Strategy: It’s Not What You Think

There is little more valuable to a thriving nonprofit than a strategic chief financial officer (CFO). And, there is probably nothing harder to produce.

To understand why that is the case, think back to your school years. When your age was measured in the mid-single digits you began to learn how to write with either your left or right hand, whichever felt the most comfortable. The act of handwriting seemed second nature by the time you left high school and then college. Now imagine someone told you that to complete your next stage of professional development you needed to immediately start writing with your other hand.

That’s implausible, right? It is implausible in the context as described. But your chief financial officer almost certainly went through a similar experience. If the person is new, they might be going through it right now without you realizing it.

It can be argued that orientation to time is personal and enormously powerful. People tend to gravitate to an orientation to time that is most comfortable for them, whether that means a day-to-day orientation, month-to-month, or year-to-year.

Everyone makes important choices, such as an occupation, partly on this basis.

The inherent problem with the CFO position is that it is arguably the only professional role in which most such nonprofit executives begin with a determined and almost exclusive orientation to the past and then get slammed by the requirements of a CFO’s job to look far into the future. It truly is a case of “congratulations, you’re hired, now start writing with your other hand.”

In many nonprofits there’s also an implicit need to go well beyond the normal job boundaries for a chief financial officer. Smart CEOs recognize this need, even if they can’t do much about it. One potential CFO had barely sat down for her interview when the CEO handed her the job description and sheepishly asked if she wore a cape.

To appreciate the culture shock that a new CFO might experience, consider how the person arrived in that position. The CFO most likely studied finance in college and then set out on one of the typical financial pathways, such as auditing or bookkeeping. In both cases the newly-minted auditor or bookkeeper is dealing almost exclusively with the original books of entry, the chart of accounts, or various reports. The job likely involves putting various transactions in the correct category, or double-checking that the categorization or the calculations were correct.

What all of these things have in common is that they involve decisions made in the past by someone else. The records are literally historic, and the accountant usually cannot change anything about the transactions except how they are accounted for or documented. Young, entry-level financial personnel might not even need to evaluate most transactions except to be clear about the categories in which they are entered.

It is necessary to master the “rules,” both literal and figurative to advance in the world of accounting and bookkeeping. Again, the rules were often made sometime in the distant past by other parties, and the financial person must be able to understand and interpret those guidelines. The fact that all of the records were created by others’ actions further cements the tendency to look back.

It’s not hard to see how accountants and other financial specialists can begin to see their nonprofit as a static landscape of other people’s actions that mostly need to be properly categorized and reported according to rules that have been handed down from an acknowledged financial authority. All of these elements add up to a world in which most puzzles and mysteries have a pre-determined answer, or at least a number of “correct” answers. This is comforting because most of the time the correct answers do exist and they just require a bit of hard work or good training to get them.

Now envision that same financial staff person as a CFO trying to advise the CEO and the board about which of three banks to use as a source of capital for the upcoming expansion of the organization’s largest building. The calculations of the budget and even the projections might not be difficult. But when the board members want to know the new CFO’s feeling about the best financing plan, nothing in their formal training would have prepared them for the question. Even if the CFO feels knowledgeable about it, all those early years of working with the results of other people’s decisions would make it hard to suddenly start looking deep into the future.

Here is perhaps the essence of the new CFO’s problem. Training in finance or economics tends to be linear in nature and to involve lots of calculations. That means that a traditional CFO’s early training is in areas where there is a demonstrable “right answer.”  Mathematical calculations have the simplifying property of being right — or wrong. It’s a binary choice. Applying that kind of effort to bookkeeping and accounting problems resembles those binary choices. Following accounting rules also requires an understanding of how to apply rules and policies consistently, which is a comparable task. But good decisions about policies and complex choices are neither binary nor past-oriented.  More important, they are lodged in the future, not the past.

A new CFO’s supervisor can help out the most by understanding the abrupt 90-degree turn that the CFO has to achieve to be successful in the new role. But executives of all kinds have to be attuned to the future so it might not seem as much like the major change in personal operating style. In fact, for many personalities the change in professional time-orientation that an executive role brings is so attuned to their natural personalities that they might not even recognize how challenging it can be for others.

This is where a shrewd CEO can make a difference. A CEO who is comfortable with thinking for the long term should be able to frame the new CFO’s role in a way that allows the individual to concentrate on the technical details they gravitate to while trying on a long-range mindset.

In the hypothetical example of choosing a new banking partner, the CEO might note that evaluating the numbers in three different lending proposals is a fairly conventional calculation but that the complexity comes from things such as the bank’s customer relations capacity, the type of borrower they work best with, or even each bank’s prospects for remaining independent.

Professional athletes often talk about “muscle memory,” or the willful muscle conditioning that constant repetition creates. The idea is based on the theory that enough repetitive action will create a kind of road map for the body that reduces conscious effort to achieve a physical task and improves precision.

It’s the same kind of process for the new CFO going into the job without executive experience.  Their muscle memory of handling mostly past transactions is well established, and now they need to build strategic muscle memory. CFOs coming into the job from a workday full of reconciliations and posting transactions from last week need some time to adapt to their new forward-looking role. Once they do, they’ll realize their future is ahead of them.


Thomas A. McLaughlin is the founder of the nonprofit-oriented consulting firm McLaughlin & Associates and a faculty member at the Heller School for Social Policy and Management at Brandeis University. He is the author of ‘Streetsmart Financial Basics for Nonprofit Managers’ (3rd edition), published by Wiley. His email address is tamclaughlin@comcast.net