Evolving Role of CFO: Newer Dimensions Newer Challenges

October 19, 2012All Gujarat CFO Workshop - Baroda, 2012

Evolving Role of CFO: Evolving Role of CFO: Newer Dimensions Newer Challenges

Rakesh MistryCFO | Elitecore Technologies (P) Ltd. & Group

Platform for Innovators


Focus Agenda

October 19, 2012 2All Gujarat CFO Workshop - Baroda, 2012

Understanding the change in DNA of the CFO’s work profile

Gaining insights into new dimensions of financial leadership

Understanding of

The scope of responsibilities

New skills and dimensions needed for the evolving role

How to deal with new challenges in an uncertain economic condition


The “New” CFO: Enduring the Economic Turmoil

• Starting from the set-back of 2008 to the recent crisis in Europe the world is

becoming more financially and economically “insecure” and “uncertain”,

with tangible effects on each and every business entity.

• The persisting situation has tested the skills of the CFOs across the globe

including India and in turn has defined as well as enriched the role of the

CFO.

• The role, the style, the orientation and the skills of the CFO have all

undergone a sea change over the past few years.

• The CFO’s role has changed from that of Book keeper to Controller to a

Business Analysts with a change in style, which has become more

consultative.

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All Gujarat CFO Workshop - Baroda, 2012


The Present Global Business Scenario

• Economic challenges across the globe have reshaped the Global

business environment, and in turn, the CFO’s role

• Uncertainty prevails due to:

• Lack of political unanimity

• Technology shift

• High level of:

• Nationalism

• Protectionism

• Government regulations

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The Evolving Role of The CFO

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The CFO’s role has become dynamic and expects

changes in functional areas to meet dynamic

challenges, through major focus on Supporting, Supporting,

Managing & Mitigating Enterprise RiskManaging & Mitigating Enterprise Risk


Supporting/Managing Enterprise Risks

1. Strategic Risk

2. Operational Risk

3. Legal and Compliance Risk

4. Financial Risk

5. Understanding the risk of business as usual

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1. Strategic Risk

• Strategic objectives are high level goals, aligned with and supporting its mission.

These are core to any organization’s strategy. The main objective of any strategy

risk management objective is to “Add to shareholder’s value and not destroy the

shareholder’s value?

• Any internal or external events and scenarios that can inhibit an organization’s

ability to achieve its strategic objectives are called strategic risks which become

the focus of strategic risk management.

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All Gujarat CFO Workshop - Baroda, 2012


Strategic Risk Management

CFO has to have a detailed knowledge of the business, equivalent to that

of the CEO, to combine the financial and the business aspects and guide

the organization

Strategy Execution – The CFO can lead

It is not sufficient to just flag a problem. It is needed to influence the change

and this would require soft skills and hard work.

Each element of strategy should have dashboard to monitor

Do not ignore the small thing

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Strategic Risk: Example

A Retailer’s Experience

• One retailer in USA had strategy to open many stores across the country. Stores

used to display their merchandise in store parking lot even though it was not legal

as per local municipal laws. Due to this, municipality stopped giving permission till

the time they display compliances with law over a period of time. This has delayed

the opening of new stores and in turn business.

• Lesson is we can’t ignore the small thing.

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2. Operational Risk

• Operational risk is defined as the risk of loss resulting from

inadequate or failed internal processes, people and systems or from

external events.

• Do not ignore even smaller breach of trust; it can take bigger shape in the

future. Satyam episode must have been started from small

• For example, a loan exposure turning bad can point to irregularities or

failures at credit appraisal, sanction, documentation or lapses in post-

disbursement review.

• There’s a persistent need to identify and measure operational risks.

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2. Operational Risk

• Operational Risk Management:

CFO has to be more diligent in terms of various internal controls

in the organizations.

He has to be COO within and CFO from outside.

Have through understanding of business and its drivers

Understand and track internal and external environment at all

times

Be master of details. Both devils and innovation lie there.

Need to take support from auditors, audit committee and

independent directors

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3. Legal & Compliance Risk Management

• Zero tolerance in the light of changing nature of regulations like FCPA, anti-

bribery, export regulations etc.

• Example: CISCO (USA) has cut ties with ZTE after its sales to Iran, as per legal

policies followed by US companies.

• Legal risk always comes out in the long term. CFO needs be aware each and

every document that Company is signing. Various clauses like

indemnification, maximum liability, jurisdiction, IPR, termination,

assignment etc.

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3. Legal & Compliance Risk Management (cont).

Building a Globally Local approach:

• There is a prevalent environment of Nationalism and Protectionism.

It is characterized by increased level of unemployment in most

countries

• The CFO needs to develop an awareness and knowledge of the local

laws and regulations

• Boundaries are shrinking: Global workforce is to be integrated into

the organization

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4. Financial Risk

• Leveraging, particularly “over leveraging” in good times can make

you bankrupt in bad time. So always draw a worst case scenario.

• Example: Kingfisher Airlines’ present crisis can be attributed to

overleveraging itself in the Aviation sector through purchase of Air Deccan,

5-star certifications, expensive fleet purchases and other unnecessary

credit burdens

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4. Financial Risk

• Focus specially on treasury risk management

– on currencies- keep objective of risk mitigation rather than objective to earn

– commodities, interest rate and liquidity management is also of prime

importance

• There is a need to have stringent credit policy

• Raise the funds when time is good

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Understanding The Risk of Business as Usual

• Business means risk and business continuity is the aspect

• Business Continuity Planning is all about anticipating, preventing and

responding to incidents which could affect critical business functions in

planned manner.

• How to continue operating if head office is damaged by disaster?

• How to maintain production if one or more plants are out of operation?

• What happens if sales and marketing systems are shut down for a week?

• Where to source raw materials if the existing supply is interrupted?

• What is the action plan if senior managers are suddenly unable to work?

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Balance Between Safety & Growth:

• Every CFO must be facing such choice on day to day management

• The CFO needs to make decision based on long term sustainability

• Now the demand of the stakeholders is sustainability over long period of

time rather than quarterly profits.

• CFO need to strike balance between profit, people and fair practices

• More transparency than required by regulations

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What should be Focused Upon … ?

Competition is going to increase in each and every business going forward.

Three things are very important when moving forward for any

organization:

• Differentiated services and/or products

• Management of Risk levels

• Talent: enough investment required to build talent

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The New CFO’s Guide: The New CFO’s Guide: Few Facts To Be RememberedFew Facts To Be Remembered

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The CFO has to be part of the main stream and be

an enabler.


Corporate Governance & Ethics

Fiction: Corporate governance and ethics are valued by the capital market and

the financiers.

Investors are more worried about performance and results.

The bottom line is performance and performance of CFO is adding value to

the organization through management of costs, funds, capital employed, tax

and Foreign Exchange and Working Capital management.

If CFO gets 100 out of 100 for corporate governance and in compliance but

fails to add value to the organization he will exit very fast.

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Fact 2: Against Corruption & Malpractices

Friction: There has been a paradigm shift in the value system due to SOX,

Bribery Act and Clause 49.

• Factually it is more lip service than shift. Corruptions, criminal and political

pressures have increased exponentially and so greed and ambitious and cash

economy too. CFO have to content with penalties of both. If CFO does not take

recourse to few corrupt practices, business may die and yet if he does not

follow regulations and compliance norms, business is also going to be dead. This

is the biggest challenge.

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A Guide to Thrive & Survive

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When egg is broken from outside, a life comes to an end. But when the egg

breaks from within, a new life begins. Great things and a great CFO always

begin from within and do not wait for a knock from outside.

Thank You!!

Documents

Evolving Role of CFO: Newer Dimensions Newer Challenges