Finance Director
The finance director is someone who oversees the finances and finance department of an organisation, business, institution, or agency. In the USA they are described usually as the Chief Financial Officer CFO.
Their role is to make sure that the finances are kept straight, to inform other members of the organisation financial issues and to the public or to shareholders where applicable.
In order to become a finance director, they should be qualified, have a background in accounting, or hold a Master’s in Business Administration MBA. It is advisable that at least one member of the board should be qualified in finance, this is designed to ensure that people with accounting expertise are involved in decisions which impact a company’s accounting practices.
Finance directors should be responsible for managing financial risks, advising the organisation to invest wisely and manage their finances intelligently.
They also deal with issues like long term financial planning, financial record keeping, budgeting, forecasting, and issuing financial reports. Finance directors usually belong to the board of directors, reporting to the board when they make decisions or have recommendations, and the finance director is accountable if a company is audited and its financial practices are called into question.
1. They need to be good with finances, they also need to have excellent people skills so that they can communicate about financial issues with non-finance members of their organisations to achieve the goals of the organisation.
2. They need to be familiar with the laws & regulations which affect the organisations they work for, and with the accounting standards and practices relevant in their country.
3. They need the skills to deal with diverse people and situations, the ability to make difficult decisions which should be in the long term best interests of the organisation.
As the business environment changes, so the role of the finance director must change to meet the challenge. They need to be able to adapt to the changes. No more just the keeper of the accounts, they are now often the guardian of the company’s commercial strategy and an integral part of the planning process.
The finance director of the future should be a team player, able to make informed financial decisions which take into account the customer, the strategy, the risks, the people, processes, culture and systems of the business.
The many hats of the finance director include:
• Director and strategist
• General manager
• Planning manager
• Venture capitalist
• Relationship manager
• Financial manager
• Treasury manager
• Auditor: corporate governance
• Corporate finance manager
• e-Commerce manager
• Risk manager
• Resources manager
• Information manager
• Quality manager
• Strategist
• Venture capitalist
• Commerce manager
• Risk manager
The Role of The Finance Director has changed in the past five to 10 years
The whole pace has stepped up a gear. Capital markets have evolved dramatically in the past five years and continue to evolve.
As a result, the capital markets function has become much more central to the finance director role. Financing has become much more sophisticated and the products used for raising capital—including equity, debt, and a range of other instruments—have a much shorter lifetime.
So the finance director has to be much more aware of his products and able to make decisions more quickly. In the old days, you could plan something six months ahead. That’s no longer possible.
The markets today have been frozen. In the short term, the finance director role has been much more about looking at cost reduction and free cash flow optimisation, rather than the capital market activities, which have been shut down. The finance director role has become a much more inwardly focused function than a year or so ago.
The capital markets have not been nearly as active as they were in the period between 2003 and 2007. They have been going much slower and look to continue to be slow for a very long time. It is much more difficult and expensive to raise finance in today’s markets, and the focus tends to be more on the cash flow a company generates, rather than raising it externally from third parties.
As a result of Sarbanes-Oxley, corporates are obliged to be very transparent. They have to publish earnings releases quarterly, disclose numbers every quarter, and respond openly to detailed questions from investors. Document clearly decisions that are made and the reasons why.
In contrast the hedge funds and long-only investors who are asking these questions are under no obligation to tell you how many shares they own, or indeed if they have any at all. There’s an un-level playing field in transparency. Investors want all this transparency, but they’re not under any obligation to being transparent themselves
The Finance director today needs the skills to bridge the gap.
The best weopon the finance director has are the financial results themselves. However, there’s lots of leeway in terms of how these results are presented. You can present the same set of figures to the same accountancy standards. However, one version could be made so opaque that hardly anybody understands it, and another could be written so transparently that everybody instantly understands the issues. It takes great skill to communicate clearly financial information ethically and to standard.
Finance directors need to be more aware of non-financial performance indicators, including the environmental and social impact of their business, over and above their existing focus on financial performance. Many of the finance directors of today are not currently equipped to do this. The finance director should be worried more about these measures. In the future, companies are going to have to properly allocate resources to measure all of these.
We have courses that help to empower the finance director and his teams to help them skill up and adapt to these changing times.
Some useful sites:
http://www.financialdirector.co.uk
http://www.financedirector.com