How ‘above average’ CFOs can double the value of their company in under six years

“Above average CFOs have to double value,” Ajit Kambil, global research director for Deloitte’s CFO program wrote in a LinkedIn post on Sunday. “I believe the primary purpose of a CFO is to grow and preserve company value. If the S&P 500 doubles approximately every seven to eight years, and average CFO tenure is between five and six years, CFOs above average should double the value of their companies during their tenure.”

So, CFOs have about half a decade to outline a clear value-creation thesis that needs buy-in from stakeholders, both internal and external, and put it into action. But nowadays there’s a broader set of stakeholders to consider. From regulators paying close attention to ESG activities to influential customer groups, there are calls for more extensive reporting.

What can finance chiefs do to begin to drive their organization’s long-term value creation that reflects all of these stakeholders?

Kambil is the coauthor of Deloitte’s latest research that points to a new Sustainable Value Map. The research finds the guidelines are “transformative” in two areas where CFOs and their finance teams often have a strong impact: capital budgeting and performance measurement.

Capital budgeting

Building the company’s value-based thinking into the capital budgeting process can specifically happen when creating business case proposals, according to Deloitte. So, besides answering the typical financial risk and strategic questions, proposals might be expected to answer questions like: What does the proposal look like through the lenses of employees, society, and environmental impact? 

For example, if your company is considering layoffs during an economic downturn, how will that directly impact employees and affect the perception of the company? “We’re not going to do company-wide layoffs,” Dan Durn, CFO and EVP of finance, technology services, and operations at Adobe, told me in March. “We don’t need to do that, and we don’t want our employees worried about when the next shoe is going to drop.”

Deloitte poses other questions to consider:

— Key impacts: What are the most substantial and important positive and negative impacts across all stakeholder groups?

— Tradeoffs: What tradeoffs are being made across stakeholders, and what are the options for balancing or mitigating these tradeoffs?

— Resource access: How might value created for each stakeholder group promote longer-term access to key resources like talent, natural resources, or community support?

Performance measurement

If you’re using a balanced scorecard or KPIs that are decades old, it’s time for a refresh. For example, Prudential Financial reached $765 million of annual run rate cost savings in Q3 of 2022, exceeding a target of $750 million, one year ahead of schedule, and the process included a metrics refresh. “Our efforts have focused on four key areas: improving the cost structure, adopting new ways of working, building a highly skilled talent pool, and delivering a seamless customer experience,” Prudential Financial EVP and CFO Ken Tanji told me in January. “To keep us accountable, we introduced 12 metrics and tracked our progress against them.”

Deloitte’s report has the following suggestions:

— New value metrics: You can define outcomes important to nonshareholder stakeholders, and their corresponding “headlight/taillight metrics.”

— Key resources/inputs: Track availability of key talent, societal, and natural resources.

— Key risk indicators: You can identify potential threats to value-creation performance and key resource availability.

In the process of value creation, don’t forget to keep stakeholders in the loop, the research suggests. For example, improving the quality and timeliness of information provided to regulators and supply chain partners, or providing easier ways for employees to manage their finances, Deloitte suggests. 

Whether you’re new to the role or a few years in, the clock is ticking.

Sheryl Estrada
[email protected]

Big deal

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Leaderboard

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Overheard

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