Every company requires competent people to manage its business affairs efficiently. Larger companies in particular require dedicated professionals to look into different areas of the business. Companies often appoint key managerial personnel (KMP) for this purpose. KMP are the persons employed by the company in key roles and entrusted with the responsibility of overseeing the overall management of various aspects of company matters.
This article looks at meaning of and differences between two important types of key managerial personnel – Chief financial officer (CFO) and Chief executive officer (CEO).
Definitions and meanings
Chief financial officer (CFO):
Chief Financial Officer or CFO is the KMP who is entrusted with the responsibility of managing financial affairs of the company. A CFO is instrumental in the planning, execution and monitoring of all finance related activities of a business. The key responsibility of the CFO is to maximize the financial efficiency of the company.
Other responsibilities of a CFO include:
- Finalizing and monitoring of cost budgets for various departments
- Finalizing and monitoring pricing policies of the company
- Monitoring implementation of financial policies
- Analysis of various financial reports and ratios to gauge cash flow position and funding requirements and making financial planning recommendations basis this analysis
- Ensuring that financial statements are prepared and reporting is done as per prescribed accounting standards and rules
- Ensuring compliance with norms prescribed by all financial regulatory entities
A CFO largely works in coordination with the accounts and finance department of a company. A CFO generally reports to the CEO of the company who takes assistance of the CFO from time to time in all funding and finance related matters of the company.
Chief Executive Officer (CEO):
Chief Executive Officer or CEO is the senior most KMP who is entrusted with the overall management and administration of the business of the company. The key responsibility of a CEO is to optimize the efficient running of the business affairs of the company.
The responsibilities of a CEO include:
- Ensuring adherence to company’s vision and goals
- Taking key policy and strategic decisions in various business areas and monitoring their implementation and effectiveness
- Being the point of communication to the board of directors for reporting of all company matters. CEO is also often the point of communication to the external stakeholders of a company
- Making recommendations to the board from time to time with respect to all strategic and critical matters of the business
- Monitoring performance of as well as providing guidance to senior employees of the company
The CEO largely works with the CFO and Chief Operating Officer (COO) as well as with various department heads. The CEO reports to the board of directors of the company to communicate the performance of the company as well as to make recommendations for various policy and other strategic matters.
Differences between CFO and CEO:
The difference between a CFO and a CEO has been detailed below:
- CFO is the KMP who is responsible for handling financial matters of the company.
- CEO is the senior most KMP who is responsible for overall running of the business of the company.
- The responsibilities of a CFO include optimization of financial budgeting, forecasting and planning, financial management and financial reporting.
- The key responsibility of a CEO is optimizing the overall running of the company. His responsibilities also include taking key policy and strategic decisions, monitoring their implementation, being the communicator to the board of directors as well as to the external stakeholders of a company
- A CFO reports to the CEO of the company. The CFO shares its financial analysis and reports with the CEO which forms the basis of several key strategic decisions by the CEO. The CEO may also seek assistance from the CFO whenever matters pertaining to finances of the company may arise.
- A CEO reports directly to the board of directors of the company. The CEO communicates various matters of strategic importance to the board of directors to assist them in policy formulation.
4. Appointed by and organisational hierarchy
- A CFO is generally appointed by the CEO and is positioned below the CEO in the organisational hierarchy.
- A CEO is generally the senior most KMP in a company and is positioned above the CFO in the organisational hierarchy.
5. Work with
- A CFO coordinates with management and personnel of the accounts and finance department of the company.
- A CEO coordinates with the CFO and COO as well as with several department heads in the company.
- A CFO is generally a person who has significant finance related education and experience such as masters in finance, a CFA or a CPA.
- A CEO is generally a person who has significant business management related education and experience such as masters in business management and administration.
7. Representation to external parties
- A CFO interacts with external parties in the finance world such as bankers, investors, auditors and regulatory authorities.
- A CEO is the face of the company for its stakeholders and primarily interacts with its shareholders through media sources.
CFO versus CEO – tabular comparison
A tabular comparison of CFO and CEO is given below:
|KMP responsible for looking into financial aspects of the company
|Senior most KMP responsible for management of the company affairs as a whole
|The key responsibility of the CFO is to optimize financial efficacy of the company
|The key responsibility of a CEO is optimizing management of the company.
|To the CEO
|To the board of directors
|Appointed by and organisational hierarchy
|Appointed by CEO positioned below the CEO
|Appointed by board of directors and is senior most KMP
|Accounts and finance departments
|CFO, COO and heads of departments
|Generally professional degrees such as CFA and CPA
|Generally masters degree in business management and administration
|Representation to external parties
|Interacts with bankers, investors, auditors etc.
|Interacts with shareholders
Conclusion – CFO vs CEO:
Both CFO and CEO play an extremely important role in the management structure of a company. No company can be profitable without good management of its finances and the CFO keeps a check on the financial performance of the company. In the case of large companies which have large scale operations as well as thousands of employees, a CEO plays an important role in ensuring smooth functioning of the business towards its vision.