Consulting Corner

Today's CFO: Triple Threat?
by Andrew Davidson

Clark Simpson inbounds the ball to Jim who passes it back to Clark. During the week, Clark is CFO of Gold Bank, but today he is the hard driving guard in his weekly game with his old buddies. As Clark moves up court he shouts out the score “24-20,” and moves up to the top of the key. He drives toward the basket and pulls up for the jumper. There is a sharp slap on his hand as he releases the ball. Clark sinks the shot and calls the foul. “26-20,” Clark calls out as he sets up for the foul shot. Just like work, he thinks, I run the portfolio, keep track of the accounting and enforce the limits.

While being the playmaker, score keeper and referee might be okay for the weekend pick-up game, the conflicting roles of the Chief Financial Officer is inappropriate in a large financial institution. Traditionally the Chief Financial Officer function encompassed the Controller (accounting functions) and the Treasury (capital raising functions) of the corporation. In financial firms the Treasury function has been extended to include managing the investment portfolio and determining transfer pricing rates for all loan products. In some firms the risk monitoring function also falls into the purview of the CFO. In an era when we are aware of the needs for segregation of duties, this overlap should be eliminated.

The difficulty with the role of the CFO may extend from the difference between an industrial company and a financial company. When I was just out of business school, I worked in the Treasurer’s Department at Exxon. In an industrial company like Exxon, the role of the CFO as Controller and the role of the CFO as Treasurer are both staff functions. As Controller, the CFO measures the performance of the company. As Treasurer, the CFO raises the funds needed for the firm to meet its operating needs and sets standards for performance to match or exceed the cost of capital.

In a financial company, the management of the investment portfolio and issuing of liabilities are not functions in support of the business, they are the business. Because management of financial assets is integral to the business, it does not make sense to have the asset manager also be the score keeper. When I worked for the Treasurer’s department at Exxon, they did not delegate the accounting function to the Production Department.

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