The Role of the Financial Manager - Essay Example

Do you think finance departments are the best place to train future CEOs?   From an investor’s point of view, the finance department is the best place to train future CEO’s. Investors purchase corporate stocks for the primary purpose of earning a good return on investment and worry less on risk exposure. In most cases these stockholders, represented by their chosen directors, decide on who should run a corporation. In effect CEO’s are expected to work in behalf of stockholders and protect their interest by ensuring that business decisions will result to increased profit and maximized shareholder’s stock price.

Therefore it is imperative that the CEO knows how to manage investment and protect the interest of shareholders. He must be able to strategically plan ahead and decide on policies and activities that would increase operating income and stockholder’s equity. Evidently, the best candidate to the CEO post should be the CFO. Maximizing wealth is not something that is new to a CEO who has been managing the finances of the organization. The primary role of the CFO in the firm is to plan strategies and pursue activities that will improve the total value of the firm.

In most successful organization, CFOs basically work side by side with the CEO in strategic planning and decision making. He has developed excellent communication skills as he present the current financial condition of the firm to different stakeholders, has been closely oriented with the company’s product and operations, has been consistently working in line with the company’s vision, and has been able to develop managerial skills. However this does not absolutely imply that all CFO’s make successful CEO’s.

The total personality of the CFO, his business acumen, the quantity and quality of his past experiences, and his continuing passion for the organization combined, make for a better CEO. D. Wayne Calloway, who became PepsiCo’s CEO in 1986, is probably the best example of how a former CFO can turn into a very successful CEO. As a former CFO he has knowledge of the financial performance of PepsiCo, that it was already almost stripped of cash and unable to pay dividends, but Calloway knew what to do and getting the highest post gave him the opportunity to direct PepsiCo.

He knew the core competencies of the organization, he has identified the cash cow, he knew how to choose the right people and how to work with these people, and he created the right environment. He knew how to generate 500M in cash surplus after paying dividends in a matter of three years. Provide two actual examples of CFOs of publicly-traded companies who became CEOs of publicly-traded companies within the past 5 years.  Do these individuals have the CPA and/or CFA designations? 1. Mr. Hans Vestberg CEO and President of LM Ericsson Telephone Co. Mr. Vestberg graduated with a Bachelor of Business Administration Degree from the University of Uppsala, Sweden.

Right after that he joined Ericsson and worked in the Accounting division of the Production Department. From 1998 to 2000, Mr. Vestberg served as Chief Financial Officer of Ericsson Brazil. From 2000 to 2002, he served as Chief Financial Officer, North America and controller market area Americas. After that, he has held various executive positions in China, Sweden, Chile and Brazil before he became the Chief Financial Officer and Head of Group Function Finance until October 31, 2009. For three months he was First Executive Vice President and held the highest position as CEO and President on January 2010.

It is not known if he has a CPA or a CFA designation. 2. MR. RICHARD WHITT, CPA, the CEO, Markel Corp. Mr. Whitt joined the list of finance officers who graduated to the CEO post. He was the former CFO of Markel Corp, a US$2.2-billion-a-year, American insurance company that is listed on the New York Stock Exchange. After five years as CFO, he was promoted last year and now named president and co-chief operating officer, equivalent to a CEO post. In an interview, Whitt commented on the evolution of the role of the CFO.

The new CFO is transformed into a partner of the CEO or COO, and is now more interactive with the client and with the overall operations of the firm. According to him the job description of a CFO has now changed. More responsibilities are expected of the CFO. The traditional function of finance officers can now be performed using software and other business solutions. Mr. Whitt’s comment is a matter of fact. The role of the CFO is transformed into strategic planning and decision making based on well interpreted set of financial information.

The CFO is truly the right hand of the CEO, and is therefore best prepared to take the role of the CEO.