An aspect of leading with guts is the capacity to act with unyielding integrity, which means telling the truth about business facts, as well as what he or she is thinking.
COPYRIGHT 2006 Financial Executives International
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2006, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

Article Details
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Title Annotation:chief financial officers
Author:Dotlich, David L.
Publication:Financial Executive
Article Type:Cover story
Geographic Code:1USA
Date:Jul 1, 2006
Words:3487
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