Capital Structure Decisions: Evaluating Risk and Uncertainty

Chapter Thirteen

Behavioural Evidence of a CFO’s Decision-Making Process

A CFO’S ROLE AS A strategist is highly demanding. The CFO of a firm has the potential to drive growth and can define the future of a firm. He needs to constantly innovate, perceive risk, and convert the odds into favourable and profitable growth opportunities. Among the several roles a CFO plays simultaneously, this role receives immediate feedback through evaluations of capital markets in the form of stock prices. It hence becomes imperative for the CFO to understand expectations and integrate them with the firm’s internal business management.

A recent survey by Deloitte on Indian CFOs in 2012 described a CFO’s role as having four faces: steward, operator, catalyst, and strategist.* As a steward, a CFO needs to spend time overseeing accounting matters for the firm, ensure qualitative information dissemination to different stakeholders, and maintain financial compliance with regulatory authorities. As an operator, he needs to be concerned with other finance functions, such as effectiveness, increased service levels, developing the firm’s financial model, and managing human resources. As a catalyst, he is supposed to work as an agent who helps the firm adapt to environmental changes. And as a strategist, he governs and guides the organisation towards a new and brighter future. A CFO spends 23 percent of his or her time as an operator, a catalyst, and a strategist and about 29 percent as a steward. CFOs would ...