VALUE BEFORE PROFIT

CFOs must adopt a value-centric approach if the finance department is to retain its strategic role for businesses. A strong body of research has been developed in recent years, much of it carried out by ACCA, that tracks the changing role of the CFO.

By Liz Fisher, journalist. First published in the ACCA AB Magazine, June 2023

While the role of the CFO is fundamental to organisations, it is not static, and its trajectory is being informed by the need to create sustainable organisations that deliver value to a broad range of stakeholders. In particular, the traditional view of assessing organisations in terms of profit (and reporting on their performance in these terms) is being replaced by a wider consideration of value. As a result, a new role, a chief value officer (CVO) responsible for the creation and measurement of value, is beginning to emerge in some organisations. But what does that mean for the CFO?

A new report from ACCA and BDO, The chief value officer: the important evolution of the CFO, examines the emerging role of the CVO, drawing on the views of almost 100 finance leaders worldwide.

On the basis that CFOs are increasingly adopting a value-centric approach, the report argues that the CVO is a natural extension of the CFO role, and is one that professional accountants should prepare to embrace.

Enablers of value

The report begins by dissecting the meaning of value within an organisation, starting with the six capitals of the International Integrated Reporting Council’s Integrated Reporting Framework, which it describes as the ‘enablers’ of value, or the levers an organisation uses to create value through its activities.

Organisations convert these enablers into value (and report on its progress) through a combination of people, processes, technology and data – for the benefit of a wide range of stakeholders that goes well beyond financial stakeholders.

Value is a long-term concept, and its generation is continuous. This means that while the financial perspective may remain paramount, CFOs are increasingly being asked to balance financial and non-financial drivers.

‘As an all-embracing concept, value optimisation may necessitate taking decisions that are not, in strict terms, financially optimal,’ explains the report.

Existing skills

So what does this mean for the current skillset of the CFO? CFOs require a combination of financial, business, value and data acumen, as well as skills in project and change management, and ethical awareness. Is this sufficient to meets the demands of a CVO role, or will additional skills be needed?

Finance professionals taking part in the discussions that informed the report argue that many of the requirements of a CVO role are already being undertaken by the CFO, and that their role as CFOs has already moved significantly beyond the traditional perception.

One participant explained: ‘The role of the modern day CFO is more like a T-shape where you have got that depth of knowledge from an accounting perspective but then you have got the bar along the top with a broader understanding of different parts of the business that you link to integrated reporting, and it brings in different points of what we say value is about being… the worth or the usefulness of something to the business or whatever your objective may be.’

No room for complacency

The report concludes there is no need to rebrand the role of the CFO but adds that the profession should not be complacent: current CFO roles will benefit from continuing education programmes in key areas to maintain skills and ensure CFOs can step up to satisfy the value agenda. Future CFOs will need mentoring, support and continuous learning opportunities to ensure they are prepared. ‘A failure to do so will lead to a marginalised finance team and CFO role,’ warns the report, ‘as the CVO requirement will be fulfilled by others, and finance teams will remain focused upon historic reporting with less value-add.’

The report makes several recommendations that leaders can take to embed value-based concepts into their management and develop their finance teams (see panel).

‘I think as the CFO we must recognise that we are now becoming a contortionist,’ said one CFO contributor. ‘The world is changing, and the expectations of our roles are likewise evolving.’

Awareness of the demands of a value-centric approach to business, and careful preparedness, will ensure that CFOs will rise to the challenge.

Get A Grip On Value

• Consider the organisation’s definition of value and how this may be applied across the range of recipients of value.

• Consider the value-based outcomes of the organisation’s sustainability transition plan.

• Assess how each of the IIRC’s six capitals works to create value for the recipients of value.

• Consider how real-time reporting across the capitals can be incorporated into performance management processes.

• Appreciate that performance management relies on a combination of financial and operational data.

• Establish a democratisation of data across the organisation to enable a collective view of performance and value.

• Use strategy to formalise the link between value and the organisation’s values.

• Establish a leadership structure that focuses on value.

• Consider the development path for those currently in the finance team to ensure they have embraced the concepts necessary to perform their expected role.