CEOs & CFOs.

TODAY, MORE THAN EVER BEFORE, a CEO and CFO must function as a team. Financial expertise has always been critical to managerial strategy, but rampant mergers and acquisitions, shareholder activism and ever more complex regulatory requirements are recasting the CFO role--and, in turn, the relationship between finance chiefs and their CEOs. The change isn't always positive. While many CFOs report having more involvement in strategy, others say that intense scrutiny from regulators and Wall Street, coupled with onerous compliance requirements, have turned the job into one of endless drudgery. This Chief Executive Special Report examines why some CEO-CFO partnerships work--and why some implode.

The CEO-CFO Partnership

Why do some CEO-CFO pairings soar--while others crash and burn?

"I USED TO JOKE 'they are the kite, and I am the string,'" says Andrew Greenebaum, referring to his CFO tenures at three different firms. "CEOs are dreamers and thinkers, and CFOs are the watchers of the purse strings."

That point of view jibes with results of a recent survey in which 47.5 percent of CFO respondents reported that their CEOs are more optimistic about their companies than they are. Conducted by CFO Magazine in conjunction with Duke University's Fuqua School of Business, the survey reported that just 5.1 percent of CFOs said the opposite--that they are more optimistic than their CEOs.

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Visionary vs. realist--or even pessimist--is, by nature, an adversarial relationship. And yet even CFOs happy in their roles invariably describe the CEO-CFO relationship with some variant on that theme. What's more, most say the nay-sayer aspects of their jobs have grown significantly since Sar-box hit Corporate America in 2002. "The CFO is becoming the official bad guy," says Bill Wheeler, CFO of MetLife since 2003. "When it comes to compliance with SEC regulations or Financial Accounting Standards Board (FASB) rules, we're the internal cop who gets to deliver the bad news."

Reality Checker

DOLING OUT MORE BUBBLE-BURSTING doses of reality isn't exactly Wheeler's--or any CFO's--dream job. But it comes hand in hand with the greater emphasis on regulatory compliance and financial reporting that all companies have had to contend with over the past five years. Some CFOs find their post-Sarbox compliance workloads intolerable, switching companies or even careers to escape the drudgery. Greenebaum, for example, left the CFO spot at the lifestyle company Vans to pursue a new career in investor relations at Integrated Corporate Relations. But many take the enhanced reporting responsibilities in stride--even finding an upside.

"There's less mystery than there used to be," says John Ma-honey, CFO of Framingham, Mass.-based Staples and a former partner at Ernst & Young. "The accounting blowups at some companies wound up with CEOs and CFOs pointing fingers at each other. But for most it created a healthier, more robust dialogue about ensuring that financial statements are properly prepared."

Shoulder-to-shoulder vetting of numbers is just one area where regulatory changes have had an impact on the CFO's role and top-level corporate relationships. More and more often, CFOs are called upon to walk CEOs and board members through the intricacies of financial statements and explain the nuances of the more complicated accounting processes--particularly when a rule change or court case about a given practice makes headlines. "Board members, and particularly audit committee members, are much more concerned about truly understanding the numbers themselves," says Julia Homer, founding editor of CFO Magazine. "CFOs uniformly report that they spend more time educating the board and individual board members about finances."

Talking the Walk

COMMUNICATING WITH EXTERNAL constituents--whether they be investors, NGOs or even regulators--is also increasingly falling to the CFO. While CFOs must first and foremost lead the charge in producing timely, accurate financial statements, CEOs increasingly rely upon their finance chiefs to be good communicators capable of not only accurately representing the company's finances, but also painting a picture of where it has been and where it is going from a financial perspective.

"If you want the CEO to run the business, someone has to run the relationship with the Street," points out Chris Langhoff, a recruiter in the financial officers practice at Russell Reynolds Associates. "There are more activist investors today than ever before, and--depending on what role the CEO wants to fill--the CFO often serves as the point person for them."

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These added responsibilities, in turn, demand a skilled communicator in the CFO role. Wheeler, for example, serves as "chief spokesperson" to the investment community, and also spends a significant amount of time monitoring proposed accounting rules for his industry, what they will mean for New York City-based MetLife's financials and what the company can do to influence policy. One regulatory proposal (SOP 05-1) actually prompted the former investment banker, who usually relies on his accounting team to talk to the FASB, to pick up the phone himself.

"I'm not an accountant, never thought I would have to worry about technical accounting, and don't have a lot of interest in it," he says. "But as the largest company in our industry in the U.S., it's our responsibility to be out front on these issues. So I literally got on the phone with the senior people there myself and tried to talk it through."

"It's fallen to CFOs of public companies to play a role in standard setting," agrees Mahoney, an Ernst & Young veteran who points out that since the rash of accounting scandals big accounting firms no longer have the same standing with standard setters that they once enjoyed. The role is one of the less welcome tasks CFOs have added to their plates. Influencing rulemaking is an uphill battle, one that frequently ends in frustration--as did Wheeler's efforts to reason with the FASB about SOP 05-1. What's more, discussion centers around complex accounting rules open to interpretation, an area outside the comfort zone of CFOs who came up through finance rather than accounting.

As a result, the CFO organization must have a deep knowledge of accounting principles and the way financial statements are prepared. While that expertise doesn't always have to reside with the CFO, it's increasingly important that finance chiefs are sensitive to those issues and understand their implications even when they aren't accounting experts themselves.

Steering Strategy

IN ADDITION TO REGULATORY blocking and tackling and day-to-day operations, many CFOs report taking on a greater role in developing and executing business strategy over the past five years. In fact, 60 percent of CFO participants in a recent survey by Accenture described their company's CFO role five years ago as that of a "service provider," while 75 percent describe the role today as "business partner."

The principle functions of finance teams--tracking and reporting results, allocating capital, ensuring control and compliance and supporting decision-making--have always been tightly intertwined with business strategy. But today's CFOs want to be, and quite often are, more than control agents or scorekeepers, working closely with CEOs to map out a strategic course and play a significant role in leading it to fruition.

It's part of the job that suffered under the initial onslaught of Sarbox-related responsibilities, as finance departments were overwhelmed by the need to analyze and adapt to new requirements. Staffing up and hiring out have since absorbed some of the load, as has rounding the learning curve on Section 404. And CFOs are hopeful that the advent of "Sarbanes Lite" relief for smaller firms will usher in a more moderate regulatory climate.

Tellingly, it's the business strategy element of their role that many CFOs find most rewarding, so much so that it compensates for the Sarbox compliance-related processes many CFOs find so tedious. "When I took this job, I had no idea how much it would change with regard to new accounting policies, but I still get to spend a lot of my time driving where the company is growing," says Wheeler. "As long as I have that responsibility and am not just seen as the green-eyeshade clerk in the back, I'm pretty happy."

BY JENNIFER PELLET

BY THE NUMB3RS

47.5 percent of CFOs say they are less optimistic about their company's financial prospects than their CEOs

Is Your CFO an Economic Barometer?

Want to know which way the economy is headed? Try asking your CFO. Eleven years of data from quarterly surveys of CFOs conducted by CFO Magazine in conjunction with Duke University's Fuqua School of Business (www.cfosurvey.org) suggest that CFOs are pretty solid predictors of economic indicators.

"We've gone back and looked at the data, and it turns out CFOs are really good predictors of what will happen over the next year, particularly of earnings, capital spending and employment--the three big numbers," says John R. Graham, director of the survey and a finance professor at Duke's Fuqua School of Business in Durham, N.C. "Compared with similar data of the views of CEOs, production managers and other positions, the CFO predictions are the best."