From balancing profit and loss statements, today, the finance head’s role has evolved to become a key integrator, a role critical at the strategic level

S. MEERA

The world of business has become more complex due to higher demands from consumers, greater competition and technological interventions that have changed the dynamics of the way things are done. But the same technology has also enabled businesses to understand past trends, draw insights and forecast future developments. At any organisation, this has especially added to the CFO’s responsibilities, making him or her the closest ally of the CEO. Vellayan Subbiah, Chairman, CII TN Finance Conclave and MD, Cholamandalam Investment Finance, set the tone for the inaugural session of the conclave – ‘CFOs role in Business Transformation and Embracing Change’ by highlighting the critical role of the CFOs.

In charge of change

“As a chemical engineer I never really thought of finance management. But since the time I first entered the corporate world to today, the roles and responsibilities of the finance department have undergone tremendous changes,” pointed out Dr. N Kamakodi, MD-CEO, City Union Bank, in his keynote address. Previously, almost 80 per cent of the work involved balancing the ledger. Now, optimisation of resources has become one of the key functions of the finance department. While the traditional role of CFOs is not diluted they also act as the backend support for the CEO.

Their new responsibilities can be considered as that of a steward who steers the organisation on a tight rope, managing risks and preserving resources. They have to have a tight control on the finances as well as educate their colleagues on good finance discipline to maximise shareholder benefit. They also need to support the shaping of strategies and act as a catalyst of growth for their organisations.

Given current business complexities, unpredictability has increasing, compounding risk factors. Taking the example of the banking industry, Dr. Kamakodi pointed out that several banks were compelled to merge or exit in the last 10-12 years due to poor credit risk management. City Union Bank survived due to the foresight of the finance head in stepping in to incur a short-term loss for a long-term gain.

The CFO, therefore, needs to be able to ascertain probabilities to predict outcomes. Dr. Kamakodi went on to define the CFO as the conscience keeper who can identify potential problems and present the same to the board so that the right action maybe taken at the right time.

Summarising, Dr. Kamakodi defines the CFO as a part of the management team, a steward, an integrator of organisational information and a navigator – basically, an all-rounder who champions compliance and governance protecting the organisation and the stakeholders.

The philosophy of governance

“A Japanese TQM expert worked with us for 13 years and at the end of the engagement he told me that he liked working with my finance heads the best. When I asked him why, he said because they talk the least, and when they do, it is with facts and figures,” recounted L. Ganesh, Chairman, Rane Group, as a preamble to his views on the role of CFOs in ensuring corporate governance.

Corporate governance, according to him, is not just compliance, which is the relatively easy part. It is the fundamental philosophy guiding organisations to perform better. A CFO, as the right hand man for the board and the CEO, is the right person to walk a tightrope, managing conflicting interests of the various stakeholders, between the management and the employees, organisation and the market and the need for sustainability and environmental concerns. More than being a transaction specialist, the CFO is a co-creator of vision, setting goals and evaluating perspectives, as part of strategic management.

Since businesses have gone global, it is also the CFO’s responsibility to understand and harness technology for better management decisions, reduce inventory, disseminate and dissect information, among others. Though the specific role will depend on the context of the organisation, Ganesh pointed out that CFOs should be able to adapt, differentiate and sustain.

Understanding the vision and designing the MIS will be another area where CFOs have a critical role to play. This means they need to constantly upgrade knowledge about technology and trends. They will also play the roles of integrating different teams and people management to keep up with the rapid developments across industries globally.

Accounting is not just black and white, but there are several grey areas, and these need attention. CFOs will need a macro and a micro vision to be able to strategise and manage risks. The new roles, it can be surmised, will include using financial modelling tools, use of IT for creating business vision and setting goals, being a change agent, educating colleagues on financial discipline and good corporate governance.

In a nutshell, the new CFO is an integrator, guide, mentor and a coach.

Challenges for the Indian economy

Dr. C. Rangarajan, former governor of the Reserve Bank of India, gave an insightful view of the various ups and downs the Indian economy has seen in the last decade and a half. In the 1990s, the annual growth rate touched nine per cent, but thanks to the global economic crisis, it plunged to four and below. Though in the last two years, it has risen to 5.5 percent, Rangarajan also indicated that it was not good enough when one looked at the productivity of the capital, which was very poor.

For this to improve, he believes that issues have to be tackled at the policy level as well as the enterprise level. Improving agricultural productivity, investing in infrastructure development and balancing environmental concerns with the needs of development are critical to achieve a better growth rate.

The day long event included sessions on business partnering, optimising WACC (weighted average cost of capital) and supporting business growth, key developments in the finance department, as well as a special session on having a healthy heart.

Key Takeaways

Alongside traditional responsibilities, today, a CFO is also responsible for:

Being a strategic partner for the CEO and the board

Integrating information from different departments, evaluating probabilities and predicting outcomes

Educating colleagues on finance discipline

Championing corporate governance as a philosophy

Optimising resources and managing risk

Being a navigator of the organisation