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The traditional, stereotyped view of the CFO (Chief Financial Officer) is a bean counter, a dour individual, who applies rules and has no contact with either the consumer or the customer. The world has changed today and a CFO who fits this stereotype is destined to fail.
CFOs have always been trusted lieutenants in Indian firms and legendary stories of their contribution and influence do the rounds. However, the CFOs’ job has become broader in scope over the last twenty years.
The deviation from the old normal is significant. This new world needs a new type of CFO — someone involved with the business, its strategy and collaborating effectively with the CEO.
In Indian companies, the CFO reports to the CEO. In most multinational firms, the CFO reports to the Finance function in a regional hub or to the global office.
This reporting line in multinationals is meant to allow for ‘independence’. Irrespective of whom the CFO reports to, the first realisation for today’s CFO is that he cannot achieve or deliver anything by working alone or in a finance silo. He needs to partner.
The CFO’s biggest ally is the CEO. A CEO-CFO team is like a pilot-co-pilot team.
A pilot-co-pilot team complements each other, backs each other up in turbulence and knows that neither can successfully do the job alone. They cannot fly the aircraft on two different systems or two different manuals. They need to work from the same song sheet and the same instruments.
The first challenge for this duo is sustainable growth. Nine times out of ten, CFOs have favoured protecting the bottomline ahead of growth.
That has to change now. Sustainable growth is the idol that stock markets worship. The CFO should act as a good sounding board to the CEO in pacing growth. The CEO drives growth and strategy. The CFO can play both a challenger and a supporter if and only if he has customer contact.
The CFO must meet at least one important customer every month. The CFO’s voice in a meeting will carry weight if he does this. Good CFOs look for a virtuous cycle of growth —where growth, margins and profitability grow together.
CASH MANAGEMENT
Trust in business is falling, mainly on account of poor governance issues. The job of a CFO is to ensure that the company is great at governance, going beyond complying with the law. Temptations to creative accounting, risky tax planning and informal voucher systems have to give way to accounting that is above board.
Non-compliance will hurt deep in the long run. In a future world, you can have a less-than-perfect CEO, but a company cannot afford a less-than-fully complaint CFO. The duo needs to have respect for cash. Most big companies do not realise the cash they burn everyday because of making payments via cheques and bank transfers.
Respect for cash means an ability to distinguish between its good and bad uses. Good use of cash is about motivation, training, development and engagement activities. These feel good and do-good activities, get employees engaged, happy and more productive. Productivity will be an important measure as growth slows down in every sector.
Respect for cash also means measuring the return on investment for all activities. Most companies feel they have a robust measure for measuring return on investment — that’s sadly a mirage.
The biggest repetitive activity a company invests is in pricing and trade/customer discounts. Less than 40 per cent of price moves and trade inputs work, but they are never discontinued because there is no proper mechanism to evaluate their return on investment.
MANAGING EXPECTATIONS
The duo needs to manage both internal and external stakeholders. They have to manage the board and analyst expectations, media hunger, and communicate in the company and the ecosystem. In a sense, they are two leaders but with one voice.
CFOs tend to depend on process to run the company. While process is important, they will need to get the people factor going if they need better early warning signals.
The CFO has to step out of the comfort zone. By stepping out, he will add value to himself, his profession, his company and the CEO. This type of CFO will be more in demand and command a higher value.
The CFO must work in tandem with the CEO; if he finds the CEO doing the wrong things, he must involve the board for a fair resolution.
A well-rounded, intellectually courageous, business-facilitating CFO is the answer for the future.
(The author is former head of emerging markets for Nokia.)
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