CFO’s ‘Street-Fear’ & Innovation
Accountants & CFOs are trained to think conservatively. They swear by one of the important convention in accounting – recognize all possible losses but recognize gains only when it happens.
Innovation, especially the disruptive type calls for big money and the payoffs are not immediate. This then creates a balance sheet issue which the Street, focused on quarterly results does not take sympathetically. Such risks do create a lot of negativity among analysts & investors. The CFO ‘Street-Fear’ is for real.
So do Accountants/CFOs stifle innovation? How is that over the past decade disruptive innovations have actually happened?
“When Amazon went from just selling books to building massive full-sized warehouses to hold more than books because they were spreading beyond that product, the markets thought he was an idiot for investing the money in that sort of capital expansion; we know the story there – it worked.”
The markets crushed Amazon stock on two other company announcements: the move into e-readers (Kindle) and cloud computing; the bets paid off both times.”
Amazon’s, “…courage to think long-term in such an innovative and high-tech industry such as the one that Amazon is in has minimized conservative accounting’s negative effects on innovation.”
According to an INSEAD research, “cash-flows generated by innovations in firms with more conservative accounting have shorter horizons,” and that “the negative effects of accounting conservatism on innovative activities are more pronounced when firms operate in innovative industries.” It adds, “To encourage innovation, accounting should be facilitating the tolerance of failures at the initial stages of risky projects…”
CFOs & accountants therefore need to make wise financial choices sometimes with longer term perspective and not hide under the garb of conservatism or the threat of the Street.
“…just by being around others who think differently and act differently, …CFO’s creativity went up to about 30-35 percent, which is about as far as it needed to be because when he was sitting at that senior executive table, he could not only provide input about the numbers, he could also interpret the numbers strategically and help the company to go in a different direction. So, in that kind of situation, where the culture itself was pretty innovative, it helped the CFOs elevate their creative capacity.”
CEOs have a key leadership role in taking them along the creativity path.
Source: INSEAD Knowledge
GR Advisory & Training 
Actually, if you go by profitability, then yes they are conservative and have to be, they are answerable not to one but a host of authorities, whenever something crops up CFO is put on the chopping block.
I agree it is a challenging task to manage the short term expectations of the investors and balance the long term interest of the company. Innovation is a mindset/cultural issue too. Once you have a blockbuster or two, investor confidence in the company’s ‘innovation-investment’ increases.