Side-by-Side, CEOs And CFOs Plot The Future

CFOs’ strategic role has evolved into a critical voice on business risks and operations, helping CEOs see where to best seize opportunities.

CEOs and CFOs are closer than ever before, allied in navigating challenging economic terrain. Although a similar closeness existed a decade ago, what is different in their relationship today is the CFO’s deeper involvement in operations.

At global consulting firm RGP, for example, CEO Kate Duchene relies on her CFO Jennifer Ryu to “keep me grounded,” Duchene said. “Jenn’s not just a finance person or a risk and compliance professional, she’s my business partner. She says the hard things I need to hear. She’s the yin to my yang.”

Kate Duchene, CEO, RGP

This honest and frank partnership is becoming commonplace at many public and private companies. CFOs, long engaged in the setting of strategies to realize the CEO’s vision, not only have a preferred seat at the proverbial table; they’re expected to make their voices heard, pro and con. Instead of politely listening to the CEO and the rest of the C-Suite, CFOs are expected to play devil’s advocate, expressing a critical opinion to provoke debate.

“What Sandra does here is give us conflicting advice,” said Michael Barnes, executive chairman and founder of the large investment company Tiptree, where he serves the equivalent role of a co-CEO (with Jonathan Ilany). Barnes is referring to Sandra Bell, the publicly traded company’s CFO. “Our relationship has evolved to the point where I can’t imagine running the operations without her,” he said.

Privy to Barnes’ comments during the Zoom interview, Bell noted that she has always been a strategic-minded CFO. Prior to joining Tiptree in 2015, she was the chief finance officer at Prospect Mortgage, PHH Corporation and Federal Home Loan Bank of Cincinnati. “I did not, however, come up the accounting ranks,” she said. “I was initially an investment banker (at Deutsche Bank Securities). It feels very natural for me to be in a strategic seat supporting the operations of our subsidiary companies.”

Barnes is relieved she’s in that seat. “Sandra does all the early vetting of our targeted investments and handles the legal, regulatory, accounting, communications and investment outlook decisions before Jonathan and I approve a particular transaction,” he said. “In a macro sense, what she does goes beyond crunching numbers.”

A More Mature Partnering Role

None of this is particularly surprising in an era of flatter organizations, teamwork and flexible working arrangements. Hierarchical command and control management structures led by charismatic egotists have gone the way of the typewriter, minus a few celebrity chief executives. So important are the collaborations between a CEO and CFO that Wharton now offers a program designed to help CFOs become the CEO’s strategic partner.

During the worst months of the pandemic in 2020 and 2021, when profound social problems surfaced along with momentous changes in where and how work was performed, CFOs were deeply involved in adapting the organization to these shifts, according to a global survey by McKinsey & Co.

“The CFO’s focus shifted toward crisis management and away from longer-term responsibilities such as strategic leadership, organizational change and finance capabilities,” the management consultancy stated. The survey results suggested “the degree to which finance leaders can have more impact in key areas of the business, and how companies can take advantage of missed opportunities to leverage the CFO’s insights and leadership,” McKinsey said.

The findings echo much of what Ryu and Bell offer their CEOs—services extending beyond traditional CFO finance, accounting and reporting obligations. CFO surveys by The Hackett Group affirmed the evolving relationship between the CEO and CFO. “We’re seeing more CFOs proactively bringing opportunities to the CEO and the rest of the C-Suite,” said Jason Logman, principal at the business transformation consultancy. “They’ve become more of a business partner, leveraging data, technology and metrics to say, `Here’s what I’m seeing and what I think we should do.’”

Logman, who consults primarily to Fortune 100 companies, commented that most of the CFOs he works with have integrated operations into their responsibilities. His colleague, associate principal Gilles Bonelli, ticked off several key areas where CFOs now partner closely with their CEO, including cost efficiency improvements, enterprise growth strategies, digital transformation, analytics capabilities and ESG (environmental, social, governance) strategy and development, among others.

“CFOs are filling pretty substantial gaps,” said Bonelli. “The old finance and accounting function, where people for the most part gathered the numbers and reported them, has given way to a more service-centric function.”

He explained that it is increasingly common for a CFO to be a strategic advisor to the supply chain, operations, research and development, sales and marketing, and IT organizations, providing support to these functions beyond traditional financial analyses. “This more mature partnering role positions the CFO as the CEO’s central business advisor, co-steering the organization’s operations and financial performance,” Bonelli said.

McKinsey’s survey arrived at a similar conclusion, finding that the CFO is uniquely positioned to advise the CEO on the longer-term implications of critical business issues like ESG and digital transformation. “Their deep understanding of the economics of the company’s business model, their strategic perspective on sector-shaping trends, and their role as thought partner with the CEO and the board, make them best qualified to drive these changes,” the firm stated.

Special Operations

Bell is certainly qualified to be this thought partner at investment firm Tiptree. The holding company and its consolidated subsidiaries have nearly 1,500 employees, spread across operations in all 50 states, the United Kingdom and 14 European countries. In 2021, Tiptree recorded one of its best years since Barnes founded the firm in 2007, reporting record revenues of $2.1 billion, in no small part due to the CFO’s strategic counsel and operating expertise.

“As a holding company, we’ve acquired and own a number of semi-autonomous operating businesses,” said Bell. “Our `secret sauce’ is to find unique opportunities in new markets where a public company or a private company has a strong management team and a strategic vision to take the business to a new level. Once acquired, we support the management team from a capital allocation standpoint, if the underlying metrics and financial analyses support this decision.”

To make such determinations requires an in-depth knowledge of each subsidiary’s market and business. “Everyone who works for me has to understand the nuts-and-bolts operations and drivers of each operating business,” the CFO said. “We interact with their finance team to be sure we get information in a uniform way to communicate to shareholders where we’re going and how we’re getting there.”

Barnes extolled Bell’s ability to strike a balance between a subsidiary’s autonomy and independence and the need for Tiptree to ensure consistent and disciplined reporting.

“Each company we acquire operates a bit differently; Sandra’s job is to make sure they conform to our standards and culture without overwhelming their management (and) deteriorating our performance,” he said. “I admire her accounting abilities, but what I value most is her coordination with the management of the subsidiaries in communicating our strategy.”

Mutual Admiration

Admiration also is on display at RGP. Ryu was recruited by the global consulting firm’s internal talent group in April 2019 to become its senior vice president of finance, reporting directly to then-CFO Herbert Mueller. Four months later, RGP and Mueller parted company and Duchene looked to make a change, she said.

“I went to the board and said I want to give Jenn the interim CFO role,” the CEO said. “Even though we were still developing our relationship, I felt she had the skills and capabilities to partner with me from a vision perspective in transforming the finance organization from a support and compliance function into a business asset.”

Having previously served the firm as chief legal officer and executive vice president of HR before becoming CEO in December 2016, Duchene had successfully transformed the legal department along the same lines. She felt there was value in undertaking a similar transformation of the finance organization. Ryu felt the same way and the two executives have been joined at the hip ever since.

Jenn Ryu, CFO, RGP

“We complement each other,” Ryu said. “Kate focuses on opportunity and potential whereas my role is to look around the corner and focus on realism and honest risk assessment. Credibility is really important for a CFO. It’s up to me to thread the needle between strategy and financial performance, weaving a narrative from the financial data.”

This narrative was a sorry tale in 2019 when Ryu became interim CFO. RGP needed to improve its operational performance, given a weakening top line and a ballooning SG&A cost structure.

“Jenn and I sat in a room together with the COO and went through the scenario planning,” Duchene recalled. “It was hard and unpleasant. Ultimately, decisions were reached to decrease our headcount, restructure the European operations and reduce our real estate footprint.”

The tough decisions resulted in a resounding turnaround. In RGP’s fiscal second quarter (ending November 2021), revenue grew to $200.2 million, a 30.7 percent increase from the same period in 2020, and SG&A expenses decreased to 28.4 percent of revenue, an improvement of 720 basis points. Compared to a $1 million net loss in the prior year’s second quarter, net income soared to $14.3 million. Full fiscal year revenue for 2021 was $630 million and the firm issued a guidance for $801 million in FY2022 revenue.

“We executed on all the goals,” said Ryu. “From a cost structure perspective, we took nearly $20 million out of the business and reached our highest EBITDA in the last 10 years.”

“Jenn wasn’t just about the numbers; she was a thought partner in how we would execute the plan,” Duchene interjected. “She built the data case to support the strategy and crafted the story for investors. You can be smart and lucky, and we were both, completing the restructuring just a couple weeks before the Covid lockdowns.”

At present, Ryu and the finance function she leads interact regularly with the rest of the business, compared to the days when they had separate agendas. “Since everything eventually comes down to the financials, it makes sense for us to help everyone connect the dots,” she said.

More than dots are connecting at the firm. “Aside from having developed a great business relationship, Jenn and I connect on a very personal level,” said Duchene. “We’re both working moms, although my kids are older. She just texted me this past weekend that her daughter won first place in a gymnastic competition. She’s also a terrific swimmer. I was so happy for her.”


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