Dec 18 2019

Building Long-term Value: A Blueprint for CFOs

Operating at the nexus of short-term performance pressures and the behaviors that promote long-term value creation within the firm, the chief financial officer (CFO) has a unique ability to drive long-term value creation for the organization.

Among their growing set of responsibilities, CFOs and their teams report company financial results, communicate with and field questions from investors, secure financing to fund corporate strategies, and act as a strategic resource for the chief executive officer (CEO) and board of directors.

CFOs need to manage legitimate short-term performance pressures and, at the same time, advocate for capital allocation decisions with long-term benefits, even if potential contributions to corporate earnings are years in the future. CFOs are essential to driving long-term behaviors and are in a unique position to make a meaningful difference. According to one leading academic, “There’s a huge opportunity for CFOs to focus firms on what truly matters.”

Based on input from FCLTGlobal’s Long-term CFO Initiative (which included two FCLTGlobal member working groups and more than 60 one-on-one interviews—sourced from multiple geographies) and available research, this paper highlights key pressures and obstacles that CFOs encounter, considers the CFO’s unique role as a fulcrum for long-term behavior, assesses the CFO’s intrinsic long-term focus, and recommends the following four long-term levers readily available to the CFO:

  • Presenting the right information
    Instead of focusing first on what’s required for compliance, CFOs can choose the information to prioritize with important audiences—including investors, the board, and the internal organization—and use that information to drive longer-term conversations and behavior.
  • Leveraging forecasts with longer time horizons
    By distinguishing forecasts from annual budgets and requiring longer forecasting time horizons (three to five years or more), CFOs can reframe the value of the forecasting process. This approach creates space for internal consideration of initiatives with longer-term contributions—and gives management teams the ability to make adjustments now if the forecasted future is not to their liking.
  • Quantifying risks and intangibles
    Risk management remains an essential element of corporate governance, but it is primarily focused on avoiding negative surprises. However, management teams can also leverage quantification of risks and intangibles as a proactive way to promote long-term thinking and behavior.
  • Aligning capital allocation with long-term strategy
    CFOs may not own the strategic planning process, but they can require consistency in capital allocation decision-making in support of the organization’s long-term strategic goals. Capital allocation is the ultimate reflection of company strategy, and CFOs have the ability to require a stronger connection between business unit investment actions and long-term strategic objectives.

CFOs interested in driving long-term value creation can use these findings as a reference checklist to encourage long-term behaviors across their organizations. Those who work with CFOs (boards, C-suite executives, CFO direct reports, and external professionals) can also use these tools to support and challenge senior finance executives and their teams.