CFOs that handle employees poorly can add to the reputational risk of their companies, business consulting specialists say. Same thing with CFOs who drag their feet in getting their finance and accounting operations onto the cloud or are overly conservative when their companies want to innovate.
Company reputational risk is something all CFOs must concern themselves with but they need to look first at how their own actions contribute to it, say finance leaders and others who’ve given the matter some thought.
CFOs are trained to focus on the dollars and cents, in some cases looking at people as an expense and even a liability, but it can be a liability for the reputation of their companies if they don’t switch that mindset to understanding that people are an asset, Sarah Roberts, CFO of ad agency Summer Friday, told CFO Dive.
Creating a work environment that spurs people to leave can have reputational financial downsides because high turnover brings higher expenses for recruiting, training, and the bad morale that snowballs down to the bottom line, Roberts said.
“Supporting and fostering their growth and providing a place that they want to work long-term provides the best rate of return for the business,” she said.
Her contentions are amplified by Ken Thomas, a managing director in the business performance improvement practice at global consulting firm Protiviti.
“Not continuously investing in and empowering their company’s talent, especially in today’s war for talent,” is a big risk for CFOs, Thomas said. “Finance leaders need to surround themselves with innovative and skilled talent who can scale with their company’s growth.”
Not giving enough attention to their company’s IT systems can also lead to CFOs causing reputational risks by underestimating the need to understand, influence and manage their company’s data strategy, Thomas said. That data strategy encompasses governance, quality, dependability, ownership, stewardship, lineage, mapping and security.
The dangers are increased by not moving management reporting and financial analysis to the cloud, he said, because customers, regulators and financial analysts are looking for clues into companies’ decision-making on as real-time a basis as possible. When numbers aren’t on the cloud, operations seem slow and opaque, giving observers reason to think the company isn’t geared to compete in today’s world.
“CFOs need to pay attention to their data strategy for these areas,” said the Protiviti specialist.
Poorly thought-through innovation and the spending it requires can be a perilous area for CFOs in dealing with reputational risk.
The wrong innovation, like Coke’s failure with New Coke, can set a company back but also being too wary of innovation can send reputation-squelching signals, says Bruno Pešec, president of Pešec Global, a management consulting firm.
To avoid reputational risk problems stemming from innovation initiatives, Pešec urges CFOs to prohibit investing in any idea or initiative that doesn't have clear ownership, accountability and objective.
“It doesn't matter how good the idea is if there is no one who will bring it to life,” the consultant said.
Even if the idea has a clear owner, the CFO can best protect the company by encouraging innovators to break down their idea to small chunks and release funding in tranches. That way there’s a cushion in case the idea fails to catch on.
Very importantly, Pešec said, require innovators to think about reputational risk when testing their ideas. If there’s even an outside chance of a negative impact, then they ought to do it off-brand.
“As an example, let’s say that a financial institution, "ACME Bank," wants to test a new type of credit,” he said. “For whatever reason, the innovation team believes that the reputation of the institution might be harmed in the early stage of the idea development. In order to reduce the risk, the team wouldn't use the "ACME Bank" brand — logo, wording, colors, channels, etc. — until they have proven the customer demand.”
CFOs can also run into reputational risk trouble by failing to incorporate scenario modeling as part of their FP&A strategy and relying on annual budgeting or baseline forecasting, said Flint Brenton, CEO of Syntellis Performance Solutions
“CFOs should take the time to model for multiple scenarios — best- and worst-case situations — to understand financial and operational impacts,” he said. “By taking micro and macro trends and data into account, modeling can ensure that finance departments are prepared to manage changing and complex market conditions.”
For health systems CFOs, Brenton said, this could mean modeling out what the future could look like if increased labor costs continue to escalate so they can devise how they will adjust resources to maintain profitability.
For all companies, he advises CFOs to leverage new data and tools to anticipate pitfalls and use modeling to help create a map of situations to work against.
CFOs face two barriers with reputational risk, says Anthony Johndrow, CEO of Reputation Economy Advisors. It cannot be boiled down into a neat financial model and it lives everywhere in a large organization and cannot be fully understood by a single functional expert, he wrote in an article for the Public Relations Society of America.
The ubiquity of the problem means the entire organization needs to understand d be equipped to identify, evaluate and mitigate reputation risk, he said. “Traditional approaches to managing risk are not built to deal with something this broad or interconnected,” he said.