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Journal of Accounting & Organizational Change
CFO and finance function: what matters in value creation
Laura Zoni, Federico Pippo,
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Journal of Accounting & Organizational Change, Vol. 13 Issue: 2, pp.216-238, https://doi.org/10.1108/
JAOC-12-2014-0059
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CFO and nance function: what
matters in value creation
Laura Zoni
Faculty of Business and Law, Universita
`Cattolica del Sacro Cuore, Piacenza,
Italy and SDA Bocconi School of Management, Milan, Italy, and
Federico Pippo
SDA Bocconi, School of Management, Milan, Italy
Abstract
Purpose –According to the chief nancial ofcer (CFO) of IBM Global Survey (2010), only few integrated
nance organizations (IFOs) and only some CFOs’ role (Value Integrators) allow companies to generate value
so as to outperform their peers. The purpose of this study is to gather additional insights on how the CFOs and
nance organizations effectively promote value creation in for-prot organizations.
Design/methodology/approach –The authors’ study has been developed through the methodology of
case studies. The method, despite its intrinsic limitations, offers a much deeper understanding of the
organizational context within which value creation takes place. The authors’ analysis is based on nine selected
case studies of Italian industrial companies, selected to assure comparability with the IBM sample. All
companies outperform their peers.
Findings –The authors observed that not only IFOs and value integrator CFOs support the value
generation process. The authors’ sample suggests a variety of other relevant and likely alternatives for value
creation deriving from both nance functions (FFs) and the roles of CFOs. Their ndings indicate that FFs
adopt three distinct patterns to add value for the shareholders. The rst option involves the FF taking the lead
in setting a common language across functions, management processes, management and stakeholders. The
second value creation pattern is when the FF establishes a strong and relevant support to business. The third
option implies that the FF acts as an advisor assuring independent compliance. The authors also concluded
that regardless of the CFO’s roles, inuential CFOs are older, with a deep functional company and industry
experience. They also observe that some of this inuence derives from “proximity” to shareholders, as all the
more inuential CFOs sit on the Board, enjoying a closer relationship with the shareholders.
Research limitations/implications –This study was based on clinical cases, the ndings can be
generalized reliably only for the population studied here. More research is needed for further tests and
explorations of these ndings, especially in the area of CFO incentives and governance mechanisms.
Practical implications –This study supports modern advice given to organizations in terms of the array
of available alternatives to promote value creation with patterns and processes within the domain of the
nance organization and CFO’s personal characteristics.
Social implications –The paper contributes to untangle some gender issues, as the authors found that
more inuential CFOs are male. The authors have also contributed to explain some dynamics of the “labor”
market development for nance professionals: the authors observed that the promotion for most inuential
CFOs comes through the ranks of a specic company, and this questions if a market really exits for such
professionals in Italy, and more generally in Europe.
Originality/value –These results provide some useful support of prior ndings and some modications
and extensions that further the authors’ understanding in this area of importance both to researchers and
practitioners.
Keywords Value creation, CFO characteristics, CFO role, Finance function
Paper type Research paper
The authors acknowledge the contributions of all the CFOs of companies participating in the Research,
the participants of the CFOs Agora
`, SDA Bocconi School of Management, and the nancial support of
IBM Italy.
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1832-5912.htm
JAOC
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Journal of Accounting &
Organizational Change
Vol. 13 No. 2, 2017
pp. 216-238
© Emerald Publishing Limited
1832-5912
DOI 10.1108/JAOC-12-2014-0059
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1. Introduction
Value creation is always the main goal of economic organizations, but especially in times of
crisis, such as the one we are currently undergoing, value creation is an element of survival
for all corporations. For managers and nancial executives, a key issue is that of how to
prevent losses, boost value creation and assure long-term sustainability (Dossi and Meloni,
2010). The chief nancial ofcer (CFO), as a member of the top management team, plays an
important role in value creation, inuencing decision-making processes to different degrees
at both the strategic and the operational levels; furthermore, he or she is responsible for the
organization of the nance function (FF), whose strategic objectives and plans are dened
under his/her inuence.
A number of studies on controllership have aimed to measure the extent to which value
creation occurs in the presence of different CFO personal characteristics, CFO duties and FF
features (Roger, 2007;Maurer and Boyle, 2006). Practitioner literature draws denitive
conclusions and suggests the characteristics of an ideal CFO and FF, while academic
research offers a wide spectrum of analysis and interpretation of the intricacy of value
creation in relation to a CFO’s personal characteristics, a CFO’s role (Greenhalgh, 2000;
Yazdifar and Tsamenyi, 2005;Spanyi, 2011) and FF characteristics (Institute of Management
Accountants, 1999;Granlund and Taipaleenmaki, 2005). Following the lines of nance
practice, we have drawn from both the International Federation of Accountants (IFAC) (2001,
2002), the Chartered Institute of Management Accountants - CIMA (2008 and 2011) and from
Wunder and Mueller (2008), as follows.
The International Foundation for Accountants (IFAC) and the Chartered Institute of
Management Accountants (CIMA) provide a denition of the “ideal CFO” as a mix of personal
characteristics and the CFO role played; Wunder and Mueller offer a denition of the “ideal FF”.
According to the IFAC and CIMA, the ideal CFO is an individual who is able to design and
implement effective management control systems (MCSs), leading to an FF that will support the
company’s strategic choices and value creation processes: an entrepreneur of efciency, an
innovator, a leader, a capable individual who is both business partner and independent ofcer
able to assure compliance (Jablonsky et al., 1993). IBM Institute for Business Values (2010) terms
the ideal CFOs are value integrator CFOs, as it will be described below.
Wunder and Mueller (2008) instead dene the ideal FF. According to them, the ideal FF is
based on a framework of robust nance processes; is strictly process-oriented instead of
providing purely functional benchmarking; focuses on efciency and effectiveness; provides
360° feedback to shareholders, stakeholders and both top and operational management;
fosters cross-industry comparison in search of benchmarks and best practices; is built
around a strong and collaborative nance community for mutual best practice sharing; and
has the ultimate goal of creating a business impact and, hence, supporting value creation.
IBM Institute for Business Values (2010) uses Integrated Finance Organizations (IFOs) to
term the ideal FF.
However, these studies are not based on rigorous empirical evidence. To the best of our
knowledge, the IBM Institute for Business Values, 2010 CFO Global Survey is one of the few
systematic collections of data from a selected sample of companies around the globe. Based
on data from more than 1,000 rms, IBM categorizes FFs on the basis of two discriminants:
the degree of nance efciency and the extent of the business insight provided. Finance
efciency is the ability to run administrative processes efciently and in a timely manner,
through nance practice standardization, nance harmonization, centralization of nancial
services through shared service centers, best practices and outsourcing. Business insight
reects the ability of the FF to support business growth and development, while managing
risk by means of planning, forecasting, what-if analysis, modeling and risk assessment and
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management. In Figure 1, four stereotyped CFO roles and their relative frequencies are
matched with the four itemized FFs: value integrators (CFOs with high nance efciency and
high business insight) are contrasted with scorekeepers (with low nance efciency and low
business insight); disciplined operators (CFOs with high nance efciency and low business
insight) are contrasted with constrained advisors (with low nance efciency and high
business insight). “Scorekeepers” are mainly involved with data recording, although they
engage in some controlling activities. Typically, the FF generates “multiple versions of the
truth” which are difcult to reconcile, adversely affecting both the CFO and the FF. The
“disciplined operators” are focused on nance operations and provide valuable information
to management, supporting it in the interpretation of performance. “Constrained advisors”
focus highly on analysis, but their support in the achievement of the rm’s goal is not optimal
due organizational and technical constraints, the data they work with typically being
fragmented. “Value integrators” strive to optimize performance, offering predictive insights
to management, supporting (and inuencing) decision-making while managing enterprise
risk.
One important conclusion drawn by IBM is that IFOs led by value integrator CFOs
outperform other organizations, in terms of ve-year compound annual growth rate (CAGR)
revenues; earnings before interest, tax, depreciation and amortization (EBITDA); and
ve-year average return on invested capital (ROIC) (IBM Institute for Business Values, 2010).
This implies that IFOs and value integrators are the best form of nance organization and
the ideal CFO role type for supporting value creation, respectively. Findings are consistent
with the practitioner literature.
Despite IFOs and value integrators expressing “ideal patterns”, they only represent 20 per
cent of the cases surveyed by IBM, leading us to wonder whether in the remaining 80 per cent
of the cases value creation was not supported. Our primary research objective is to gain
closer insight into how FFs and CFOs leverage to support value creation despite not being
respectively IFOs and value integrators.
Furthermore, IBM did not address the issue of how CFO-led factors could support value
creation. According to Pitcher (2015), there are three sets of drivers, which explain the role of
“accountants” in value creation – organizational-led factors, practicality-led factors and
CFO-led factors. IBM addressed mainly the rst two sets, focusing on FF structures and the
Finance efficiency
Lower Higher
Scorekeepers
(30 percent)
•Data recording
•Controllership
•Multiple versions of the
truth
Lower Higher
Business insight
Disciplined
operators
(37 percent)
•Finance operations
focused
•Information provision
•Performance
interpretation
Value
Integrators
(22 percent)
•Performance
optimization
•Predictive insight
•ERM
•Business decision making
Constrained
Advisors
(13 percent)
•Analytics focused
•Sub-optimal execution
•Fragmented data
Source: IBM Institute for Business Values
(2010)
Figure 1.
IBM stereotyped CFO
roles
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associated CFO role, on the FF technical infrastructures, on the provision of information, on
the resource capacity and on the information technology availability. To ll this gap in the
IBM ndings, we refer to Naranjo-Gil and Hartmann (2007) and Naranjo-Gil et al. (2009).
These studies elaborate on the main assumptions of the upper echelon theory, applying it to
the CFO as one reputable member of the top management team. Hambrick and Mason (1984)
framed the upper echelon model, stating that some personal upper echelon characteristics
inuence the organization’s strategic choices and its performance and so its value creation.
Within the same stream of literature, Norburn and Birley (1998) associated metric data
(age, tenure with company and current position, number of companies worked for and the
graduation age for the rst and the second degree) and non-metric data (job title, ending
function, directorships, university degree, second degree, type of degree, sex and marital
status) with measures of corporate performance (size, sales growth, employees and sales per
employee). The empirical evidence shows that visible variables such as functional
experience, multiple company employment and education are stronger variables in
predicting corporate performance variability and, thus, supporting, among others, the
functional theories of Hayes and Abernathy (1980) and Miles and Snow (1978) and the
signicance of education (Pfeffer and Salancik, 1978).
Anecdotal evidence in support of the upper echelon theory has always abounded.
However, the issue of theoretical model operationalization added to the collection of
statistically signicant samples of data, which led to the theory’s acceptance less swiftly
than expected, and critics, Chaganty and Sambharya (1987) among others, posed questions
concerning the theory in different areas.
First, the cause and effect relationship between upper echelon characteristics and
performance is questionable: in Figure 2 Pohl (2007) pragmatically discusses it as the “chicken
and the egg problem” (i.e. is the top management shaping the organization, or is the
organization selecting top management suitable for that organization?). In fact, it is arguable
whether a better-performing organization could afford a better trained/educated and more
functionally experienced top management team, or whether a better trained/educated and
more functionally experienced top management team would have an advantage at turning a
poor- or average-performing organization into an excellent one. Upper echelon studies
conducted so far have neglected any timeframe considerations in the analysis and any
dynamics in their relationships. Ge et al. (2011) similarly suggest that the main disadvantage
of this approach is that the demographic characteristics are arguably limited or incomplete
proxies of the managers’ cognitive frames. In addition, many of these studies have been
Figure 2.
An upper echelon
perspective of
organizations
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conducted on a purely-cross sectional basis, giving rise to the issue of reverse-causality
(Hambrick, 2007).
The second criticism refers to the relationship between upper echelon characteristics and
strategic choices: in Figure 2,Finkelstein et al. (2009) focus their attention on how strategic
decisions are made and illustrate how good leaders can make bad decisions under the
pressure of an unstable and volatile economic environment, thus neglecting the fact that
leaders can inuence performance. In terms of Hambrick and Mason’s model, upper echelon
characteristics would be overpowered by environmental characteristics as a predictor of
organizational outcomes. This criticism is consistent with all studies on economic
(ir)rationality and bounded rationality (Zoni, 2003).
A third and additional issue that we would like to raise on upper echelon theory is that it
does not consider management incentives, in contrast with all the studies based on the
agency theory (Feng et al., 2011). This may be a serious drawback, as most of the literature
emphasizes pay-for-performance incentive schemes, thus disregarding the personal
characteristics of the management team and considering compensation as the main driver of
nancial performance.
Despite criticism of the upper echelon theory, Naranjo-Gil and Hartmann (2007) and
Naranjo-Gil et al. (2009) have concluded more recently that younger, less tenured and more
business-oriented CFOs are more likely to initiate and implement change (innovation) in
management accounting systems (MAS). Given the recent environmental instability and the
need for adaptability, these CFOs are regarded as “superior”, a pre-requisite for value
creation. The study rekindles interest in the upper echelon theory and is very interesting for
a number of reasons. First, it focuses on the CFO specically as an inuential member of the
management team. This is relevant, as it attributes special signicance to the CFO – over and
above other top management team members – in creating performance, and is consistent
with the practitioner literature. Second, by introducing the theme of organizational change, it
offers a dynamic view of upper echelon theory. Personal characteristics are in fact seen in
relationship to the ability to adapt nancial organization and levers to management’s needs.
“Change” is here intended as change within the FF, in terms of accounting and controlling
processes, accounting tools and technology used to support the functional organization. The
organizational outcomes – and performance – derive from the ability to adapt continuously
to circumstances. This is a very important change of perspectives compared to the
stereotyped vision of practice and the IBM global survey that there is not only one “ideal
CFO” or “ideal FF”; rather, CFOs and FFs are capable of transitioning through organizational
change. Basing our work on upper echelon theory, we wanted to investigate which personal
features help a CFO, regardless of their role, to support value creation. This is our second
research objective.
Our research is based on case studies involving nine selected large Italian companies. Our
contribution to the extant literature is twofold. In the rst place, as IFOs constitute only a
limited number of nance organizations (20 per cent overall, according to the IBM study), we
wanted to identify patterns of value creation available to the FFs that are not IFOs led by
value integrators. Second, we wanted to contribute to the development of the upper echelon
theory by verifying which CFO personal features really matter in supporting value creation.
Pragmatically, our paper provides organizations with indications on how to benet fully
from a value creating FF and CFO role.
The paper is divided into four sections. In Section 2, we illustrate the research
methodology and in Section 3, we give the results from the case studies. In Section 4, we
discuss our research objectives and in Section 5, we summarize our ndings and attempt to
identify gaps in the research.
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2. Research methodology
We based our research on the case study (Yin, 1989) method. We are conscious of the
difculties implicit in the case study method, but we wanted to add depth to the extant
knowledge, aware that reality has more nuances than implied by IBM’s categories. To ensure
rigorous data collection a questionnaire was drafted. The approximately 50 detailed
questions were divided into sections on the following: context and trends; the FF in terms of
key objectives, systems and processes; the CFO CV, position, role and compensation; the
performance measurement system and information standards; improvement initiatives in
the nance area; and the CFO personal characteristics. Closed answers to the questions were
suggested. Sometimes, questions required an evaluation on a ve-point scale, e.g. “Please
rate how well your performance measurement system measures the following performance
categories: short-term nancial results?”; 1 ⫽extremely poorly, 5 ⫽extremely well. Other
times, the questions required to identify patterns, e.g. “What role is the CFO playing in
driving decisions across the company?”; No role, Informer, Advisor, Decision-maker. Few
open questions were added.
We selected nine different Italian companies, adopting a selection process aimed at
assuring comparability with the IBM global survey. We picked the most industrialized
regions in Italy: Lombardy, Tuscany, Emilia Romagna and Veneto. We then selected
companies on the basis of size, reputation, brand awareness, community engagement and
market leadership. Our nal selection was made up of a cluster of nine companies, with a
minimum turnover of more than €480m, excluding banks, insurance companies, holdings
and other nancial organizations. All the companies expressed willingness to participate in
the research, as all the CFOs were members of an Italian community of CFOs and nancial
executives: the CFO Agora
`, supported by SDA Bocconi School of Management, whose aim is
to share nance practices and knowledge. The names of the companies are not given to
preserve anonymity. These nine companies represent an ideal sample for our analysis, as
they outperformed their peers in terms of organizational outcomes (competitive, social and
nancial results). They share outstanding levels of reputation and brand awareness.
Once the rms were identied, we asked the CFOs to ll out the questionnaires. The
responses to the questionnaire were discussed and commented on during structured
interviews, typically two hours long, with the CFOs and the most relevant members of their
teams. Most interviews made reference to internal documentation (plans, reports, budgets,
organizational charts, management presentations, nancial manuals and similar
documents). We collected these documents and analyzed them in depth. The rst draft of
each case study report was drawn up based on the responses to the questionnaire, the
material gathered in the interviews, archival data taken from Amadeus (nancial
information data base for European companies both listed and unlisted) and information
published on the companies’ web sites.
We held a second round of (open) interviews, very often with controllers (business unit
controllers, market controllers, functional controllers) to bridge the gaps in our case study
reports. A second draft was prepared and submitted to the CFO, and was discussed with the
CFO in a third meeting and checked for accuracy. A third draft was issued, and it constituted
the material on which the subsequent focus groups based their work.
Four focus group sessions were held, one in each of the regions from which the nine
companies were drawn, i.e. Lombardy, Tuscany, Emilia Romagna and Veneto. The CFOs of
the nine companies presented their case studies to the other CFOs from the same region and
discussed their experience of the CFO role and trends in the FF. Each focus group hosted
approximately 30 participants. A leading company in the nancial services and consulting
sector sponsored all four focus groups; some of the consultants also took part to the
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discussion. The focus groups were benecial because during the discussion, views were
shared, compared and contrasted.
A white paper was prepared to summarize the ndings from the nine case studies. These
ndings were discussed during a forum of nancial executives, consultants and academics.
The event lasted half a day and hosted more than 300 professionals.
In total, approximately 450 individuals participated at different levels of involvement in
the research, over nearly two years. A detailed presentation of the project is given in Zoni
(2013); a summary of the number of interviews/meetings held, of people involved and of
hours spent on face-to-face interaction with each company’s representatives, professionals
and CFOs is provided in Table I.
3. Results from the case studies
Analysis of the case studies provided a wealth of information on the organizations and their
economic environments, the features of the FFs and CFO role and the CFOs’ personal
characteristics.
3.1 Organizations and their economic environment
Table II highlights the main organizational features of the surveyed companies, and proles
are given in Appendix. The surveyed companies only partially reect the Italian economic
context, which features many family-owned and managed small and medium-sized
companies. In Italy, there are approximately 200 large listed industrial companies; the
majority of Italian listed companies are owned by a dominant shareholder, and the dominant
shareholder or their family members are very often involved in the management.
In terms of size, most of the surveyed companies (with the exception of Company I)
reported sales in excess of €1bn, with Companies B and D being the two largest in the sample.
All the companies are internationally exposed and are organized so as to support
international operations.
Most of the companies are business-to-consumer. These companies represent well-known
brand names in their relative industries. The other companies work business-to-business,
and they are highly reputable suppliers of goods.
In terms of governance, we observed both listed and unlisted companies. However, the
listed companies are not fully traded and have a dominant shareholder, typically the family
Table I.
Summary of
number of interviews/
meetings, of people
involved and of hours
spent for interview/
plenary meeting
Interviews/meetings held at
No. of interviews
(or) No. of plenary meetings
No. of people
involved No. of hours
Company A 3 4 6
Company B 4 6 8
Company C 4 5 7
Company D 4 7 9
Company E 3 4 5
Company F 3 4 6
Company G 3 4 6
Company H 3 2 4.5
Company I 3 2 4.5
Focus Group Veneto 1252
Focus Group Lombardy 1372
Focus Group Emilia Romagna 1252
Focus Group Tuscany 1252
Finance Forum 1 300 3
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Table II.
Objective situation
variables. Financial
data and employee
data for the most
recent nancial year
(2011) are reported as
per Amadeus database
Company Industry Business
Sales
(€/000)
EBIT
(€/000)
Net income
(€/000)
Total assets
(€/000)
Total
employees
ROA using
EBIT %
Stage of
life cycle
Sales growth
rate
a
Governance
Company A Fashion B2C €1.302.783 €172.939 €133.864 €1.594.374 16.069 8,40% Growth 13,96% Family-owned
and managed
Company B Fashion B2C €2.130.712 €133.028 €76.978 €3.197.291 9.513 2,41% Maturity ⫺0,71% Family-owned and managed
Company C Industrial Products B2B €1.338.069 €70.852 €32.347 €1.812.187 3.963 1,78% Growth 17,88% Cooperative limited
liability company
Company D Food B2C €3.932.264 €264.870 €75.902 €2.994.555 13.141 2,53% Maturity 0,08% Family-owned and managed
Company E Copper alloy products B2B €1.927.488 €5.463 €13.207 €568.587 1.210 ⫺2,32% Maturity ⫺36,00% Listed company, dominant
shareholder
Company F Fashion B2C €1.211.309 €167.176 €21.138 €664.302 1.513 3,18% Maturity ⫺18,55% Listed company, dominant
shareholder
Company G Food and beverages B2C €1.274.200 €294.600 €159.800 €2.901.000 2.207 5,51% Growth 9,56% Listed company, dominant
shareholder (family managed)
Company H Braking system
manufacturing
B2B €1.281.125 €73.347 €43.343 €1.132.721 6.529 3,83% Growth 17,06% Listed company, dominant
shareholder (family managed)
Company I Guns, ries manufacturing B2C B2B €488.172 €58.660 €31.224 €716.680 2.601 4,36% Growth 5,80% Family-owned and managed
Note:
a
Sales growth is computed based on the most recent available years as an average yearly growth rate [(revenues most recent year–revenues last recent year)/number of years under
observation]
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of the founder. Unlisted companies are family businesses, owned and managed by family
members. In most cases, the name of the company is that of the family.
There are no start-ups in the sample; all are in the growth or mature stage. Companies B,
D, E and F are mature organizations with a moderate growth rate. Companies A, C, G, H and
I show appreciable sales growth rates.
Protability – return on assets (ROA) percentage based on earnings before interest and
tax (EBIT) (ROA% based on EBIT) – reects both industry protability and the competitive
positioning of each organization. It is, however, worth mentioning that all the organizations
in the growth stage of their life cycle show better protability rates than those in the stage of
maturity. Company C is an exception due to the cooperative nature of its ownership;
cooperative organizations tend to break even by redistributing “income” to their associates.
In any case, the surveyed companies outperformed their peers, as this was a selection criteria
used to identify the companies.
3.2 Finance function features and the chief nancial ofcer’s role
We analyzed the information gathered via the questionnaires and the interviews, and we
scored it in terms of both the degree of nance efciency and degree of business insight of
each rm. Using the relative scores, we were able to relatively position our nine case studies
in the IBM matrix, as shown in Figure 3. Each rm in the same quadrant has the same
relative grade of nance efciency and business insight. We further checked the position of
rms with their CFOs. We created labels for each FF archetype ourselves, and we matched
them with the CFO roles as codied by IBM. In our sample we found:
• unsophisticated nance organization to be developed (Company A) with relatively
lower nance efciency and lower business insight;
• administratively focused nance organizations striving for nance efciency
(companies B, C and F) with relatively higher nance efciency and relatively
moderate business insight;
Figure 3.
Finance function
positioning in the IBM
matrix
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• administratively unstructured nance organizations with advisory ability
(Company I) and with relatively higher business insight, and a lower degree of nance
efciency; and
• administratively mature nance organizations with an ability to read the business
(Company D, E, G and H), relatively the best in terms of both nance efciency and
business insight.
3.2.1 Unsophisticated nance organization. Company A is a fast-growing, non-listed,
family-owned and family-managed company, operating in the fashion industry. It
manufactures and sells casual underwear and beachwear. It is a cost leader and a highly
integrated company. The total turnover exceeds €1bn, production processes are simple, and
distribution is controlled by directly operated stores and franchisees. Decentralization is
implemented to a certain extent and mainly refers to revenue generation at each store
location. The production plants are cost centers.
In Company A, the “administrative” director (in our terms the CFO) reports directly to the
CEO. The CFO has a modest inuence on decision-making and low autonomy. Most of her
time is spent on setting procedures and organizing data ows to prepare reports for the
shareholders, while integrating nancial and management accountancy (Weißenberger and
Angelkort, 2009). Recently, the company has implemented a new administrative system to
include an enterprise resource planning (ERP).
The FF is decentralized to cover the administrative needs of legal entities scattered
abroad. No career development or training is formalized within the FF. Within the FF, the
controllership function is fairly well-developed. There is no formal strategic planning
process, and capital budgeting decisions are made by the CEO (owner). The budgeting
procedure is simple, with very little involvement of store managers and other central staff
management.
The role of the CFO seems to be limited to that of scorekeeper, to use IBM terminology.
3.2.2 Strong administratively focused nance organizations striving for nance efciency.
Companies B, C and F share some characteristics.
Company B is a fairly large, mature Italian company (turnover in excess of €2bn) owned
by the founders’ family. It has recently been de-listed, as the family quota exceeded limits for
being listed on the Milan stock exchange. This company manufactures and sells casual wear,
underwear and apparel through wholesale and retail channels. Decentralization has been
relevant, as the company has grown internationally over time. The CFO reports to the CEO.
The FF includes several sub-functions; controlling is segmented functionally (commercial,
manufacturing and real estate controlling), geographically and by brand. The nance
processes are quite solid with an extensive implementation of an ERP system inclusive of
data warehousing and data mining tools. Control is emphasized ex ante through the
budgeting process, including capital budgeting and investment decisions. Though the FF
employs more than 300 full-time equivalents (FTEs), 200 of whom report directly to the CFO
(the others report to local management), career development in nance has not yet been
formalized. In this context, the way nance contributes to value creation is by providing
active support to the business.
Company C is set up as a cooperative, clustering more than 70 companies around the
world aggregated into four divisions: ceramics, packaging, food and plastics. Each company
within the group is fairly independent; however, Company C leads the crafting of corporate
strategies and provides services, excelling in its ability to spot and exploit synergies among
the 70 companies.
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The CFO reports to the Board of Directors, of which he is a member. The local companies’
administrative personnel report to the local management and have little inuence on
decision-making.
While the FF is involved in crafting group strategies, emphasis on planning is very
limited, and the development of business insight is not a strategic objective for the FF. The
FF manages an administrative service center, and has recently been in charge of
implementing a new controlling system through the implementation of an ERP. Most of the
controlling emphasis is on feeding reporting at various levels: shareholders, holding
company, legal entities and divisions.
The FF is one example of how synergies have generally been exploited at Company C.
The centralization of administrative services, including costing and reporting activities,
proved to be very effective in directing semi-independent companies toward common goals.
Each company has enjoyed positive outcomes in terms of both costs and improved
administrative efciency timewise.
Company F is a leading luxury brand in the fashion industry, currently owned by a
French group. It is listed on the Paris stock exchange and has a dominant shareholder.
Interbrand currently lists Company F’s brand among the world’s 50 most desirable brands.
Business processes are sophisticated for a number of reasons: branding efforts, distribution
controls, quality of goods and manufacturing processes and unceasing efforts to innovate
and to keep an edge over other luxury brands. The company is well decentralized.
The CFO reports functionally to the Group CFO and organizationally to the Italian CEO.
The FF strives to support the business in the industrial as well in the retail area. The
industrial and retail segmentation parallels FF organizational segmentation. The
administrative system is fairly well-developed and is quite efcient in accounting for
transactional activities due to the implementation of an ERP system.
The complexity of both the legal and organizational structure (Company F does not have
a headquarters) makes it challenging for the FF to support all aspects of business. In
particular, business intelligence ability is still quite limited. Management leads the
budgeting process and the FF does not challenge it. Although an international and
cross-functional career path is possible, no formalization of career development is in place.
The CFOs of Companies C, B and F have some things in common: a very broad
administrative basis, and the fact that they lead quite articulated and complex FFs. However,
they support their organizations in value creation mainly by improving their nance
efciency: Company C leverages on the standardization of nance processes and procedures
with emphasis on reporting, whereas Companies B and F leverage on supporting
decision-making, especially in the ex-ante allocation of resources, e.g. for programming and
budgeting processes. The FFs provide information to stimulate business analysis and
diagnosis. It is difcult for the CFOs of Companies C, B and F to have an impact on the
business decisions. Capital budgeting decisions are supported but not made by the nance
staff. The CFOs’ inuence on capital budgeting decisions is not decisive. The CFOs’ role is
limited: in IBM’s wording, these CFOs would be disciplined operators.
3.2.3 Administratively unstructured nance functions with advisory ability. Company I is
a case in itself. It is probably one of the oldest Italian companies, family-owned and
family-managed. It produces and sells guns and ries. It is now a mature company, which
grew internationally long ago by the aggregation of acquired companies; it is the smallest
company in our sample. The production processes are quite critical and innovation is
required to stay in business. The acquired companies (almost all fully owned) remain
relatively independent, the holding company allowing them a good deal of autonomy.
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The FF in the holding company employs 15 FTEs, and the CFO reports directly to the
shareholders. The focus of controlling activities is the assurance of independent compliance
to the shareholder. The nance department offers controlled companies the advice and
business insights they lack. The FF’s impact on business decisions is nonetheless limited, as
the management of each company enjoys high independence. The CFO’s role is limited: in
IBM’s wording, the CFOs would be a constrained advisor.
3.2.4 Administratively mature nance functions able to “read” the business. The last
cluster of companies includes Companies D, E, G and H. They operate in very different
industries: food, copper alloy products, food and beverages and breaking systems,
respectively.
Companies E, D, G and H share organizational complexity and the unpredictability of the
external environment. Either because of size (Company D is our largest company) or because
innovation is essential (Companies E and H) or else due to ruthless growth by acquisitions
(Company G) these are very complex organizations. Decentralization is well-implemented,
typically in matrix organizations; the administrative system is solidly grounded on
transactional activities; nance efciency is required by the reporting cycle imposed by
nancial markets (Companies E, G and H are listed) or by media coverage (Company D is not
listed, but is very exposed to the media, as it is well-known for its healthy food brands).
All the companies are exposed to extreme uncertainty, for various reasons. Companies E
and D are exposed to the volatility of the prices of their raw materials, which represent the
most relevant item of cost; both companies operate in very competitive markets (Company D
is B2C and Company E is B2B). They work on narrow margins and cannot simply reect raw
material price increases in prices to their customers. Company H is a technology-driven
company; innovation is essential, the intensity of research is very high and competition is
global. Company G has managed 17 acquisitions over the past 17 years to manage the brand
portfolio.
All the companies apply business insight tools (simulation, modeling, competitive
analysis and intelligence) and processes (forecasting, rolling forecasting and risk
management). Their FFs are exhaustive: they are very thorough in terms of activities
performed (administration, consolidation, nancial management, controlling, enterprise risk
management, M&A and investor relations) and organizationally fairly dispersed through
business units (market- and product-based) and functional units (supply chain, production,
research and development, raw material procurement, distribution, etc). The FFs leverage on
a nance community (Company D) and structured programs of training and career
development (other companies). To use the IBM terminology, these companies are led by a
value integrator CFO.
3.3 Personal characteristics and position of the chief nancial ofcers
We analyzed the curriculum vitae (CVs) of the nine CFOs leading the FFs, as summarized in
Table III. Variables used in the analysis were selected from those of upper echelon theory to
include age, gender, education, work experience (functional vs general business; same
industry vs different industry), promotion to the CFO position (internal vs external), type of
tenure, membership in the board of directors and functional autonomy. We wanted to include
compensation variables; however, CFOs were very reluctant to disclose information about
their compensation packages. For CFOs who sit in the Board of Directors of listed companies
the executive remuneration is mandatory information only since 2014.
The CFOs’ ages range from 45 to 55 years old, with the exception of Company E where the
CFO is 63 years old. There are no young CFOs. The group of nine CFOs includes only one
female; this gender prevalence is quite typical of the CFO labor market in Italy.
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Table III.
CFOs’ personal
characteristics and
positions
Company Age Gender Education
Functional vs
business experience Industry experience Promotion to CFO Tenure CFO on BoD Functional autonomy
Company A 45 Female Bachelor degree Functional Same Internal Chief Financial
Ofcer
No Low
Company B 55 Male Bachelor degree Business Jewellery, airlines,
tires and cable
External Chief Financial
Ofcer
No Medium
Company C 53 Male Bachelor degree Functional Same Internal Chief Financial
Ofcer
Yes Medium
Company D 43 Male Bachelor degree Functional Banking External Chief Financial
Ofcer
No Medium
Company E 64 Male Bachelor degree Functional Same Internal Chief Financial Ofcer and
Executive Vice President
Yes High
Company F 50 Male Bachelor degree Functional Same External Chief Financial
Ofcer
No Low
Company G 46 Male Bachelor degree Functional CPA, consulting External Chief Financial
Ofcer
Yes High
Company H 45 Male Bachelor degree Functional Same Internal CFO and Group Vice
President
Yes High
Company I 45 Male Bachelor degree Functional Same Internal Group Controller No Medium. High inuence of
General Director
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All the CFOs have a business-related bachelor degree; none of them has an MBA. One CFO
is also a certied public accountant (CPA). Only one CFO (Company B) has management
experience, while others have functional experience. This is also quite typical for Italy (Zoni
and Merchant, 2007).
Almost all the CFOs have tenure as “Chief Financial Ofcer”; the exceptions are Company
A, where the FF is headed by an Administrative Director, and Company I, which does not
have a CFO but has a Group Controller, who reports to the General Manager. The CFOs of
Companies A, C, E, H and I rose through the ranks of their company up to their current
position (internal career path), while the CFOs of Companies B, D, F and G were hired on the
market with same industry or different industry experience.
One relevant piece of information is that the CFOs of Companies E, C, G and H sit on the
board of directors, in Company H as a result of a direct family relationship; in Companies G
and H the CFO has also been appointed as Executive Vice-President. These CFOs enjoy
higher functional autonomy.
4. Discussion
4.1 Patterns of value creation across stereotyped nance functions
Our primary research objective is to gather closer insights on how FFs and CFOs leverage to
support value creation despite not being IFOs and value integrators, respectively. Because
we selected our sample based on the rms’ ability to outperform their peers, we have grounds
to believe that all of them engaged in value creation to some degree, despite not all matching
the denition of IFOs lead by value integrators. Independently of which archetype each FF
belongs to into the IBM matrix, we found complementary and not mutually exclusive
patterns of value creation in our nine case studies, specically a “common language”, focus
on business support and independent compliance. These three different patterns of value
creation cut across the IBM categorization. While IBM categorization suggests a static view
of FFs and the CFO role, from the case studies we learnt that each nance organization and
its CFO express a dynamic tension toward value creation in a way that constituted a pattern.
More specically, some companies (A, C, E) indicated that the FFs and the CFO would
support value creation through the creation of a “common language”. Setting a common
language implies streamlining transnational processes, enforcing global standards,
identifying best practices, managing nance knowledge and developing line management
nancial awareness. Companies B, F, D and H advocated a special commitment to
supporting the business through cost management initiatives, the implementation of
risk-adjusted budgeting, the design and use of integrated performance measurement system
and relative performance evaluation. Lastly, Companies I and G concentrated their value
creation efforts on providing independent compliance, as well as by providing support to an
extensive acquisition program and by functioning as internal control and process managers.
In the following part of this section, we will illustrate each of the three patterns.
4.1.1 The common language pathway. The rst cluster of companies A, C and E, worked
toward setting a common language throughout their respective organizations and provide
suitable evidence of how setting a common language impacts value creation:
When Company A made the decision to outsource production to Europe and Asia while continuing
to broaden the sales network in Europe and outside Italy, it was necessary to take the time to market
at an acceptable level. Sales are very much affected by weather conditions, competition is becoming
stronger and stronger, competitors’ promotional campaigns are implemented unexpectedly: we
need to have a very lean production process, not stocking inventory, and at the same time be ready
to sell when demand picks up: it would not have been possible to handle the back-end of this lean and
integrated process without standardizing rules and procedures in one single accounting system and
establishing a common language (Administrative Director of Company A).
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Company C needs innovation to survive. It works in different segments of industrial product
design and manufacturing: ceramics, beverages and packaging, food processing and
inspections systems and plastics:
Being a supplier of technologies and industrial products for applications in consumption-driven
segments exposed us to a need to perform impressively in times of economic crisis. One of our
strategic objectives has been to integrate research and development efforts to exploit synergies
between different applications of the same technologies. We thus created an administrative service
center to provide accounting and legal services to the different companies in the network,
standardizing accounting and regulatory reporting protocols. This was, however, just the rst step
in the creation of an organized and centralized controlling unit in charge of knowledge management,
of identifying synergies within the four divisions and the seventy companies in the network. Only by
integrating the information and the practices into a common nancial language was it possible to
spot innovative technological and manufacturing solutions to ensure savings on costs and survival
in a sluggish market (CEO of Company C).
Company E is very exposed to metal (copper) price volatility:
Our 13 production sites, one of which is located in China, and our two world-class research
centers would not collaborate extensively on reducing the exposure to metal price volatility
until a single management accounting information system had been implemented throughout
the group. The designed and implemented global dashboard allowed us to identify synergies
between research and production in terms of price volatility exposure. The KPIs were crucial in
enabling “researchers” and “manufacturers” to understand the global nancial implications of
using different technologies and different raw materials (CFO of Company E).
4.1.2 Focus on business support. The FFs of Companies B, F, D and H were mainly involved
in strengthening their ability to support the business, and, in so doing, in creating value.
Company B, one of the rst Italian companies to have grown internationally, listed in Italy
and in the USA, is now struggling to regain momentum in an ever more populated industry:
Our administrative organization is functioning well and procedures are fairly well established. The
disclosure requirements imposed by stock exchange regulations both in Italy and in the USA
certainly helped us structure the nance function, harmonize accounting principles and
methodologies and implement an embryonic forecasting system. When we were delisted due to
excessive concentration on the part of one dominant shareholder, we set a goal to improve our
nance efciency with a special focus on supporting the business. The delisting coincided with the
entry of two new competitors who are quite aggressive in terms of pricing and innovative design.
The aggressive pricing strategy adopted by our competitors in particular forced us into more careful
supply chain cost management. The FF introduced cost management techniques and ensured
consistent and substantial cost savings. I feel we have had a role in the recovery of our
competitiveness (CFO of Company B).
A fundamental part of Company F’s operations is the management of the retail business.
Traditional retail together with modern online retailing makes it very challenging to compete
in the high-end segment of fashion clothing and apparel:
Our support and contribution to the value creation process was possible through the integration of
business intelligence into performance evaluation systems. The challenge imposed by the two-digit
growth of online retail led us to integrate data analysis into our performance evaluation process, in
order to “scale” the performance and make it “relative”. The technology supplied by Oracle helped
us, but we felt we supported innovation in selling. Retail managers were made aware of the
potentialities of online retail; they learnt how to combine the best of online and ofine retail. Our
controlling department led the way (CFO of Company F).
Company D is quite exposed to both demand uctuations and raw material cost volatility. It
sells specialty food products, and overall consumption affects the demand for these types of
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product. The price of raw materials, mainly consisting of durum and soft wheat grain
derivatives, is quite exposed to crops yields. In addition, food security is a concern all over
Europe, which is Company D’s main market: regulations affecting both nished product
markets and input markets are very challenging to cope with and also quite unpredictable. A
change in regulations may dramatically affect the possibility of selling within geographical
areas, as well as sourcing from a specic region:
One of the ways we contributed to value creation consisted in the introduction of a risk-adjusted
budgeting and forecasting system. Forecasting demand is essential for food producers, to limit the
risk of spoiling production as well as ingredients. Introducing risk-adjusted budgeting has been
extremely benecial in managing risk and providing adequate hedging for it. The management
changed its way of making sourcing decisions, of planning production and of launching
promotional campaigns. The probabilistic versus the deterministic approach in forecasting and in
budgeting has made our management more sensitive to risk management and more rigorous in the
way decisional alternatives are assessed. We feel much more similar to a bank or a nancial
institution than to a traditional food manufacturer and distributor (CFO of Company D).
Company H sponsors one of the most important technological parks in Italy, currently
populated by about 1,500 persons, half of whom are employed by Company H itself. The
innovation effort is strong so as to face global challenges:
In our effort to support the production innovation processes we have reshaped the FF organization,
especially in the controlling area. Controllers report to line management and functionally to the FF.
Given the high technical content of our products we could not contribute to value creation “sitting”
in our ofces; we had to get closer to business and to be able to promote innovation, and to support
business decision-making with a high technological content. We feel that we have been effective in
this process. We have also been able to link performance evaluation to incentives by identifying
individual objectives (CFO of Company H).
4.1.3 The independent compliance alternative. The FFs of Companies G and I contributed to
value creation by providing the management with independent compliance. Both companies
have been growing through acquisitions, aggregating companies around a starting nucleus.
Company G has gone through a number of acquisitions in several countries all over the
world:
Every time a new company was to be acquired we had a number of problems to deal with: running
due diligence, supporting price negotiation, following up with post acquisition legal and societal
matters, antitrust procedures. In this process we never omitted keeping the shareholders informed
and retaining their trust. Right after these “formalities” we had to deal with the integration of the
acquired company’s operations and their accounting and controlling procedures into our main
domain. Our most challenging task has been to engineer a system that would allow a tradeoff
between local adaptations and the rigor of our standard practices. This system had to be an open
system ready to be scaled up, a sort of Lego modular construction. We succeeded in dealing with
post acquisition integration in record time. In this way we really contributed to value creation (CFO
of Company G).
The FF of Company I provides independent compliance in a relatively simpler organizational
setting. The company’s aggregated turnover is approximately half a billion euros. The
holding company in Group I simply aggregates (as opposite to integrating) the subsidiary
companies, making sure that they function in compliance with local regulations:
In the holding company the FF is indeed one of the most important functions in terms of value
creation. The shareholder (the family) does not want to intrude in the business operations of the
acquired companies; however, the shareholder would like to be reassured that the subsidiary
companies are compliant with the law and regulations in Italy as well as in their respective countries.
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Occasionally, we provide legal/tax and accounting consulting to our subsidiaries. Our goal is not to
integrate practices or to establish a common language (Group Controller of Company I).
The three patterns identied are quite consistent with the body of academic knowledge on
the evolution of FF and measurement systems (Moores and Yuen, 2001;Davila and Foster,
2007 among others), as well as academic and practitioners’ operationalization by Chartered
Institute of Management Accountants - CIMA (2008,2011). In Figure 4, we present the
patterns used to support value creation as adopted across the different FFs.
4.2 Drivers of the chief nancial ofcers’ ability to promote value creation
Our second research objective was the investigation of which CFO personal characteristics
help to support value creation whatever their role. In our case studies, we found that it is
debatable whether personal characteristics, as dened by the upper echelon theory, are
relevant factors in identifying “better” CFOs. From our CFOs’ proles, we were not able to
detect any visible pattern in terms of age, gender, education or experience associated to their
roles. The CFOs’ personal characteristics do not differ greatly across the sample of surveyed
companies; hence, these characteristics do not appear to be extremely relevant to the
analysis. Independent of their personal characteristics (Hambrick, 2007) and their roles (IBM
Institute for Business Values, 2010), as suggested by Naranjo-Gil and Hartmann (2007) and
Naranjo-Gil et al. (2009), we divided the CFOs into two clusters: those who are more
inuential and those who are less inuential, depending on their ability to implement change
(Figure 5). “Change” is here intended as change within the FF in terms of accounting and
controlling processes, accounting tools and technology used to support the functional
organization.
The CFOs of Companies C, E, G and H (those who are more inuential) led strategic
projects of change. Company C’s CFO condently addressed the design and start-up of the
shared service center; Company E’s CFO worked actively on an FF re-organization project to
improve its efciency and effectiveness; Company G’s CFO invested part of his time in
setting up a program of talent development in nance; Company H’s CFO is involved in a
Figure 4.
Patterns of value
creation
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service center start-up. The CFOs of Companies A, B, F, D and I (those who are less
inuential) devoted a relevant part of their time to maintaining and incrementally improving
the outcome of their functions, with a relatively narrower scope. In a number of cases, the
CFOs worked to improve technology, as well as streamlining nance processes and rening
the design of management control systems. When comparing these tasks with those of the
inuential CFOs, we can see that that impact of the latter is greater.
Using the above distinction, we analyzed the drivers of CFO inuence and found
interesting results. Inuential CFOs have an average age of 52 years, while the less
inuential group of CFOs have an average age of 47.6 years. Our evidence is thus that age
helps in being inuential: older CFOs are more inuential. We noted that all the inuential
CFOs have strictly functional experience and were promoted internally to the position of
CFO (Company G’s CFO was appointed from outside, but he had been a consultant for the
company very extensively before being hired). Less inuential CFOs have mixed functional
and business experience; they are promoted internally to the position of CFO or hired
externally. Our evidence is thus that inuence derives from technical knowledge acquired in
functional experience, and knowledge of the organization is acquired while being promoted
through the ranks of the same company. We also found that none of the more inuential
CFOs had ever worked in an industry different from the one they are currently working in.
The less inuential CFOs have different-industry work experience. Lastly, we found that all
inuential CFOs are male. However, we cannot reach a conclusion about gender being a
driver of CFO inuence: just one out of nine companies had a female CFO. In Italy, gender is
a general issue, not only as regard to CFOs. In the Global Gender Gap 2013, Italy ranks only
97th, and in Italy the overall female employment rate is still only 47 per cent (one of the lowest
in Europe) (EU, 2012); female membership of boards of directors of listed companies is still
much lower than in other European countries (Gamba and Goldstein, 2009;Matsa and Miller,
2013). Even though we have no more data, it does not surprise us that a female CFO is
included among the less inuential CFOs.
In another sphere, we note that inuential CFOs sit on the boards of directors; in our view,
this is a proxy for closeness to shareholders. This is true of listed companies E, G and H, and
also of C, which is not traded on the stock exchange. The inuential CFOs are very “close” to
the shareholders, i.e. they enjoy a close knowledge of them. A strong relationship with
shareholders is required both by the role of trust held and due to common ground shared in
value creation processes. Among the CFOs interviewed, this close relationship stems from
Companies E, G, H
Company D
Company I
Company C
Companies B, F
C
o
m
p
a
n
y
D
C
o
m
p
a
n
y
I
C
o
m
p
an
i
e
s
B,
F
Lower Higher
CFO’s influence
Finance efficiency
Lower Higher
Lower Higher
Business insight
Company A
Figure 5.
CFO roles and
inuence
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personal ties and direct family relationships between the shareholder(s) and the CFO. Almost
all of the observed companies are family-controlled rms. According to Bugamelli et al.
(2012), in Italy, the ownership structure itself, and the top management team is dominated by
the owner and their family members: in a sample of European Firms in a Global Economy
(EFIGE), 85.6 per cent of cases are rms with a dominant shareholder: the family. The
percentage is somewhat comparable in France, Germany, Spain and the United Kingdom
(UK). The main difference, however, between Italian family rms and other European family
rms is the low propensity to hire managers external to the family. In Italy, 66.3 per cent of
surveyed rms feature a top management team entirely constituted by the family members.
The same percentage in other countries is relevantly lower: 25.8 per cent in France; 28 per
cent in Germany, 35.5 per cent in Spain and only 10.4 per cent in the UK. As stated by
Minichilli et al. (2010), in family rms, the management processes replicate family dynamics,
the control is based on “clan” culture, values and beliefs, rather than structured and
formalized systems and procedures. The case of Company C, then, is emblematic: this
company was established as a cooperative, so proximity to shareholders is extreme. Hence,
sitting on the board of directors becomes a formal source of legitimation for CFOs becoming
involved and playing a relevant role in key operational, investment and organizational
decisions as well as being an agent for change within the function they are heading.
Looking at the roles of inuential CFOs, we note that in IBM’s terms they qualify as
value integrators or disciplined operators. The less inuential CFOs play all other
possible roles. We interpret these ndings as meaning that the role of CFO is not a strong
driver of CFO inuence, being rather a pre-requisite for being inuential. Inuential
CFOs, who are value integrators and disciplined operators, have something in common:
they head highly efcient FFs. Having worked to reach nance efciency proves to the
management that they possess “hard” nance competences and the necessary technical
reputation to be inuential. This is also consistent with the fact that inuential CFOs are
senior CFOs, with a long history of work experience in the nance function, in the same
company and in the same industry.
Our ndings are not always consistent with previous studies. With reference to the IBM
study, we observe that CFO roles exist, although a value integrator role does not necessarily
imply a CFO’s legitimation and ability to inuence. The ability to inuence and be an agent
for change, depends on other factors such as age, functional knowledge, same company
organizational knowledge, gender and governance.
Age is a relevant variable in determining the CFO’s ability to inuence change: this is
consistent with the upper echelon theory (Hambrick, 2007), and the ndings of Naranjo-Gil
and Hartmann (2007) and Naranjo-Gil et al. (2009). However, in contrast with these latter
studies, we found that older CFOs are more likely to be agents for change. The inconsistency
may only be apparent. We know from previous studies (Zoni, 2003;Zoni et al., 2012a,2012b;
Morelli and Zoni, 2013) that there is a difference between triggering change and
implementing change. Consistently with these latter studies, younger CFOs are better at
triggering change, whereas older CFOs are better at implementing change. There is no clear
distinction between these two phases in Naranjo-Gil and Hartmann (2007) and Naranjo-Gil
et al. (2009).
With reference to CFOs’ functional track records, we see that our ndings are fully
consistent with Hambrick (2007),Norburn and Birley (1998) and other functional theories by
and Miles and Snow (1978) among others. Different from prior ndings, other company or
industry experience does not improve a CFO’s ability to make a difference in value creation.
We nd instead that governance and board composition matters in value creation, although
we believe that this issue has not been sufciently studied (O’Regan et al., 2005).
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5. Findings and conclusions
We have carried out empirical case studies of FFs and the role of CFOs, and how they
contribute to the value creation processes. According to IBM Institute for Business Values
(2010), FFs and the roles of CFOs can be itemized based on their ability to achieve nance
efciency and to provide business insights. In our nine case studies, we found all the
archetypes proposed by IBM. According to their degree of nance efciency and of business
insight, we classied Company A with the cluster of unsophisticated nance organizations
to be developed; Companies B, C and F were identied as strong administratively focused
nance organizations striving for nance efciency; Company I was found to be an
administratively unstructured nance organization with advisory ability; and Companies D,
E, G and H were classied as administratively mature nance organizations with an ability
to read the business. According to the IBM classication, only these latter four companies
would be recognized as having “optimal” nance organizations (IFOs led by value
integrators) to support value creation. In the IBM study, only 20 per cent of all rms surveyed
are IFOs.
Our contribution to the IBM study is to provide a dynamic view of how the FFs and CFOs
become IFOs and value integrators by observing a variety of other relevant and likely
alternatives of value creation for both FF and CFO roles. Our ndings indicate that there are
three distinct behavior patterns FFs follow to add value for the shareholders. The rst option
involves the FF taking the lead in setting a common language across functions, management
processes, management and stakeholders. We observed this pattern in Companies A, C and
E. The second value creation option sees the FF establishing strong and relevant support to
business: Companies B, F D, and H provided vivid examples of how the FF should support
business. The third option implies that the FF acts as an independent advisor assuring
compliance: we noted this in Companies G and I.
We then observed different CFO roles with respect to value creation as itemized by IBM
Institute for Business Values (2010). Not only value integrators CFOs (heads of the FF in
companies E, D, G and H) support value creation. Based on their ability to be agents for
change, we grouped the CFOs as: more inuential CFOs (Companies C, E, G and H) and less
inuential CFOs (Companies A, B, F, D and I). Elaborating on the suggestions of the upper
echelon theory as well as on more recent ndings, we have attempted to itemize the drivers
of CFO inuence. We conclude that personal characteristics, such as age, and functional
experience (including industry knowledge) have an impact on the degree of inuence that the
CFO can exert on strategic decision-making and FF functional change. We also observed that
some of this inuence derives from “proximity” to shareholders, as all the more inuential
CFOs sit on the board, enjoying a close relationship with shareholders.
Pragmatically, our ndings suggest that IFOs and value integrators are not the only
instances or roles to support value creation; value creation happens every times a FFs uses a
common language, supports business and provides independent compliance. However, most
important is that the FF is lead by a senior experienced and inuential CFO despite the role
they may be in.
Our research is limited in that it suffers from all the methodological bias of the case study
method. However, we believe that we could use the ndings from this study to identify gaps
in extant literature and avenues for future research. We have noticed that personality traits
and psychological and social variables are studied with reference to management, but far
less with reference to CFOs (Sathe, 1982). Ge et al. (2011) called for more research on the
effects of social networks or religious beliefs. Physiological aspects seem particularly
relevant in family businesses, where personal relationships among top management teams
are close and not driven by market or hierarchy logics (Davis et al., 1997;Williamson, 2002).
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We also believe that the topic has not yet been studied sufciently. We, therefore, believe that
a more convincing and structured investigation of the drivers of shareholder trust building
among CFOs is needed. To the best of our knowledge, there are no studies of the antecedents
to shareholders’ trust in the CFO, in a context where trust between people is intermediated by
trust in systems, such as accounting systems. Whether governance (and the makeup of
boards of directors) is an antecedent or a consequence of shareholder trust in the CFO would
be worth investigating.
Additionally, it would be interesting to study how CFO incentive schemes affect the CFO
role and the inuence of the FF in value generation. To the best of our knowledge, the
existing literature does not integrate incentives into observation of how CFOs and FFs
support value creation, e.g. by considering incentives as an antecedent of value creation
(Hoitash et al., 2012). We understand that the issue is a sensitive one, as the CFO is in charge
of the systems for measuring value creation, and the CFO’s integrity may be questioned in
the case of sizeable incentives. Especially in Europe (Sheridan, 1995;Becker et al., 2011), but
certainly in Italy (Zoni and Merchant, 2007), data on CFO compensation and incentive plans
are scattered and this may explain why academic studies are very scarce. However, low
availability of desk data should not be paired with relevance of research: we believe this
research avenue would be worth investigating.
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Corresponding author
Laura Zoni can be contacted at: laura.zoni@unicatt.it
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