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GAFM Articles > > Financial Management > The Role of CFOs in Improving Business Acumen
The Role of CFOs in Improving Business Acumen
By Dr. E. Ted Prince
14 April, 2008
Innovation in Financial and Talent Management
This article shows how a new innovation in financial management – assessment and development of business acumen in managers - promises to revolutionize selection and development of financial managers. In the light of the financial crises sweeping through most economies, the issue of business acumen is now taking becoming an issue of critical importance that CFOs simply cannot ignore.
Human and Talent Issues for CFOs
The critical driver of excellent financial performance and competitive superiority is, at the end of the day, not just financial sophistication, bur rather the level of business acumen possessed by all managers and staff of a corporation. This is not just a matter of education and experience but also a matter of financial personality.
This has been graphically illustrated by the US subprime crisis in which highly paid executives with extremely high levels of financial literacy and sophistication have lost hundreds of billions of dollars, reflecting a fundamental lack of business acumen.
Most people do not naturally possess high business acumen. CFOs and financial management need to focus more on the areas of human resources, talent management and executive development in order to avoid the type of crisis we are now experiencing globally and to gain leadership over the next major phase of competitive evolution once the correction is over.
Research into Development of Business Acumen
Research into developing business acumen in managers and executives has been carried out by our company, the Perth Leadership Institute. It has developed assessments that can be quickly completed online and can show a manager their level of business acumen and how to improve it. This innovative new approach is starting to be used by some of the largest companies in the US.
The approach is based on a model of behavioral finance. Behavioral finance is the new science which integrates personality with financial analysis and planning. Until now there was no such method – either you adopted a personality approach with no financial linkage, or a financial approach with no behavioral underpinnings.
Financial Signatures
Our research shows that we all have a characteristic way, personal to us all, that determines how we make financial decisions. These decisions are driven by a set of innate personal financial traits, of which we are usually unaware. These financial traits lead us to make financial decisions in a particular way.
Once we understand that particular way, or style, it is possible that we can predict how a particular executive, or individual, will make financial decisions. This, in turn, allows us to predict the financial performance of that executive team.
Perth calls these personal financial traits, the financial signature of an individual.
The majority of executives will have personal financial traits that do not lead, on their own, to profitable financial performance and a valuation increase.
What This Means for the Future Role of CFOs
CFOs need to focus on behavior, not just financial techniques. They must leaders in developing business acumen in their organizations. Some of the approaches include:
About the Authors
Dr. E. Ted Prince, the founder of the Perth Leadership Institute, has had a distinguished record in both running companies as CEO and as a thought leader in the area of management and leadership. His book entitled “The Three Financial Styles of Very Successful Leaders” was published in the US by McGraw Hill in 2005 and in China in Simplified Chinese in 2006. He is a frequent speaker at industry conferences. His work has been published in and reviewed by prestigious publication such as Harvard Business School, MIT Sloan Management Review, CFO Magazine and numerous others. He can be contacted at etedprionce@perthleadership.org.
