Twenty years ago, the chief financial officer at a bank was essentially a reporter, recounting the financial status of the bank. But today, the CFO’s job description is dramatically different.
The CFO position, said Stan Taylor, a professional career consultant specializing in banking and finance at Management Recruiters of Vancouver, LLC, has “grown from a subordinate position to almost a partner with the CEO.”
According to Taylor, not only does the CFO need to understand accounting fundamentals, but must also have significant business acumen, understand the bank’s business strategies and be able to accurately model scenarios and forecast results.
Ron Dobyns, CFO at Riverview Community Bank, listed the following areas of involvement for today’s banking CFO:
• bull;Build a structure to provide accurate, timely information to management, regulators, and shareholders
• bull;Keep abreast of changes in accounting and regulations
• bull;Coordinate the bank’s borrowing and investment activities
• bull;Manage talent (employee retention and training)
• bull;Develop a set of tools to help reach decisions better and faster
Anders Giltvedt, executive vice president and CFO for West Coast Bank, put it this way: “Now the CFO is involved from A to Z, where before he was involved from R to Z.”
According to Giltvedt, both external and internal forces are driving these changes.
Outside pressure
One major external influence on CFOs is the Sarbanes-Oxley Act, known as SOX. Publicly held banks must now satisfy internal, state and FDIC auditors, as well as those from the SEC and the Public Company Accounting Oversight Board. Giltvedt said that SOX had significantly increased the complexity and amount of reporting.
In addition, SOX has also shortened the time lines on many reports, said Dobyns. Other oversight entities also provide narrow response windows. Mike Worthy, CEO of Bank of Clark County, told of a new communication from the Financial Accounting Standards Board that had “the potential to dramatically impact the financial condition at banks.” They had exactly 60 days to elect an option.
“That’s too short a window,” said Worthy. “The analysis was overwhelming.”
To respond to such situations, CFOs must be experts at modeling and forecasting.
“People can’t be clairvoyant,” said Worthy, “but they can be thoughtful.” He expects the bank’s CFO to make educated decisions about what interest rates will do and minimize potential consequences of being wrong.
Not only are CFOs making daily decisions that can significantly affect a bank’s financial well-being, but SOX requires CFOs to personally attest to the accuracy of their financial information, and imposes financial and legal penalties for inaccurate or false information.
“The stakes are much higher,” said Worthy.
Apparently, some can’t stand the pressure. A recent study puts the CFO turnover rate at 13 percent.
Inside pressure
Changes within the banking industry itself are also affecting CFO responsibilities. Randy Blake, CFO designate for the newly forming Clark County bank, Partners Bank of Washington (in organization), stated that over the last ten years, banks’ balance sheets have become more complicated.
A wider variety of investment instruments available is making risk assessment more challenging. Also, he said, as banks have grown faster, local deposits no longer serve as the main source of funding. Instead, banks are turning to non-traditional funding sources, such as “bulletin board CDs.” The CFO must balance funding decisions against the loan portfolio to keep the bank’s finances healthy. CFOs must also know the capabilities and capacities of the organization to support whatever strategies are chosen.
Finally, CFOs must know how the bank does business: Is the main concern efficiency and costs? Or is it revenue generation? Giltvedt said that CFOs need to “understand the client value proposition, and be a catalyst for change.”
A good CFO
Historically, CFOs have come from an accounting background; the new trend is to focus on a business background. Taylor, the management recruiter, said that about 30 percent of CFOs are CPAs, while 50 percent are MBAs – and half of the CPAs also have an MBA. He also said that CFOs with a Certified Financial Analyst designation are becoming more common. Whatever their background, CFOs need business experience; Taylor said 15 years is the minimum.
If he had to hire a new CFO, Worthy said, he’d look for one who had done graduate work in the industry plus day-to-day financial statement work at a bank. Blake said that for de novo banks, having a CFO with banking experience was a major factor in charter approval.
With the rapid changes in regulations, investment vehicles, interest rates, and marketplace pressures, successful CFOs must constantly educate themselves.
“If you don’t self-train, you won’t go anywhere,” said Giltvedt. “You must like to read, study and stay up to date.”
As if all that wasn’t enough, CFOs also need to be confident public speakers.
“CFOs must strategize how to contribute to the bottom line and articulate that to management and shareholders,” said Riverview’s Dobyns.
Giltvedt summed up the evolution of the banking CFO, saying “no longer is it sufficient for a CFO to preserve and protect assets. Now, their role covers a broad area involving end-to-end strategic planning.”
Worthy said it another way: “CFOs used to be the guys with the green eyeshades in the back room. Now they need to be leaders.”
CFO – The next hot career
Recent graduates take note: Stan Taylor, a professional career consultant specializing in banking and finance with Management Recruiters of Vancouver LLC, said there is a “constant demand” for trained CFOs in the banking and finance industry.
“The population growth here will continue to expand,” said Taylor, predicting that the area between Salem and Longview would see a significant number of new financial institutions over the next 10 to 20 years. Just this year, he said, there were three new banks opening in northern Oregon and Southwest Washington. Last year, Taylor helped place three banking CFOs; this year he has already placed three more.
According to Taylor, the banking and finance industry is predicted to overtake the pharmaceutical industry as the fastest growing industry, especially in the western region of the U.S. Analysts are expecting the run to last at least 20 to 25 years.
Bank CFOs bear the brunt of SOX
In 2002, Congress passed the Public Company Accounting Reform and Investor Protection Act – more commonly known as the Sarbanes-Oxley Act or simply “SOX” – in the wake of the corporate accounting debacles at Enron, Tyco International, WorldCom and other major companies.
The act affects all public companies, including banks. Section 404 of the act, which requires management (and the external auditor) to report on the adequacy of the company’s internal control over financial reporting, has significantly affected banking CFOs. SOX 404 requires companies to perform exacting risk assessments and to implement, document and test manual and automated financial controls.
Proponents of the act say the act was necessary to protect the public – but critics believe it places an undue burden on companies.
Mike Worthy, CEO of Bank of Clark County, called the additional strata of SOX regulations “onerous and constraining,” pointing out that banks are already heavily regulated, such as by state auditors and the FDIC.
Much of the cost associated with SOX 404 compliance occurs at the outset. Anders Giltvedt, executive vice president and CFO for West Coast Bank, called SOX compliance a “pain to set up.” But once the internal tracking mechanisms and processes are in place, and people know what has to be done, “it’s not such a burden,” said Giltvedt.
