Platform for Innovators
Evolving Role of CFO:
Newer Dimensions Newer Challenges
Rakesh Mistry
CFO | Elitecore Technologies (P) Ltd. & Group
October 19, 2012
All Gujarat CFO Workshop - Baroda, 2012
Focus Agenda

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
October
19,2012
2012
October 19,
All
2012
All Gujarat
Gujarat CFO
CFO Workshop
Workshop -- Baroda,
Baroda, 2012
2
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.
October 19, 2012
All
All Gujarat
Gujarat CFO
CFO Workshop
Workshop -- Baroda,
Baroda, 2012
2012
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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
October 19, 2012
All Gujarat CFO Workshop - Baroda, 2012
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The Evolving Role of The CFO
The CFO’s role has become dynamic and expects
changes in functional areas to meet dynamic
challenges, through major focus on Supporting,
Managing & Mitigating Enterprise Risk
October 19, 2012
All Gujarat CFO Workshop - Baroda, 2012
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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
October 19, 2012
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All Gujarat CFO Workshop - Baroda, 2012
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.
October 19, 2012
October 19, 2012
All Gujarat CFO Workshop - Baroda, 2012
All Gujarat CFO Workshop - Baroda, 2012
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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
October 19, 2012
All Gujarat CFO Workshop - Baroda, 2012
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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.
October 19, 2012
All Gujarat CFO Workshop - Baroda, 2012
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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 postdisbursement review.
• There’s a persistent need to identify and measure operational risks.
October 19, 2012
All Gujarat CFO Workshop - Baroda, 2012
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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
October 19, 2012
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All Gujarat CFO Workshop - Baroda, 2012
3. Legal & Compliance Risk Management
•
Zero tolerance in the light of changing nature of regulations like FCPA, antibribery, 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
indemnification,
that
Company
maximum
is
liability,
signing.
Various
jurisdiction,
IPR,
clauses
like
termination,
assignment etc.
October 19, 2012
All Gujarat CFO Workshop - Baroda, 2012
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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
October 19, 2012
All Gujarat CFO Workshop - Baroda, 2012
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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
October 19, 2012
All Gujarat CFO Workshop - Baroda, 2012
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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
October 19, 2012
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All Gujarat CFO Workshop - Baroda, 2012
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?
October 19, 2012
All Gujarat CFO Workshop - Baroda, 2012
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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
October 19, 2012
All Gujarat CFO Workshop - Baroda, 2012
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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
October 19, 2012
All Gujarat CFO Workshop - Baroda, 2012
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The New CFO’s Guide:
Few Facts To Be Remembered
The CFO has to be part of the main stream and be
an enabler.
October 19, 2012
All Gujarat CFO Workshop - Baroda, 2012
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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.
October 19, 2012
All Gujarat CFO Workshop - Baroda, 2012
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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.
October 19, 2012
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All Gujarat CFO Workshop - Baroda, 2012
A Guide to Thrive & Survive
 Have thorough understanding of business
and its drivers
 Add value to every one
 Have courage of conviction and
 Understand and track internal and external
environment at all times
communication.
 Be with a promoter/owner house whose
 Be a master of details. Both devils and
innovation lie there.
source of wealth is the market cap who has
long term goals.
 Give high Weightage to robustness in the
business model in order to withstand change
& uncertainty
 Do not outsource understanding of anything
including even changing laws and regulations
October 19, 2012
All Gujarat CFO Workshop - Baroda, 2012
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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!!
October 19, 2012
All Gujarat CFO Workshop - Baroda, 2012