cfgohio.com competence is not a static variable, in that it is something that is ever-changing, and the skills associated with being financially competent must be sharpened consistently.  The fact is that failure to have financially competent decision makers can be highly destructive to an organization.  What is meant by “financially competent” goes well beyond being able to identify credits or debits or being able to properly read financial reports.

Being financially competent should focus on one’s ability to break down the cfgohio.com information provided in those reports and analyze how they should be used to determine the financial path of the organization going forward.  Furthermore, a person must be able to understand how risk factors into the financial decision making matrix and how that risk should affect the courses of action taken by the company.  These are the things that separate competent financial management from incompetent financial management.  This is likely a major reason why roughly 21%  of all CEOs serve in a financial oversight position prior to becoming a CEO and why almost a third of CEOs have served in a financial capacity at some point in their careers. 

It is also important to realize that the outcome of certain situations has no bearing on the competence of the decisions that have been made.  The fact is that poor financial leadership can still yield success from a periodic standpoint.  In the same manner that an unskilled Poker player can have a run of “good luck” and win big in a night of gambling, so to can incompetent financial managers “GET LUCKY”.  The problem with depending on luck to manage the financial infrastructure of an organization is two-fold:

1.            Luck does; and will always run out at some point in time

2.            Financial management isn’t gambling; especially when considering what’s at stake whether it is the shareholders, the market, the employees, or the customers; there is simply too much at stake to make financial management a “Coin Flip”

To ensure that the key decision-makers are financially competent it is incumbent upon management to analyze the knowledge of these individuals and provide opportunities for them to update and hone their skills as it relates to financial management.  The good news is that most organizations generally select the financial decision-makers within their organization by doing a thorough search; this generally allows them the opportunity to select the person that they feel best can handle the position.  Furthermore, most organizations that utilize committees to help manage operations have a financial management committee (as it is considered to be the most common among companies with three or more committees).   The problem is that many companies don’t understand the position enough to fully handle this search, so they end up hiring people that have had past success without determining whether the source of that success was luck or skill.

If the current global economic calamity has taught us anything; it has taught us this: When the economic climate is advantageous to organizations it is much easier to seem competent than when things go bad.  In a good economic climate decision-makers can take huge risks and if they win they are superstars; if they lose there are generally opportunities to mitigate that loss (either by acquiring debt capital; increasing sales, or raising equity funds just to name a few).  In a bad market we have discovered that THE SAFETY NETS ARE GONE; and risky decisions have real consequences.  In this market we are finally paying the price to learn that there is a real difference between corporate sponsored gambling and effective financial management.  What we need to do now is train current and future financial decision-makers about what makes an executive financially competent, and what does not.  This will produce more effective financial decision-makers and more importantly it will provide a future asset for companies that will assist them in diverse market situations; NOT JUST WHEN TIMES ARE GOOD.