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The Strategic CFO and Employee Expenses

Last week Rocketrip’s Dan Ruch led a session at CFO Rising West in San Francisco. This year’s event was organized around the topic, The Evolving Role of the Strategic CFO. The role of finance has undergone a historic transformation; now more than ever, a company’s CFO is asked to take on an expanded set of responsibilities that, in an earlier era, would have been considered the province of a CEO.

According to Philip Tulimieri, professor at Baruch College’s Zicklin School of Business, modern companies are “too complex to be managed by one person,” and “today’s CFO is much better equipped than anyone else in the company to take on an equal role in a joint-management situation.” Part of this transformation is due to the fact that finance teams have taken on more forward looking responsibilities: they design a firm’s capital structure, forecast economic conditions, and allocate resources to optimize growth.

But even the backward looking aspects of the job – controllership and oversight of the financial reporting process – have taken on new dimensions. A CFO is far from being Bean Counter in Chief. One of the common refrains heard at last week’s event had to do with the budgeting process. The CFOs in attendance all described versions of the same experience: it used to be that CFOs were asked what their company’s expenses were, now they’re being asked what their company’s expenses are, and what steps should be taken in response. Communication – with fellow executive leadership, with investors, and with employees themselves – has become a critical part of the job.

Dan’s presentation picked up on this theme and explored how CFOs can motivate responsible employee spending. The session tried to answer the question, how can top finance executives make cost control a priority throughout their organizations?

Travel expenses are a perfect illustration of how this is often easier said than done. Travel is by far the largest category of employee-generated expenses: understandably, it’s an area that CFOs and controllers often identify as the juiciest, lowest hanging fruit in terms of organizational cost reduction.

Travel and entertainment (T&E) accounted for 10-12% of total annual budget at organizations surveyed by JPMorgan Chase, which was second only to payroll as an expense category. At Fortune 500 companies in the survey, nearly all purchases on company credit cards (93%) went to travel, meaning that spending on a business trip is employees’ most significant experience of allocating company resources. How employees spend company money on travel colors the entire organizational culture around financial responsibility.

Still, it’s easy to sweep the problem of travel expenses under the rug. Indeed, the basic strategy for controlling spending is essentially defensive: design rules and closed systems to prevent overspending and non-policy compliant purchases. These are critical objectives, but they suffer from limitations: finance managers know it’s unfortunate reality that any rules set up to govern employee spending are occasionally going to be forgotten, ignored, even resented.

During the session, Dan presented some examples of organizations that truly involve employees in a conversation about responsible spending, and that have introduced smart incentive structures to not only limit travel costs, but actually reduce them in a way employees can get on board with. Some of the principles covered – rewarding good behavior, prioritizing data, understanding employees’ priorities – are at the core of Rocketrip’s approach to managing expenses.

If you’d like to learn more about how finance teams can help set the right tone with employee spending, check out these resources:

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