How has the role of CFO evolved over the past few years as a result of increased scrutiny from state and federal regulators and corporate governance requirements?
I believe there has been a steady evolution of the CFO role over the last decade in moving beyond core accounting, treasury and planning disciplines to operational productivity, resource allocation, technological innovation and business strategy to, most recently, enterprise-wide risk management, corporate level strategy and overall value creation.
Increased scrutiny from regulators has created a heighted focus on risk management in particular, as it relates to strategic, financial, operational, reputational and compliance risk. In the wake of the financial crisis, executive compensation has also come under greater scrutiny, specifically pertaining to the CFO’s role in establishing incentive metrics and specific financial targets.
What talents and credentials do you perceive as essential for a CFO to be qualified and succeed in today’s business environment?
CFOs must understand they play two critical roles; one associated with enabling the business, the other with governance of the businesses. We must have the talent to be both the cheerleader and provider of capital for the business, but we must also be the disciplinarian. We must understand how to allocate resources efficiently, identify, manage and mitigate risk, disclose the absolute truth to investors and stakeholders and drive results. We must be ethical, honest, act with the highest level of integrity and serve as role models to the organization.
Understanding value creation is perhaps the most essential set of skills for today’s CFO. Embodied in this concept is understanding how to create products, services and solutions for customers that translate into viable business models which produce value to shareholders as well. Within the business model, CFOs must understand how the global financial markets impact their ability to raise capital and finance their businesses. They must manage liquidity, assess risk, prioritize resources and drive results.
Communication skills are more important than ever, with an increasing array of stakeholders, including investors, rating agencies, company leadership, board members, community leaders, regulators and policy makers. Last, CFOs must be able to build and lead organizations, identify and develop talent, recruit and construct effective succession plans.
How has today’s difficult economy affected your role as CFO?
As a result of recent economic conditions, I have spend considerably more time focusing on the state of the financial markets and ability to raise debt and equity capital and maintain liquidity through our domestic and international banks, our ability to manage costs more aggressively and place more emphasis on pushing productivity and best practices through the organization, revenue and customer trends which have decreased sales and increased bad debt expense, and communicating the impact of these variables on both short term financial targets and long-term strategic ramifications to investors.
In addition, being in the energy industry, many provisions of the Recovery Act (ARRA) and Washington’s energy and climate policies have had significant bearing on the company and our strategy. These provisions include carbon reductions, use of renewable energy resources, transmission and smart grid investments, electric transportation, alternative fuels and new energy storage technologies. More than ever, CFOs must understand and help capitalize on major policy trends and shifts and adjust the strategy accordingly.
What are the top challenges you face in your role as CFO?
Currently the top challenges relate to planning in an uncertain world with respect to changes in energy policy, regulation and the ability to finance important strategic initiatives such as investments in transmission, the smart grid and renewables. I think many CFOs have come to terms with the short-term pressure on achieving earnings targets and the need to be relentless on costs, but there needs to be a focus on positioning the company to take advantage of the economic recovery when it occurs. Said another way, CFOs must stay focused on value creation and the total value proposition of the company for its stakeholders, including customers and shareholders. Allocating resources and raising capital in this environment that may not be accretive to short-term earnings but is critical, longer term, must remain a priority.
Another challenge is to maintain a motivated workforce in this environment and create an organization that can retain and attract employees to drive organizational success.
Last, in this area, I would also highlight the challenges associated with communicating to the organization, leadership and investors the risks of business and the achievability of the strategy in an increasingly uncertain world.
What aspects of your role bring you the most job satisfaction?
The highest degree of job satisfaction comes from working with the leadership and employees of the organization to set direction, develop business plans and execute on the plan successfully; developing people and organizations, recruiting and mentoring employees; speaking and educating our employees and investors, regarding the strategy, risks, challenges and results, and providing our businesses with the financial capital and decision-making support they need to succeed.
Name: David R. McHale
Title: Executive Vice President and CFO
Company: Northeast Utilities
Company headquarters: Hartford
Age: 48
Hometown: Thompson
Education/Credentials: B.S., Economics, Southern Connecticut State University; MBA, Finance, University of New Haven; graduate of Stanford University’s Executive Financial Management Program in Strategy and Organization
