Earlier this month, CFO Dive shared a list of our top 5 CFO trends to watch in the new year. In first place: accelerated disappearance of the COO position as CFOs assume more operational responsibilities.
The idea is not novel. CFO Dive wrote in August about the efficacy of combining the roles, which was ultimately found to be not only broadly beneficial, but also, not that much of a stretch from the current day-to-day CFO responsibilities.
Nevertheless, in 2020, you can expect to find the COO-CFO title on a growing number of résumés. CFO Dive's prediction was based on a 2019 report on the merging COO and CFO roles from American Accounting Association (AAA). The study confirmed the trend, in recent years, has picked up considerable momentum. To increase efficiency, companies across industries have begun supplanting their COOs with an operationally focused CFO — a trend likely to continue in 2020.
For CFOs, as well as for the companies they lead, this is largely great news. The AAA study found "no evidence that CFO/COO duality adversely affects operations," and, with regard to financial reporting quality, "accruals [from firms with CFO/COO duality] are relatively more predictive of future cash flows compared to the accruals of control firms."
The merger, while trendier now than it has been in years past, isn’t new. Its origins stretch back nearly twenty years, when in 2002, The Sarbanes-Oxley Act imposed reporting and audit controls on public companies in effort to crack down on Enron-like accounting scandals.
In order to comply with Sarbanes-Oxley rules, CFOs were suddenly saddled with the responsibility of overseeing business systems in a new and more holistic way, which we said precipitated the operational and financial convergence. To this point, A Harvard Business Review study of the impact of Sarbanes-Oxley two years after it was enacted found the best way companies complied was by "streamlining their executive structure."
Debra Mason, CFO of Arizent, who has been CFO of eleven companies in the past 30 years, can attest to that. At two former companies, her official title was COO-CFO, but even when her sole on-paper responsibilities were numbers-focused, operational duties nonetheless found their way to her desk, which she said made her a better all-around leader.
"It would give me pause to join a company that has a COO," Mason told CFO Dive in September. According to her, things like customer service, growth, and operational systems are "the lifeblood of what the company actually does," making it crucial that CFOs are involved.
"The way I see it, the CFO role really embraces the things the COO, maybe in the past, the COO would have been focused on," Mason told CFO Dive. "I don’t think you can do the CFO role fully without having [...] control over those operational pieces. It just fits too well."
In her lengthy experience, she says she’s been "far more effective" leading traditional reporting, KPIs, and financial planning when she had a deep awareness of the company’s operations. "The best way for me to deliver, from a financial perspective, and help the company move forward [was to] understand the company fully, and to participate fully."
Mason, who got her first job as a finance manager in 1989, has since served as CFO for everywhere from small tech start-ups to multi-billion dollar publicly traded companies. She has only ever worked at one company that employed a separate COO. Today, she’d likely pass on a job at a company that employs a COO. "It’s starting to get to the point where [a separate CFO and COO] will often bump into each other," she said in September.
She sees, across the board, operational duties as being a large part of even traditional CFO job descriptions. "It’s become less about GAAP and more about really truly being a business partner to the CEO and the rest of the management team," regardless of whether COO is tacked onto the title, she said.
Asked whether she would support the COO role being totally absorbed by that of the CFO, Mason said she certainly would.
"I think it’s very difficult to be effective in the CFO role without embodying the things the COO is doing," she said. "That knowledge, and ability to control, drive, and influence is so important for being successful."
