Leadership in Finance

Globalisation has changed the context for today’s CFO and she would need to raise her leadership ability manifold to compete on the global stage.

Globalisation has changed the context for today’s CFO and she would need to raise her leadership ability manifold to compete on the global stage. Very dramatic and sudden fluctuations in external business and political environment has become the new normal. Sample the volatile currency movements within a short span of time, for example, the rupee depreciating by 25 per cent to 69 against US Dollar in four months of 2013 and appreciating to Rs 60 in the next 10 months, uncertain crude oil prices with more than 30 per cent drop in the last 3-4 months, prolonged weakness in Euro zone with GDP decline in 2012 and 2013 and massive uncertainty surrounding potential impact of unwinding of stimuli offered in post global financial crisis period. The Federal Reserve balance sheet size has quadrupled to US $4 trillion from 2008 to 2013. All of this means the CFO is always on tenterhooks.

She will have little time to understand the impact of changes on increasingly globalised businesses and prepare an action plan. Annual planning cycle, though critical, has given way to ongoing rolling forecasts and longer term planning. Older models of managing risks have been substituted by flexible approach so that downside risks are capped in the short term and the opportunity to capitalise on potential upside is kept open.

In this unprecedented environment, it is vital that the CFO is outward looking. She needs to be in regular touch with external stakeholders particularly counterparts in customer organisation to understand changes impacting them, well in advance, and direct organisations’ response to the new challenges.

In fact gathering external intelligence, analysing them for trends, understanding change drivers would necessitate a larger part of her time than earlier.

Constant dialogue with bankers and private equity firms is important to be up to date on new trends, M&A / divestment opportunities.

CFOs that have a great understanding of firm’s strengths and pain points can use this knowledge to identify opportunities in adjacent space and be a true partner to the CEO in value creation. The weak global economy would provide great opportunities for expansion.

Significant changes in technology and spurt in disruptive business models is affecting a number of sectors. Fortunes of retail, healthcare, transport organisations, to quote a few sectors, have changed significantly in the recent past. Aggressive pricing policies of e-commerce and new age taxi companies have caught the attention of the consumer.

While one may whine about these insane practices and how venture capital money is being blown up, the reality can’t be wished away. Technology is also changing expectations of consumers and new delivery models have adversely impacted businesses that have not been agile.

Technology is increasingly becoming the differentiator and the CFO should be adept at understanding trends.

CFOs are pretty good at managing details, understanding key drivers of business and developing appropriate decision support system.

However, those strengths need to be supplemented by knowledge of external changes and how it is likely to create new opportunities as well as pose threats. They need to understand macro issues and the impact on the micro and vice versa.

CFOs need to get out of their comfort zone and make an effort to understand the changing landscape. Only then they would be able to factor in the impact of new competition and allocate adequate resources to stay ahead of it. Greater time to study is essential.

 

About The Author

TV Mohandas Pai, Co-founder Aarin Capital, Chief Advisor to the Manipal Education and Medical Group, Mr Pai served as the CFO of Infosys Technologies for 12 eventful years between 1994 and 2006. Subsequently, he led efforts in the areas of HR, education and research.

Active engagement in these activities would clearly necessitate a change in traditional approach. CFO needs to focus on building a high performance competent team, training and coaching them and provide them relevant exposure so that the organisation can scale without any hiccup.

This calls for a significant makeover of the CFO “personality” and brings into focus skills like consciously recruiting people who bring diverse views to the table, managing conflict, active listening etc.

The obvious benefit of this is the creation of a leadership pipeline to take the company to the next level of growth and also create alternatives within the organisation for succession.

The CFO’s endeavour to achieve all this has to be weighed in the context of changing governance and regulatory environment. As per the new Companies Act, the CFO is part of the Key Management Personnel (KMP) and is accountable to the Board and shareholders for the accuracy of financial statements and controls within the organisation. It is a very fine balance.

In large and complex organisations it is humanly not possible for the CFO to be omnipresent.

An open, transparent and trusting culture needs to be built where communication lines are always open and anyone in the organisation can communicate with the top management without any fear.

It is not all gloom and doom out there. Some of the changes in regulatory environment e.g. introduction of GST would make life a lot easier.

India still ranks pretty low globally in terms of ease of doing business and a number of organisations are clamouring for change to improve our competitiveness. The new government at the centre has fuelled that hope and this may take away the unproductive time wasted in complying with some mindless regulations.

To conclude, one can refer to a recent quote of world’s best tennis player, Roger Federer, who said that to succeed over years, one needs “strokes over serve, patience over power and solidity over sting.”

In a period where business cycles have become shorter and more unpredictable, CFOs need to muster all the qualities of a champion that will stand the test of time and contribute to the longevity of the organisation.

 


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