Article published in "Finance et Gestion" N°395, January-February 2022.

How does training enable CFOs to increase their capabilities and impact?

Like a futuristic comic hero, does the augmented CFO have bionic eyes to calculate without an Excel spreadsheet? And is the augmented CFO a three-armed goddess with exo-armor for combat?

As CFO in major international energy and industrial groups (Suez, Rio Tinto Alcan, Solvay...) for some twenty years, I have seen the function transformed. From specialists in figures and compliance, CFOs have become Business Partners in all corporate adventures: growth, internationalization, mergers and acquisitions, transformation, crises and restructuring. As well as being a Business Partner, I've always enjoyed talking to sales people in the field, spending time in factories with foremen, answering their questions, explaining EBITDA and ROCE to them, taking a real pleasure in demystifying finance. Training non-financial people in finance is a real lever.

Today, as a training entrepreneur and professor of finance at HEC business school, I meet students, large and small companies, and academics: what advice can I give to the CFOs of the 21st century?

Your company is equipped with a high-performance ERP system. You've been through the agony of deployment. Almost all your company's processes are finally managed, with a few micro-exceptions that sometimes irritate you, but don't pose any major problems. In addition to the hyper-structured data from your ERP, you also have access to less structured information from RFID chips, financial transactions, social networks...

What can we do with the tons of data collected, and the monthly reports, gap analyses and beautiful price and volume variance graphs? How can we use this Big Data for predictive analyses that will enable us to better target customers, forecast demand more accurately, anticipate stock shortages that are currently weighing on the supply chain, better detect bad payers and make cash flow forecasts more reliable?

Intelligent tools are all well and good, but teams still need to get to grips with them. Training these controllers and accountants, who are always closing or forecasting, is essential. They are often the ones who turn off the office lights in the evening: they are the last to leave, and since Covid and telecommuting, only their children know that they spend more than ten hours a day in front of their computers.

Training gives them time to breathe and take a step back; sometimes it even helps to retain them. They can finally get their heads above water and identify the truly strategic, business-critical issues on which they need to concentrate their efforts. After a little in-depth training, they'll come back to you with a proposal to modernize that old reporting system without any predictive indicators, to supplement it, or even more audaciously, to replace it with OKR ("Objectives & Key Results") monitoring.

Too often I've seen finance teams in their own bubble, interacting very little with their operational colleagues. Yet the key business decisions are made by operational staff. A sales team is so afraid of losing volumes that it no longer fights to maintain prices, even though its products and services are truly superior to those of competitors in many respects. A plant manager can no longer bring the paint shop up to standard, and wonders whether it should be outsourced. A BU services manager has a plan to recruit specialized experts to deal with specific situations, but hasn't thought about how many days a year these experts will be billed to customers.

What can CFOs do to help? What if they showed them that finance isn't just accounting or reporting that only looks at the past?

Using business games and simulations, I went out to meet my operational colleagues. Around a board, with tokens to move and cards to play, both physical and virtual, tongues are loosened and minds are opened. We have fun, we get involved and we learn. In just two days, I was able to give them a very concrete understanding of the difference between profit and cash, give them new analytical tools and, above all, a new, more global view of company performance.

The cost of a two-day training course is very modest in relation to what's at stake. I remember this ex-key account sales colleague responsible for a business worth over €100 million. By analogy with a pizza stand, he finally understood that it's better to raise the price by 10% and sell 10% fewer quantities, than the other way round. He was only thinking in terms of his top line, without taking variable costs into account.

By meeting their non-financial colleagues, CFOs can increase their influence within the company and their impact on performance.

Finally, I'd like to turn to the subject that drives me the most, that of non-financial performance. It is no longer possible to look at EBITDA, ROCE or ROI without taking into account the company's carbon footprint. For example, if you have two factories, which are not at full capacity, is it a good idea to consolidate manufacturing on a single site?

CFOs can no longer content themselves with cost analysis and social impact assessment when the process consumes a lot of electricity. Especially if one of the two sites is located in a country whose electricity is mainly produced with nuclear power, and the other with coal. We're right in the middle of "Scope 2" of the carbon footprint. How can we take this non-financial dimension into account when evaluating alternatives? More and more large companies are introducing a carbon transfer price into their decision-making models, also known as the "shadow price", which ranges from €30 to €100/tonne of CO2.

The Conferences of the Parties (COP), which bring together the 197 signatory countries of the United Nations Framework Convention on Climate Change (UNFCCC), have been held every year since 1994. Some of these have seen major advances, such as Kyoto in 1997 and Paris in 2015. The IPCC reports on climate change and the IPBES report on biodiversity alert us to the fact that planetary limits are being exceeded, with irreversible consequences.

The effects of global warming and biodiversity loss will be felt well beyond the usual time horizon of political and economic decision-makers, which is three to ten years: how can we encourage them to act? It's a "tragedy of horizons" according to Marc Carney, former Governor of the Bank of England, echoing the "tragedy of the commons" pointed out in 1968 by biologist Garrett Hardin.

The financial sector is called upon to finance decarbonization and develop green finance. The inclusion of extra-financial or ESG (Environment, Social, Governance) criteria in corporate performance is a veritable regulatory tsunami.

CSR reporting became mandatory in France as long as 20 years ago for listed companies. Its requirements have gradually been tightened to comply with the 2014 European Non-Financial Reporting Directive (NFRD). It now concerns all companies with over 500 employees (listed and unlisted), i.e. around 4,000 companies in France.

Financiers are getting more and more involved... and terminology is changing! CSR reporting has become extra-financial reporting, ESG reporting or DPEF, another acronym for Déclaration de Performance Extra-Financière, which must be audited and published on the company's website. A strategic steering tool, the DPEF covers four areas: social, environmental, anti-corruption and human rights.

As each company uses its own indicators, it is difficult to make comparisons. So, to reinforce the financial transparency expected by stakeholders, and in the wake of the TFCD (Task Force on Climate Disclosure) - a climate working group emanating from the G20 - Europe is revising its 2014 directive. Renamed CSRD (Corporate Sustainability Reporting Directive), this directive will apply to all European companies with more than 250 employees or 40 million in sales (i.e. 50,000 companies in Europe) from 2023. The European Financial Reporting Advisory Group (EFRAG) will also be releasing a report on the standardization of indicators.

So many acronyms make the head spin. And there's a lot of money at stake: Ursula von der Leyen, President of the European Commission, has announced €1,000 billion in private and public funding for the European Green Deal.

To make matters worse, the European taxonomy has arrived. This framework, which classifies activities according to their environmental and social sustainability, will guide capital flows. Companies will have to isolate the "sustainable" part of their sales, as well as their Capex and Opex. This obligation concerns the 2021 financial statements of companies for the climate section. These reporting requirements, and the standardization of green labels that will accompany them, will surely limit the "greenwashing" that is still all too common.

So, CFOs, are you ready for more growth? Perhaps business gaming will help you one day. In the meantime, pair up with your CSR colleague: that's where investors are waiting for you.