'The CFO is the voice of the company with investors'

There is no denying that a CFO’s role has evolved into that of a strategic partner to the CEO, yet as PK Ghose, Executive Director & CFO at Tata Chemicals believes a balance needs to be maintained with the role of a conscience keeper.

There is no gainsaying the fact that the role of the CFO has evolved over the years from being a “bean counter” to being a “strategic partner” to the CEO. But I have always maintained that there has to be a balance between the role as a “strategic partner” and that of a “conscience keeper” of the organisation. Being a strategic partner does not mean that he can take his eyes off the compliance and control ball. The CFO is one of the most respected faces in the Company to whom the investors, the employees and the board of directors look to for a fiercely independent view on the affairs of the Company. He has to be a “cautionary counterweight” to the CEO. He has to be a sceptic, not a cynic. He has to challenge and take strong positions if ethical lines are being crossed. There has to be a “creative tension” in the relationship. The emerging model is clearly to strike the right balance between control and decision support: support the entrepreneurial spirit, but beware of CEO’s chasing topline growth. Companies today have forgotten to generate “profitable growth” through price wars, overpaying for acquisitions, taking excessive debt, etc.

The CFO is the voice of the company when it comes to meeting with investors. It has been my experience that communicating both the good and the bad news to investors not only enables them to form their judgement on the future of the Company but also ensures a bond of trust is created which in turn results in a respect for the management. The CFO is also increasingly involved in the interface between industry and the government and his views are increasingly sought on legislative in the reform processes in tax, corporate law, capital markets, accounting standards, etc. The CFO also plays an active role in communicating with employees on the company’s results and future strategy. All this requires the CFO to have sound knowledge of the company operations and strategy and to be able to articulate clearly to different audiences.

It is well known that business success is no longer only driven by physical assets and financial capital, but by intelligent assets and human capital.

‘A CFO has to be a sceptic, not a cynic. He has to challenge and take strong positions if ethical lines are crossed. There has to be ‘creative tension’ in the relationship.’

The EXTERNAL PRESSURES can be the ability to convey where the company is right now and its strategy going forward: the new regulating environment in terms of toughening accounting standards, the new Companies Act which brings forth internal control processes and related party transactions; more demanding shareholders and investor activism such as the recent issues raised by proxy advisors requiring the CFO to be a skilled communicator; and external and internal customers.

The INTERNAL PRESSURES can be the demand for simplicity in processes, focussing on the right performance drivers, inadequate forecasting capability, integrating systems for decision support, lack of risk management expertise, etc.

There are seven key areas which the CFO has to focus on to be able to reinvent the corporate centre:

First, as a FREEDOM FIGHTER, liberating business managers from complex systems and focussing on simplifying processes, web enable technology, abandoning budgeting processes and moving to rolling forecasts. There has to be a focus on truth and transparency - with only one version of the truth circulating the organisation.

For instance, in our organisation, we are attempting to move from five year strategic plans to five quarter rolling plans.

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Education: B. Com (Hons) St. Aloysius High School Jabalpur

PREVIOUS Job: Chief Controller & Head, Strategic Finance, Tata Steel

Second, as an ANALYST AND ADVISOR. It is my belief that the corporate group should be staffed with a small tea of high quality professionals who specialize in various streams such as accounting processes, treasury or M&A. We have recently initiated a process whereby we have standardized SAP across all locations and geographies. And the data has been outsourced to group firm TCS which has sent up a data centre in Ahmedabad. With these measures I am not taking away the right of individual units to consult their own experts, but this will aggregate the information within India and will enable faster response times.

Third, DESIGN ADAPTIVE SYSTEMS from the customer perspective. In the last ten years or more as we have progressed I have seen that the focus on the customer has been lost. I believe that the finance function should be at helm of bringing back the attention to the customer through appropriate systems and processes.

Fourth, as a WARRIOR AGAINST WASTE and eliminate swathes of costs that have remained unchallenged for years. Head office bureaucracy is a challenge for any large organisation. In the current times, the CFO should help dismantle as much of this bureaucracy as possible. And it seems to be that the process view of fixed costs is better than a general ledger view. I believe it is possible to slice the fixed costs into core, support and diversionary fixed costs. A measured view must be taken on all of these.

Fifth, as a MASTER OF MEASUREMENT with 5 to 6 key measures. The view is to set your own goals but measure performance relative to peers. We usually tend to get bogged down by numerous metrics. But a CFO must have command over the strategic and financial red flags. It is important to focus on a few measures which tell the story of the trends and also help with future strategies.

Sixth, as a REGULATOR OF RISK setting highest standards of ethical reporting behaviours. Often companies are egged on by investment bankers to make serial acquisitions for creating shareholder value which effectively shifts the focus to acquisitions instead of managing the business.

Finally, be a CHAMPION OF CHANGE - initiate those changes that keep the organisation relevant.The CFO has to develop five sets of capabilities in the finance function that lead to finance mastery as shown in the chart above.

To sum up, while the CFO has to increasingly play the role of a “strategic partner” and a leading part in strategy development and pursuing profitable growth options, the role of a conscience keeper and of ensuring compliance and control cannot and should not take a back seat.

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