As businesses begin to recover from the pandemic, it is increasingly apparent that the old world order in which the CFO focuses on the financials is undergoing a transformation.
In a resource-deprived world, the CFO’s responsibilities are extending beyond financial information to multi-capital, value-creation accounting. With today’s organisations having to measure, among other things, people (human capital), key relationships (social capital) and innovation (intellectual capital), the chief financial officer is becoming the chief value officer (CVO).
The CVO’s role is to ensure that all relevant aspects of value creation and destruction are accounted for and communicated to boards, management and external stakeholders. To do this, CFOs will need to change their mindset to one of comprehensive value creation and protection. Boards will need to look at performance through those multi-capital lenses – including, for example, natural, human, social and intellectual capitals.
This multi-capital approach requires deep knowledge of one’s own organisation and the expectations of internal and external stakeholders. The CVO’s insights will inform analysis of business models, dependencies and impacts, risks and opportunities.
The arrival of multi-capital accounting will also see the demise of reporting silos. It will require the organisation to become more interconnected, with increased need to engage with people from a wide range of disciplines and perspectives.
The arrival of multi-capital value-creation accounting will see the demise of reporting silos
All the rage
There is a growing trend to recruit and hire CVOs. Global food and agribusiness group Olam is one company that has appointed a new ‘finance for sustainability’ team. Meanwhile the Accounting for Sustainability (A4S) organisation has recently developed a CFO Leadership Network, which brings together leading CFOs from large organisations seeking to embed the management of environmental and social issues into strategy and business processes.
As CVOs transform the accounting model to address these multiple capitals equally, so they must also shift the corporate conversation towards long-term value creation. Companies are more than ever expected to explain their global economic, social and governance impacts and activities, including climate change, gender and ethnic diversity. These new imperatives will put CVOs in the driver’s seat.
A useful way to understand the new business model is by reference to Kate Raworth’s theory of doughnut economics, a visual framework for sustainable development. Using this as a compass, CVOs can understand when the business model negatively affects society and/or the environment. It can equip them to make the necessary shifts towards long-term strategic value creation.
CVOs will have a more dynamic and expansive mandate than CFOs. They will connect the business model to all relevant capitals and identify key value drivers within the organisation. They will incorporate the capitals into controlling (planning, forecasting), risk management and wider decision-making processes.
To do this they will need to use a mixture of measures and indicators – financial, non-financial and pre-financial. Tools currently under development (such as new scorecards, capital expenditure tools and internal carbon markets) are rapidly becoming multidimensional. They include various types of metric, which themselves need to be put into the context of external trends, business models, sector shifts and stakeholder demands.
This multiplicity of formats is a challenge. All those values need to be tracked and connected, which requires a multidisciplinary mindset.
With the CVO’s 360-degree view of the business, the finance professional is firmly at the heart of the business and a key strategic driver.