Nimble CFOs: Bank CFOs Take a Broader Role as Their Industry Evolves

The Shift from Historian to Strategic Partner

Across industries, the function of the Chief Financial Officer is transforming, and the broad, rapid change in the banking industry over the past decade has accelerated that evolution. "The CFO's role a decade ago was more behind-the-scenes," said Ed Sloane, CFO of First Business Bank, Madison, comparing it to today's dynamic, collaborative functions. "The CFO role has evolved over the years, but it's really the result of an evolving industry." The shift in focus from clerical to strategic has not necessarily changed the job descriptions of bank CFOs, but rather the expectations placed on them. "The definition of a CFO hasn't changed much, but the role and expectations have changed," said Nicholas Hahn, director of Financial Institutions Risk Advisory Services at RSM US, LLP.* "Typical CFO duties have transitioned to Controllers to allow CFOs to focus on more strategic initiatives." 

That transition means today's CFOs must keep their eyes on the future as well as the past, with the emphasis on forecasting. "The emphasis of what a CFO is to do has changed, and that's a good thing," said Gary J. Young, president & CEO of Young & Associates, Inc.** He explained that in the past, CFOs were simply very good at telling the CEO and the Board what had happened to the bank (ratios, growth, margins, etc.)—a vast underutilization of the CFO role, which should focus on improving profitability. "The role of the CFO is to lead and direct the organization financially," said Bob Makowski, CFO of Park Bank, Milwaukee. "That's so broad compared to what it used to be. The role used to be looking backward, focused totally on financials." Park Bank president/CEO Dave P. Werner agreed: "The role has changed from being that of a historian to being a forward-looking strategist, looking at the financial impact of the decisions we make operationally."

Prognosticator and Storyteller

No longer confined to number-crunching in a back room, today's bank CFO is a strategic partner to the rest of the management team, acting as both a forward-looking advisor and strategy advocate. As the primary source of financial information for the CEO and board—particularly relating to interest rate risk modeling, capital, and asset/liability management—the CFO is well-positioned to help design and execute the bank's strategic plan. According to Makowski, on a macro level this involves identifying the best balance sheet composition for the bank in terms of liquidity, investments, loans, etc. "Make liquidity and balance sheet composition a top priority," he said. "That's what you can impact every day, also looking at it long-term." Werner described it as being the "balance sheet strategist," that is, answer the question of how to best position the bank to lend to its customers while maximizing profitability, boosting capital, and providing a return to shareholders. Another significant duty of the CFO as the primary financial informer for the CEO and directors is regarding merger activity; regardless of whether the bank is actively seeking a purchase or sale, the board has a fiduciary responsibility to evaluate any opportunities that arise. "The ability of the CFO to understand and communicate critical valuation and accounting issues is very important," Hahn explained. "CFOs must be able to assist directors with that." Despite this emphasis on forecasting and planning, Young cautioned against forgetting to look at the bank's historical financial data as a source of information. "The CFO still needs to be looking back, but the emphasis should be on looking forward," he explained. One example of this is conducting a risk/reward study for every new endeavor the institution considers, Young said, pointing out that regulators now require banks to do such an analysis for significant technological or product offering changes.

CFOs: Expand Your Expertise at the WBA CFO Conference
"There are lots of different hats that CFOs are wearing today that they haven't traditionally worn. Their sphere of influence continues to grow." – Nicholas Hahn, director of Financial Institutions Risk Advisory Services at RSM US, LLP. 

Hahn will be speaking at WBA's upcoming CFO Conference, along with several other expert speakers. Join them and your fellow bank CFOs on November 16 in Madison for a full day of professional development and valuable networking opportunities. Visit www.wisbank.com/CFO for more information and to register.

The other facet of the CFO's role as strategic partner is to be an advocate for the bank's strategy, both internally (to staff) and externally (to shareholders and customers). "A CFO is more of a storyteller now," said Sloane. "We're constantly communicating and furthering the strategy of the organization and making sure employees at all levels understand what that is." This requires CFOs to be dynamic communicators—much like salespeople, which is a vastly different mindset from the past. "When you come into the bank each day, be thinking of what is happening today that will get you where you want to be in a year or two," Young advised. The strategic plan must be the ultimate guide for all day-to-day activities. "Every decision that you make as a CFO needs to support the long-term vision of the company," said Sloane. "You need to truly believe in it and push it out, both externally and internally."

How to Pivot

For bank CFOs still wearing the 'head accountant' hat, there are four key actions to consider that will help you effectively transition into a strategic partner. Fair warning: as the CFOs' role and responsibilities have expanded, most of these steps require CFOs to venture outside of their comfort zones.

1: Minimize the Minutia

"Like with any c-suite position, when a CFO gets caught up in the minutia they're not leading, not managing the bank; they're managing details," said Young. "If you're caught up in the details every day, the CFO becomes a bookkeeper." Not only does this detract from the CFO role, it's also highly inefficient: no company should pay an individual $120,000 per year to spend six or seven hours every day doing $50,000 per year work. Makowski pointed out that sometimes minutia comes disguised as operational requests from other departments, since the CFO and their team are generally viewed as financial problem-solvers. However, CFOs must be careful not to take on work that could be performed in other areas. "You want to be helpful and a team player, but that's not where you maximize value for the organization," he said.

2: Assemble a Top Team

Knowing when to delegate is closely related to avoiding minutia, and it first requires having a capable team to delegate to. "One of the top priorities for a CFO should be to assemble a team with the right mix of expertise to address the wide variety of areas necessary for the institution's success," said Hahn. The breadth and depth of a CFO's oversight has expanded dramatically; CFOs must be able to rely on their team. "CFOs need to be increasingly involved in attracting, growing, and retaining talent," said Hahn. Sloane pointed out that having the right staff can help the CFO avoid distractions. For example, he explained that First Business Bank has a designated Chief Accounting Officer—which is unique in banks of their size—and that allows Sloane to focus on the bigger picture. "Having a top-notch staff is critical to allowing the CFO to be a strategic partner," he said. 

3: Utilize Technology

Long gone are the days of handwritten ledgers, but some institutions still cling to their trusted Excel spreadsheets; upgrading that technology can streamline strategic initiatives. "Having a robust profitability system that can break down the company in a number of meaningful ways is incredibly important for a CFO," said Sloane. "That technology is essential. Having robust systems and infrastructures in place to allow you to dive into the details is really critical." Two of the most significant ways a CFO can impact their institution's profitability is being proactive about liquidity management and effectively modeling interest rate risk, according to Young, and technology facilitates those tasks. "To a CFO, the technology changes that have taken place only make the job easier," said Young. "There's so much information at your fingertips now. The key is to look forward."

4: Build Relationships

Finally, today's CFO must escape the back room and interact with a wide variety of stakeholders: other bank staff, shareholders, regulators, vendors, and peers. "CFOs need to be relationship-builders," said Hahn. "Effectively identify the people you need to bring together and then manage them." He cited CECL as a good example of something that requires the CFO to assemble an internal team; it impacts accounting, risk management, lending, and even IT. Outside of the bank, CFOs have become much more engaged with shareholders. "The CFO plays a huge role in investor relations," Werner explained. "Investors need to have confidence in your CFO." Regulators should share that confidence, too; fostering relationships with regulators is an important piece of the CFO's compliance responsibilities. "You need to develop those relationships and fully understand what the hot topics are so you can be responsive to regulators," said Sloane. When it comes to highly technical areas outside of the CFO's areas of expertise, Hahn recommends developing relationships with vendors who are experts in that area (whether their assistance is contracted or on an ad hoc basis). "Don't hesitate to leverage third parties to help in emerging or technical areas," he advised. "There is a wealth of industry information available to help make those decisions." Finally, today's CFOs need to build and sustain a wide network of peers they can lean on for advice. "Get out of the vacuum of your organization," Werner advised, recommending seminars and conferences as ideal places to both network with peers and stay educated. 

Seitz is WBA operations manager and senior writer. 

*RSM US, LLP is a WBA Bronze Associate Member.
**Young & Associates, Inc. is a WBA Associate Member.

By, Amber Seitz