Marie McCrea, Partner CIL: CFO - A Vision for the Future

Marie McCrea, partner at the Centre for Innovative Leadership (CIL), held an interesting presentation on the role and challenges of modern CFOs at the CFO South Africa Event Get Smart in 2014, March 13 at the Saxon.

Read her full presentation here below:

Good evening ladies & gentlemen.  It is a privilege to be invited to say a few words to here this evening.  

I want to start by saying although an accountant by profession and a fellow of the ACCA I have not followed a typical finance path in terms of my career development and job options.  My training and experience has brought me through 15 years in the Financial Services industry in Europe with blue chip companies such as JP Morgan, Dresdner Kleinworth Benson and my alma mater – Irish Life – like an Old Mutual here in SA I believe. 

I was inducted into the world of the CFO when I held this role for a pan European Public Affairs company operating in 19 countries, and it was there I learnt that understanding the numbers alone (I’m over simplifying of course) is not enough – engaging with the people, the organisational system, the cultural differences was and remains key in ensuring an understanding from my side of how an organisation works and also how to enrol and influence the organisation in the changes that may need to be made. 

I have not since then taken on a CFO role.….but this experience led me to want to understand in more detail how organisations work and how I could equip myself to support organisations and individuals in managing change on a continuous basis.

For more than 10 years now I have been an independent consultant and partner at the Centre for Innovative Leadership. 

We are an organisation that supports through our consulting and capacity building initiatives, organisations and the individuals in them to better navigate the future.  We believe it is necessary for our clients to be resilient in the face of the continuous disruptive changes we are facing.  We use scenario-based strategy underpinned by systems thinking as the foundations for our approach.  In other words we accept the uncertainty of the future and the interconnectedness of everything.  I will come back to these two later.

I am sure over the generations many have said this but I believe we are at a time in our history when the rate of change has increased exponentially especially in the arena of technology.  Globally we are seeing dramatic changes not just in technology but also in the political and social arenas.  Our own financial sphere is also undergoing probably the most dramatic challenges and changes since the time of the Great Depression and there is more to come.

I do not envy you in your position as CFO.  I believe you are faced with a higher level of regulation & compliance than at any other time.  Our profession is still not trusted following the financial crisis of recent years and the environment outside of your organisations is in a state of uncertainty and continuous rapid change.

Stakeholder demands are often high and appear conflictedmake me lots of money as a shareholder for instance but I want you to continue to look after the people in your organisations and in the environment your organisation is working in.

We are currently in my opinion also in an environment which creates lots of income and work for accountants and lawyers.  The challenges of regulation, reporting, strategy and planning are in my opinion being approached with ‘old’ thinking.  Although I suspect each of you knows something needs to change you are not sure how to approach this challenge and the change needed.  I believe you also feel ‘comfortable’ here – there are boxes and clear rules to follow that you understand but the question is are you really adding value and helping build a resilient organisation? 

So the question is how do you, as CFO’s make yourselves and those who follow in your footsteps ‘FIT’ with, and for the Future and what it may hold– and remember if you do not FIT you become ‘extinct’. 

For me there are three areas that I would like to raise this evening.

  1.  The ability of the CFO and finance leaders to navigate the future and deal with its uncertainty - for me scenario-based strategy is the key.
  2. Systems thinking – the ability to understand the organisation and the environment you are operating in and be able to provide feedback loops that support this system.

And finally

  1. Taking a stand – holding to our professional ethics and ensuring we remain true stewards of the assets you are entrusted with along with your fellow directors and executives while still ensuring you don’t hold the system to ransom with heavy bureaucratic processes.

Let me start with a story:

Imagine - I am an Oracle – I can tell the Future. It is 1990 in South Africa and you work for a large corporation.

Are you there yet – are you imagining yourself in 1990 South Africa?

I am talking to you and the Executive Team and asking you to include what I am about to tell you in your strategy and planning process.

In the next 5 years the ANC will be unbanned, Nelson Mandela will be released from prison, the National Party under the leadership of FW De Klerk will give up power and make visible their nuclear capabilities, there will be a peaceful transition to a democracy.  In addition the country will have the lowest level of inflation for over 30 years.

Well would you believe me?  And more importantly would you use this information in your planning process? I think they would say I was smoking something and dismiss this as not probable. You would have ‘an official future’ and plan according to that.

However if you did scenario planning and integrated the above items as part of one possible scenario/future then it would have more a chance of remaining on the raider and being in the thinking of the leaders.

So to assume the future is plural is a safer way to navigate the future. Scenarios remember are a well researched history of the future in 2, 3 or 4 versions – quality scenarios are relevant, challenging and plausible – so they address the concerns of the leadership, they challenge their thinking (assumptions, the mental models you have in your head) and they are plausible – based on deep research and analysis – not a brain storm and imaginative leap of faith!!

In more recent history as CFO’s did you foresee the events in Marikana in August 2012 and more importantly the knock on effects it has had on your company. 

Maybe you are not directly involved in the mining sector but like the financial crisis that began with mortgage debt problems in the US the knock on effects of such events are felt by many.

As accountants we aim for precision and want to be right.  In a billion dollar business a 1% error is not trivial!!   When it comes to the future we say it is better to be approximately right than precisely wrong. 

As CFO’s if you and your organisations are still using traditional strategy & planning methods such as forecasting often around an ‘official future’ and single line projections combined with probability analysis I’m afraid to tell you your margin of error is likely to be a lot more than 1%. 

I am not saying predictions don’t have a role to play but if we consider the weather – we know that the most computer power in the world is invested in predicting weather conditions and yet even with this computer power and expertise we can only predict with accuracy 2-3 days forward on average.  We call this the predictability horizon. 

If you go too far into the future with this methodology just when you need predictions the most they let you down. 

I find it interesting when engaging with this how we ‘know’ that the future is uncertain yet we like fanatics continue to apply methods to resolve this uncertainty that don’t address the complexity or the uncertainty even in the face of disproving evidence.

Maybe this is not surprising when we consider that the management sciences are still in same stage of development as blood-letting was to the medical profession.

So if you don’t know what the future may hold how can you and the organisations you lead, understand the competencies needed to survive let alone thrive.

One of the main roles of the CFO is to oversee ensuring that the current reality is recorded and reflected accurately to the external environment through financial statements as prescribed but also through quality management reporting internally.  This is achieved through formal Annual Financial Statements, Quarterly Reporting and internal management reporting and Key Performance Indicators (KPI’s) using maybe a dashboard/traffic light system.

You also need to ensure your budget process is in the service of the strategy and is in effect the financial treatment of the strategy and operational planning process.   And the strategy of course needs to be robust enough to stand up to the different environments your organisation may find itself in – that is the world of scenarios. 

If there is a disconnect between these two – i.e. your strategy & budgetary process and if volumes of man hours continue to be spent on a budgeting process that is not in the service of the vision and purpose of the organisation I believe you are not servicing your organisation well and it will not be resilient in the future.

Currently our profession and CFO’s are here to ensure quality feedback loops to both external stakeholders as well as management and decision makers internally. Remember the purpose of feedback loops is to give signals back to the organisation and tell you if you are on / off track. Without them and/or with the wrong signalling system the organisation does not receive the right message and is unable to know if correction is required and where.

We have mastered to some extent the art of the financial feedback loops.  However we are now in the middle of a challenge which presents us with both risks and opportunities.  The emerging requirement is to be able to provide feedback loops on the people – our human resources and the planet - the environment in which your organisation operates.  The Global Reporting Initiative – GRI for which I know my own professional the ACCA is heavily linked with both locally and internationally is setting the standards and requirements for this triple bottom line reporting.

In my opinion to date the attempts at reporting within organisations in these two broader areas has been limited and has been approached in the same way as we would financial data. 

It is also in my opinion that it is being done because of compliance requirements rather than because organisations have fully bought into and understood the benefits to them as an organisation long term. 

If you continue to measure what is easily measureable and what you as finance professionals understand through your lense, your set of assumptions about how things work, you will not be servicing your organisational needs or those of your stakeholders.

The additional challenge of course is that our profession has been trained to deal with what we call convergent problems – i.e. you take one step and you move closer to the solution i.e. fixing a window or a car.

However neither life nor organisations are that simple and in organisations we are dealing with a human activity system where problems are divergent in nature.  This means that you take one step and as a result all other steps change.  Like raising a child!

To equip us for not only understanding those areas which you are being called upon to measure and provide ‘feedback loops on’ but also to ensure better strategy and decision making I believe you need to use the uncommon sense of Systems Thinking.  This is where we look below events level information to the patterns emerging and from there get an understanding of the structure.  It is only by engaging with issues at a structural level that we can hope to understand how the system operates and to intervene with it and make effective and sustainable changes.

Sadly our tertiary education system not just locally but internationally continues to focus on and equip not just finance professionals but most 3rd level students with the ability to resolve only convergent problems.

In addition we seem trained to look only at events level information.

Our media typically reports on events level data. There are a few exceptions to this – such as The Economist and Aljazeera and also ENCA news locally.  They take a more systemic approach.  They provide you with information on not just the events but also the patterns and allow you to make a more informed opinion about what is determining the structure of the events we are seeing.

Imagine that you look at your organisation through the lense of a gardener rather than a motor mechanic.  You will understand that if you prune at the wrong time of the year you can kill the plant or at best cause it to take longer to recover.  That if you do not rotate crops the soil suffers and unless the soil is healthy your crops suffer. 

So in our approach to change and often ‘cost cutting’ if you make decisions that are not based on a structural understanding of the system you could shed knowledge out of your system that took years to build and even if it is recoverable the opportunity cost may far outweigh the original saving you tried to make from the ‘cut’.  This is what we call unintended consequences.  Often good intentions - but misinformed.

In SA at the moment for instance the impact of decisions made in the education system 20+ years ago are playing out today. The impact of the current 60+ % unemployment in youth is yet to play out fully. 

I’d like to make clear though that when we use systems thinking we do not have blame or innocence – all of us are in the system and part of it – and the structure we have is perfectly designed to give us the results we have – both good, bad and indifferent.

So until we engage with and understand the system we live and work with structurally any intervention will create unintended consequences even with the best intentions motivating the decisions.

So please start looking below the surface of the iceberg or maybe more appropriate to Africa – look below the ears and eyes of the hippo we see in the water!

The last area I would like to address is the one of the attitudes and values of finance leaders.  We speak often about the competencies needed for the profession now and in the future but most of these models look at knowledge and skills only, they usually leave out what I believe are key competencies i.e. the attitudes and values needed.

I believe the need for our finance leaders to take a stand will be even more critical in the future.  This will not be an easy task – as you will be buffeted both from within and outside your organisations.   However this is a key role for our finance leadership – we have many a CFO and organisation that have fallen victim to pressures from internal and external stakeholders to ‘adjust’ the books/reports to support a tender or just turn a blind eye while still appearing to be compliant but in reality a white wash – Enron and Arthur Anderson being well known but in more recent times the banking sector has also succumbed.

In SA we are in an environment where sadly corruption appears to becoming the ‘norm’.  As finance leaders we need to lead the way. To have our integrity beyond question. 

To lead by example and to be trust worthy in the very essence of our being. 

If we fiddle on our expense claims or turn a blind eye to it in our organisations, how can we be entrusted to be stewards to shareholder funds.

We cannot develop the type of finance leaders we need if we ourselves are not leading by example. 

In choosing our future finance leaders we need to ensure they are not chasing the ‘profit’ alone but who take seriously the responsibility of the assets they have been entrusted to oversee.  Our professional bodies need to support us actively in this task and in Africa their role is critical in ensuring our members adhere to our professional standards and ethics that we signed up to.

I would like to challenge you here this evening to be part of the push where our future financial leaders move us away from old thinking and out of comfort zones, to engage with the uncertainty of the future and use the new methodologies available with the support of remarkable technological advances, to support you in creating robust strategies that help meet your organisations purpose and vision.

To move away from an environment of compliance for compliance sake (please, please) and towards enrolment and commitment.

To engaging and supporting our organisations in providing effective feedback loops that speak to the organisations needs and the individuals in it

And in the face of many forces are capable of taking a stand and leading through example - only then can we hope to create resilient organisations that meet the needs of all our stakeholders and leave a real legacy for future generations. 

Thank you for listening.

If you also want to be part of the leading CFO South Africa Community or you want to know more about hosting a CFO South Africa event, you are most welcome to get in touch with CFO SA. Please contact Jurriën Morsch at jmorsch@cfo.co.za

Copyright CIL Ltd 2014.  All Rights Reserved used under licence by authorised CIL entities.

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Tags: CIL, Centre for Innovative Leadership, Marie McCrea, insight, partner

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