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Who Is the Financial Manager?

We will use the term financial manager to refer to anyone responsible for a significant corporate investment or financing decision. But except in the smallest firms, no single person is responsible for all the decisions discussed in this book. Responsibility is dispersed throughout the firm. Top management is of course constantly involved in financial decisions. But the engineer who designs a new production facility is also involved: the design determines the kind of asset the firm will invest in. Likewise the marketing manager who undertakes a major advertising campaign is making an investment decision: the campaign is an investment in an intangible asset that will pay off in future sales and earnings.

Nevertheless, there are managers who specialize in finance, and their functions are summarized in Figure 1.2. The treasurer is usually the person most directly responsible for looking after the firm`s cash, raising new capital, and maintaining relationships with banks and other investors who hold the firm`s securities.

For small firms, the treasurer is likely to be the only financial executive. Larger corporations usually also have a controller, who prepares the financial statements, manages the firm`s internal accounting, and looks after its tax affairs. You can see that the treasurer and controller have different roles: the treasurer`s main function is to obtain and manage the firm`s capital, whereas the controller ensures that the money is used efficiently.

The largest firms usually appoint a chief financial officer (CFO) to oversee both the treasurer`s and the controller`s work. The CFO is deeply involved in financial policymaking and corporate planning. Often he or she will have general responsibilities beyond strictly financial issues.

Usually the treasurer, controller, or CFO is responsible for organizing and supervising the capital budgeting process. However, major capital investment projects are so closely tied to plans for product development, production, and marketing that managers from these other areas are inevitably drawn into planning and analyzing the projects. If the firm has staff members specializing in corporate planning, they are naturally involved in capital budgeting too.

Because of the importance of many financial issues, ultimate decisions often rest by law or by custom with the board of directors.9 For example, only the board has the legal power to declare a dividend or to sanction a public issue of securities. Boards usually delegate decision-making authority for small- or medium-sized investment outlays, but the authority to approve large investments is almost never delegated.

8 Mutual funds provide other services. For example, they take care of much of the paperwork of holding shares. Investors also hope that the fund`s professional managers will be able to outsmart the market and secure higher returns

TREASURER

Manager responsible for financing, cash management, and relationships with financial markets and institutions.

CONTROLLER

Officer responsible for budgeting, accounting, and auditing.

CHIEF FINANCIAL OFFICER (CFO)

Officer who oversees the treasurer and controller and sets overall financial strategy.