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Why CFOs Need to Care About So-Called Soft Issues

By Melissa J. Anderson

Before she became CEO of Pepsico in 2007, Indra Nooyi was CFO of the company for 7 years. Even then, Nooyi’s commitment to diversity was well known. The company implemented clear and measurable diversity targets, with development programs for women and ethnic minorities as well as a push to hire local talent in the countries where Pepsico operates. The diversity efforts paid off: the company more than doubled profits in that time, and Nooyi attributed that success at least in part to the diverse workforce.

Today, the Pepsico’s Performance with Purpose mantra is often repeated when discussing the success of the company’s diversity and inclusion work.

In fact, as the business case for diversity and other so-called soft issues like sustainability are gaining recognition, these issues are increasingly falling under the purview of the CFO.

Sustainability as Risk Management

Last month Ernst & Young released a report on the changing relationship between the CEO and sustainability, mainly as a function of risk management. CFO Magazine’s Kate O’Sullivan explains, “As sustainability initiatives become ever more closely tied to risk management, and as companies do more reporting of their sustainability efforts and liabilities, the issue is moving out of its organizational silo into a more-prominent place on the finance chief’s agenda.”

The report, “How sustainability has expanded the CFO’s role,” details the ways in which sustainability has become relevant to number crunchers on the financial team.

It says:

“As ESG factors are incorporated into investment analysis, companies have started to view environmental and social initiatives as contributing directly to their economic performance. CFOs and other market-facing executives will need to become more familiar with their companies’ most vital ESG issues. They’ll also need to prepare for hard questions from stakeholders, and to demonstrate a heightened commitment to ESG performance.”

Ernst & Young expects that over time, CFOs will gain more influence over ESG issues. As such, they will need to gain a better understanding and savviness when it comes to corporate responsibility work. The report says:

“Revenue generation, cost reduction and risk mitigation are typically part of the CFO’s main job of preserving and increasing shareholder value. Sustainability reports often cover all of these critical elements. Accordingly, CFOs must pay attention to the content and credibility of the information contained in those reports. Savvy CFOs will advocate responsible behavior and transparent reporting, and will anticipate growing pressure to become more involved in sustainability issues that affect the organization’s finances.”

Diversity and the CFO

Similarly, diversity is increasingly an issue for the CFO. As numerous studies, for example Catalyst’s report “The Bottom Line: Connecting Corporate Performance and Gender Diveristy,” have shown, increasing leadership diversity also improves financial performance of a company.

In fact in 2009, Deloitte recognized diversity as a critical mission for the CFO. The report, “CFO Insights: The Diversity Imperative,” [PDF] says, “Aside from the obvious advantage an ethnically diverse workforce provides multinational companies, it can also be a speedy way to gain consumer trust and acceptance.”

The report notes, diversity and inclusion promotes the free-flow of ideas and promotes innovation. It explains:

“This freedom enhances a company’s ability to adapt to a swiftly changing global marketplace and win in an increasingly competitive and varied global market. As companies continue to globalize and invite new generations to the marketplace, shifting the mindset on diversity programs toward cultural dexterity, professional and community development, and brand enhancement can greatly boost the return of these programs and adapt them to today’s most prominent needs.”

Finally, one demonstrated key to success with diversity efforts has been careful measurement and target-setting. While galvanizing support for diversity and inclusion within a company culture is something a CEO is better positioned to do, CFOs should be a critical component of the diversity metrics equation.

Because CFOs have a direct impact on the measurement and evaluation of corporate initiatives, they can steer diversity programs toward success, ensuring that these programs deliver a financial benefit to the company. The report explains, “CFOs have an opportunity to take the lead to better align investments in diversity to corporate performance.”

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