Principles of Finance: The Role of the Financial Manager

Subject: Financial Management
Pages: 3
Words: 605
Reading time:
3 min
Study level: College

Introduction

Chief executive officer also known as the managing director is the highest-ranking corporate officer (Bragg, 2011). A CEO in an organization is in control of the management and gives reports about the organization to the Board of Directors (Bragg, 2011). As such, the Board of Directors sets all the responsibilities for the CEO; recently because of the increasingly complex nature of corporate finance most organizations are promoting their CFOs to become the CEO. This paper will assess why the CFOs are best suited for the CEO’s position in organizations.

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Discussion

One major responsibility of a chief financial officer in an organization is managing the financial risks of an organization (Bragg, 2011). However, a CFO is also responsible for budgeting, record keeping, and giving financial reports to the Board of Directors (Fitch, 2007). Generally, a chief financial officer is a crucial person in any organization. Owing to the fact that a financial officer represents a major responsibility in an organization, many of them are appointed to become the Chief Executive Officer in the company.

Foremost, one of the major reasons why CFOs are best suited for CEO’s position is because of their financial background (Bragg, 2011). The responsibilities of a CEO cover almost all aspects of management including financial matters, while the CFO has many responsibilities within the organization. Today, CFO is seen as the “financial gatekeeper” (Fitch, 2007) and for this reason, a CFO constantly advices the CEO concerning financial issues; due to this ability to multi-task, a CFO has an added advantage to become a CEO.

Secondly, chief executive officers are able to encourage investment in an organization (Brewis, 1999). When an organization is able to expand in terms of having many investors, this positive attribute also contributes to company’s success. Due to the changing role of CFO in the society today, the CFOs now have more opportunities to interact with investors and participate in building shareholders value (Bragg, 2011). Notably, this aspect makes CFO good ambassadors of investments that offer them an opportunity to expand in terms of career development making them appear more credible. This feature makes CFOs qualify as favorite candidates for a CEO position.

Finally, chief financial officers have an added advantage to become CEO due to emerging management issues within organizations. Organizational management has become a challenging role, but the financial officer can provide a solution because of their educational background. To boost productivity within an organization, companies seek an individual who can provide greater transparency and ensure that the management is adhering to issues of corporate governance and compliance code (Brewis, 1999). Because CFOs are able to perform both commercial and financial roles, they have knowledge and experience which enables them to manage risks and provide quality governance (Brewis, 1999).

On the other hand, CFO may be disadvantaged to become CEO’s due to lack of leadership skills (Fitch, 2007). Financial officer are able to integrate issues of financial management when it comes to corporate issues, however, leadership skills are equally important when it comes to corporate issues but they are unfortunately disadvantaged in this area. To improve communication skills and other leadership skills, financial officers should attend training seminars to become more skilled.

Conclusion

Today CFOs are graduating to become CEO’s; a good example is the recent promotion of “Former Aetna Chief Financial Officer Alan Bennett as CEO of H&R Block, Inc” (Chasan, 2011). Another case involves the “Yahoo Company where Chief Financial Officer Tim Morse” graduated to the CEO position in 2011 (Chasan, 2011). As such, it is evident that CFOs are favorite candidates for a CEO position as is evidenced by their suitable skills.

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References

Bragg, S. (2011). The new CFO financial leadership manual. New Jersey: John Wiley and Sons.

Brewis. J. (1999). How a CFO can graduate to CEO. Corporate Finance, 175 (13): pp. 29.

Chasan, E. (2011). When a CFO’s Become Interim CEOs. Web.

Fitch, T. (2007). Career opportunities in Banking, Finance, and Insurance. New York: InfoBase publishing.

Sturdevant, M. (2011). Former Aetna CFO Alan Bennett named as CEO of H&R Block, Inc. Web.