Question

In today’s corporations, the role of the Chief Financial Officer has expanded into other areas beyond finance. Name two of those areas and give examples of the involvement of the CFO in these areas.

One of the responsibilities of the CFO is a fiduciary responsibility. What does this mean?

How is the goal of maximizing shareholder wealth typically measured in the marketplace?

Answer 1

Answer 1:- The corporate officer's role is changing due to changing market, Industry & technology where the working model cannot be the same as well as the role due to global competition. In today's corporation, the role of the Chief Financial Officer has expanded into other areas beyond finance apart from managing the monetary dealings. The two of those areas and examples of the involvement of the CFO in these areas can be explained below:-

1) CFO must act as a Catalyst/Technologist:- In modern day's CFO's role is not only exposed being the right-hand executive of the CEO who is required to share the strategic ideas for the business but certain rights are also given in to manage the culture, bring change in strategy for products/brand as well. For example- CFO today is more involved not only in managing the monetary dealings but also the huge chunk of data of thier clients which requires security, safety, Transparency & accountability which is a serious role in this technological era. CFO is required to act as a catalyst/Technologist and focus on IT related matters with its function of the area.

2) CFO must act as a disciplined operator:- As the technology is taking boom with a lot of disruptions happening in the business the role of CFO has become challenging. Here today's CFO provides enormous data, information, Insights & puts them all into action with an integrated model. The modern CFO must understand apart from finance the role is also to build the scalable systems & processes that individuals must develop KPI (Key Performance Indicators), understands performance trends & also develop the strategy to implement by improving it. For example- To excel in the modern CFO they must move from a financial report card to embrace the business insights holistically. Today's CFO must speak the language of business more than what's in with balance sheet or finance.

Answer 2:- Here in today's business world one of the responsibilities as a finance executive is fostering an environment of financial responsibility within the organization. This is challenging which includes communication of policies, procedures, establishing & monitoring internal controls & maintaining effective financial reporting & cash management procedures across the organization. As per the Controllers Round Table of Boston hosted an event to discuss 'The Fiduciary Duty of Finance Executive' which explains the responsibility of CFO as Fiduciary. Following is the explanation:-

• A fiduciary duty is a responsibility whereby it is a loyalty where you are a claim where the interest of an organization is important first before an executive's of your own interests as CFO's.
• Not being sloppy by keeping the records & documents clear & clean for decision making.
• Seeing something that is an anomaly or against the standard then the job is to raise the hand.
• Keep yourself in always learning by staying on top of new financial & regulatory developments.
• Managing the protocol by making sure the management is on board with finance protocols as revenue recognition, issues on sales, expenses & taxes so on. It is important to integrate financial reporting with management.

Answer 3:- Here the concept of wealth maximization of shareholders is a combination of two words as 'wealth' & 'maximize' where a wealth of shareholders maximizes then the net worth of a company maximizes. Following is the explanation on how the goal of maximizing shareholders wealth typically measured in the market place-

• One of the key metrics in measuring the shareholder's wealth is going for the present value of future cash flows relevant to that decision is greater than the costs incurred in that activity. Increase in wealth = Present value of future cash flows less the cost/investment which is measured in the market.
• Another approach to measuring the wealth is economic value added is equal to net operating profits after tax minus the capital employed multiplied with Weighted average cost of capital to check with the market.
• A shareholder holds the share in the company/business by his investment & his wealth will improve if the share price in the market increases in the secondary market which in turn is a function of net worth. So here the shareholder's wealth is typically measured in the market as net worth maximization where shareholder or investors' only objective is to get a good return on thier capital & safety of thier capital in the market for maximization.