Multifaceted, complex, and essential—a CFO can potentially make or break a business. While they must balance the direction of funds and investment (on a short and long-term basis), they must also be articulate in navigating the differing aims of stakeholders.
The role has evolved beyond simple financial management. A deeper understanding of internal stakeholders is crucial, but this understanding must now extend to include external stakeholders and their requirements.
Internal and external stakeholders
CFOs have the pressure of establishing greater communication between internal stakeholders, balancing and managing their expectations, and guiding collaboration and compromise within the framework of a wider business strategy. In this sense, they establish a degree of power, holding the purse strings of a business.
However, the CEO will still have final operational authority. An in-depth comprehension of the CEO’s objectives and needs is vital to ensure financial plans are put into action. Simultaneously, the CFO must balance the requirements of other internal stakeholders such as investors, the wider board of directors, executive committee members, project managers, and the finance team.
While this role is more established and accepted, CFOs must begin to extend their awareness to include the requirements of external stakeholders. This group will include vendors, consultants, influencers, trade unions, associations, social movements, and government regulators. Often, businesses will also include customers as external stakeholders.
This expansion of attention is well summarised by Maureen O’Connell, former CFO of publishing company Scholastic: “Just as organisations continuously evolve with the ever-changing global business climate, the role of a CFO is bound to change. A CFO needs to go beyond being ‘the finance operations expert’ to become a corporate strategist who can enhance the firm’s valuation and brand, and win over stakeholders’ trust and goodwill.”
A CFO can contact internal stakeholders directly through a variety of mediums, including discussing financial planning collaboratively during meetings. As external stakeholders are removed from the internal functioning of the business and are not always financially concerned with company performance, their requirements must be understood through more indirect methods. An external stakeholder—regardless of financial interest—is still affected by the outcome of a business’s decisions and strategy.
Why are external stakeholders increasing in influence?
Societal expectations surrounding business practice are changing, with an intensified interest in factors such as sustainability, ethics, diversity, and the ongoing impact of the Covid-19 pandemic. Consequently, businesses are under increased scrutiny over ESG regulations, climate-consciousness, and company culture.
This attention can derive from multiple external stakeholders. For example, government regulators are increasing their examination of diversity, sustainability and employee wellbeing following the concerns of the wider public. Customers are additionally becoming more aware of these factors, particularly sustainability, considering the current strength of climate activism.
Most importantly, the global nature of the Covid-19 pandemic triggered a monumental shift in the priorities of consumers, with many becoming more invested in the companies that they purchase from and how that company impacts wider society. CFOs must recognise these wider societal changes to remain in harmony with the wants and needs of external stakeholders.
Ignoring these demands has the potential to significantly impact a company’s brand, public image—and therefore profit. Alongside this greater awareness, CFOs need to find an important balance; the views of these external stakeholders need to be considered. However, they cannot be allowed to damage or distract from a financial plan serving its intended purpose. Compromise is a crucial skill but acts of compromise should not negatively impact company performance; they must enhance it.
Internal interactions and external relationships
While the importance of external stakeholder awareness is now established, the question remains concerning how these external relationships are managed. For a CFO (with more limited contact with external groups), it is vital to communicate the needs of these external stakeholders through internal stakeholder interactions. This includes the fundamental necessities of communication, collaboration, mediation, and comprehension.
This necessity is emphasised by Bob Shanks, former CFO of Ford Motor Company: “Operating a global business in a fast-changing world, you have to be grounded real-time in the external environment, have complete transparency, be fact-based and working with a great, collaborative team.”
A CFO needs to utilise these collaborations with other areas of the business to gain a more comprehensive understanding of external stakeholders. Regardless of whether external concerns are financial or not, the CFO must know the wider external environment within which the business is operating. This helps ensure external stakeholder relationships are effectively managed, remaining conscious of the ever-evolving requirements holding businesses to account.
Which internal stakeholders are most beneficial to external awareness?
There are a variety of internal stakeholders in any business, some with better connections to external stakeholders than others. Finance teams working under the CFO are likely to have a greater understanding of how business decisions are affecting customers and consumers. A CFO must ensure that the finance team is well co-ordinated. Data collection within the finance team should be utilised correctly to provide an accurate picture of customer and consumer behaviours, which can then be connected to certain business decisions or marketing campaigns.
For example, if an increase in revenue is identified after sustainability-focused business decisions (accompanied by the widespread advertising of the change), it can be assumed that customers are reacting well to the more eco-conscious approach. This is especially notable if the shift attracts new customers, consumers or clientele.
Project managers are likely to have a greater understanding concerning the current perspectives of trade unions, particularly when they are responsible for managing larger groups of employees. CFOs must also recognise the importance of expertise and advice in this area—the wellbeing of employees is one of the growing concerns among the public.
Trade unions have a significant impact on this focus, advocating for better working conditions in a variety of areas, particularly through the organisation of strike action. This strike action has been particularly prevalent throughout 2022 so far, with the London Underground Tube strikes causing significant disruption across the city. If a CFO were to ignore the impact of such trade union-orientated concerns, they would be ignoring a major concern post-Covid.
There are many other avenues that CFOs can use besides their finance team and project managers. Even surveying and interacting with employees at every level of the business can provide important insight into external stakeholder needs. The main advice to follow concerning the relationship between internal and external stakeholder needs is that CFOs need to be flexible, communicative, and most importantly, creative.
When interacting with a group that is less directly accessible, a CFO needs to interact collaboratively with multiple internal stakeholders. This will allow them to gain the comprehensive understanding that they need to make well-informed business decisions in the wider context of a changing society. Adaptability in communication style allows CFOs to interact with internal and external stakeholders on their level, fostering more positive relations.
Finally, creativity will boost a CFO in overcoming any obstacles blocking the assessment of financial planning within the context of external stakeholders.
Mohamed Chaudry is chief financial officer at subsea technology company SeaJet Systems.