Archives For CFO

Why balanced finance capability matters in finance today

accapr —  15 May 2013 — Leave a comment

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By Jamie Lyon, head of corporate sector, ACCA

Reading a lot of the commentary on finance and the role of today’s CFO you’d be forgiven for thinking that today’s finance function spends all of its time on strategy formulation and execution. I don’t doubt for one second how important the role of finance as a strategic business partner to the organisation is, or the critical role progressive CFOs increasingly play in strategic support to the organisation. But it is also worth remembering the role the finance organisation plays in what I would call the fundamentals – cost management, cash-flow management, finance operations and so on. There are of course differences and changes in priorities – the strategy of the business, the prevailing state of the economy, its industry sector – are naturally factors which shape and influence the focus of finance leaders and the function at any given time. But it seems irrational to think that great finance functions are still not held to account on the strength of control and financial management of the organisation. This indeed is at the core of its fiduciary responsibilities. It’s also critical to get this right if you truly aspire to supporting the strategic agenda of the business – these multiple aims of the finance organisation are not mutually exclusive. Having this bedrock of broad finance capability is also, of course, particularly relevant in a period of on-going volatility and growth challenges.

We recently produced a report examining the future needs of the finance function, and the implications for developing the capabilities needed. The report, the complete finance professional, draws on a wide range of studies, including ACCA research specifically with CFOs and other finance leaders, to test these ideas out. The conclusions were very simple. Great finance functions needs to be able to draw on a wide range of finance capabilities. They can’t survive on staffing their functions with people schooled on a narrow version of management accounting, and this isn’t particularly healthy for developing the capabilities needed in future finance leaders either. Let’s consider the roles some finance professionals perform to illustrate the point – can financial analysts drive truly effective decision-making if they don’t have a broader understanding of risk; can internal auditors perform their roles effectively without a strong grounding across financial and management accounting disciplines; can accountants with investment appraisal responsibilities get by with no awareness of tax, or regulatory changes which may have implications on project benefits…and so on. I don’t quite think so.

Secondly, with public debt, currency instability, emerging market growth, commodity price rises and many other signs of significant volatility, finance leaders themselves are in a huge period of flux, change and uncertainty; we know the role of CFOs continues to evolve but it’s the shear breadth of skills and knowledge that is now called into play; also given the level of volatility in the global economy we see a real call out to balance the quest for growth with the need for control – this ‘balanced finance leadership’ really is as a hallmark of the top finance job right now. The report also comes to other simple conclusions – a recognition that the changing face of finance operations with the advent of shared services, outsourcing, centres of excellence and the retained organisation demands both excellence in traditional finance capabilities (e.g. process mastery, transparency in controls, specialised finance expertise) as well as new capabilities (transformation, project management, dealing with change, customer centricity and so on); and that strong finance functions earn the partnering mandate best by ensuring effective finance stewardship of the organisation as a strong foundation; in short you can’t neglect one for the other, it doesn’t quite work like that.

At ACCA we continue to advocate the need for breadth and depth of financial understanding in finance functions today.

In ACCA, CFO, Finance Transformation, Jamie Lyon , ,
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All change at the top

aksaroya —  10 May 2013 — Leave a comment

As a new CFO takes the helm at TCS, Cesar Bacani, editor-in-chief of CFO Innovation Asia, looks back at how the finance function has transformed and considers the wisdom that outgoing chiefs can pass on to younger colleagues.

IT Consultancy

Before I interviewed S Mahalingam, until recently the CFO of global IT services and business process outsourcing giant Tata Consultancy Services (TCS), I thought he had been in finance for 42 years. He set me straight. Although a chartered accountant, Maha, as he is known, had been in almost all functions except finance in 33 of his 42 years with the Tata Group.

‘I used to write [software] programmes, develop systems, do marketing,’ he said ‘I opened the international offices in the UK and the US. Basically, I have done almost all of the functions – I looked after project delivery management, I looked after HR and training.’

It was a career path that he feels made him a much better CFO when he finally headed finance. ‘I would rate that as the biggest part of it,’ said Maha.

‘Had I been a backroom person [in traditional finance], I think I would not have been able to counsel anyone. I would have reacted to decisions, rather than being a part of [decision-making].’

Not that he had no qualms about switching over to finance; things had changed so much since he qualified. ‘I don’t think anyone was called a chief financial officer,’ he recalled, ‘The finance manager and CFO as a distinct role really came in the 1980s and 1990s.’

‘I was a little worried as to whether I would have the capability to do the accounting,’ he added. And then I realised that the function has moved on far beyond that’ — something that’s not news for more and more of his peers today.

Standards and processes have become more structured and there are things like automation, straight-through processing, outsourcing and shared service centres — all of which Maha harnessed to free finance to focus more on value-added work. For, as the CFO found out, finance’s remit has expanded in all directions.

`You have to really work with the chief executive, to give the relevant drivers for running the business and making sure that you are not only helping in the planning process but also in measuring [performance],’ he said.

Not that the core of finance has been neglected at TCS.

‘Accounting is an expertise function,’ Maha explained, ‘My challenge in the last 10 years has been to create this expertise, in the same way that a specialist structure was also created around global taxation’ (TCS has 58 offices around the world).

I interviewed Maha after he was honoured as CFO Innovation Asia’s CFO of the Year in 2012. He retired on his 65th birthday in February but years before he had already started grooming a successor in Rajesh Gopinathan. An engineer with an MBA degree, Gopinathan was on the business side when Maha brought him over to finance.

`He is not a chartered accountant,’ said the new CFO’s mentor.

The way things are going, though, it seems that even a non-accountant can take the financial reins — provided that he or she is backed by the expertise of accountants, tax experts, treasurers and other specialists.

This article first appeared in Accounting and Business, China edition, April 2013

In ACCA, Finance Transformation, CFO
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A shifting focus for CFOs

aksaroya —  15 April 2013 — 1 Comment

By Cesar Bacani, editor-in-chief of CFO Innovation Asia

One of the more interesting conversations I recently had was with John Henderson, Asia Pacific CFO of Regus, the US £1.9bn a year global provider of business centre office space. For me, it illuminated the emerging issues that finance functions in Asia are beginning to face as domestic consumption, not just exports, become a key driver of economic growth from China to India to South East Asia.

This development means that the business activities of Asia’s emerging multinationals – and those of global multinational corporations like Regus – will increasingly focus on selling into the region’s markets, instead of using them mainly as export bases. And that has implications for the way CFOs manage finance and the kind of finance professionals they need for their team.

Henderson is already in the throes of the transition. Like many companies, finance management at Regus had been centralised in regional headquarters – in this case Hong Kong. ‘What we understand by looking at our strategy, by looking at our opportunity in the markets, is that we need to move from a very much centrally managed business to a country focus,’ he says.

This year, Henderson will be hiring five or six senior finance executives who will be working closely with newly appointed country managers in smaller markets where it sees growth opportunities (the company operates in 16 Asian countries).

What Regus has found, Henderson says, is that it is ‘much more efficient and effective if the finance resources sat next to the CEO, the country manager. It builds a stronger unit to drive business.’ But finance must be strong in both technical and commercial skills, and able to do much more than just transactional process.

Indeed, Regus set up a shared services centre in Manila three years ago to free finance to focus on being a business partner. The objective is ‘to focus on real value-add’ says Henderson, ‘through modelling out acquisitions and other opportunities, looking at our pricing, forecasting, strategy and at financial structures that work best in the local market, and at the same time still being the gate-keeper on things like compliance and cost control.’

It’s tough to find these finance professionals though. ‘We find that quite a challenge,’ the CFO admits. ‘You do get professionals who like to have a very rigid structure. They like to have it all very nicely set up for them and their comfort zone.’ But as a chartered accountant himself who moved up from internal control and controllership to CFO, Henderson is confident he will eventually find what Regus is looking for in China, Indonesia, Cambodia and Sir Lanka.

Henderson will be very hands on in coaching, mentoring and training. ‘At the start, you may have them building financial models and asking the questions about what are the financial levers and what are the business levers that would drive that performance and understanding that,’ he says. ‘Slowly they start to pool more information in and get exposed in project teams to working with the other functions’.

That is so long as they are not wedded to operating only in the silo of accounting and compliance. Food for thought for Asia’s finance professionals and the CFOs who need to have them on their team.

This post first appeared in Accounting and Business, China edition, February 2013

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CFOs crushed by compliance

aksaroya —  13 March 2013 — Leave a comment

the city

By Ramona Dzinkowski, economist and business journalist

Twenty years ago, the CFO was a finance, accounting and control expert. Today, most research points to an expanded CFO role as business partner and strategist. More specifically, beyond the finance role three other typical CFO types have evolved, according to a recent study by McKinsey: the generalist, with high honed operational skills; the performance leader, with a strong track record in business transformation and business analytics; and the growth champion, with significant experience in M&A, external networks, independent thinking and strategic insight, often gleaned through working in professional services firms. Each company places a different weight on the value of these skill-sets.

But have regulators, standard setters and other accounting/finance-related organisation recognised that the CFO’s purview has expanded beyond financial compliance and control? According to the ACCA/IMA report released in October 2012, they have not. It says that CFOs will continue to be challenged by the tug of war between their role as senior strategist and business partner and the increasing demands placed on them by greater compliance, control and regulatory complexity.

Six major International Accounting Standards Board (IASB) came into force this January – IAS 19 Employee Benefits, IFRS 9 Financial Instruments, IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, IFRS 12 Disclosure of Interests in Other Entities, and IFRS 13 Fair Value Measurement. There will also be a host of exposure drafts amending major standards, including financial instrument impairment, hedge accounting, insurance contracts and leases, as well as the appearance of interim standards for rate-regulated activities and revenue recognition.

In the EU, the Committee of Sponsoring Organisations of the Treadway Commision (COSO) released a major update to its risk management framework which many SOX 404 filters have adopted. It is now under revision and is expected to be ready for implementation in 2013.

The Global Reporting Initiative (GRI) will be launching its fourth generation of guidelines for sustainability reporting and the final version of the Society for Human Resource Management’s guideline for reporting human capital metrics will also be likely forthcoming in 2013.

Meanwhile the International Integrated Reporting Council (IIRC) has released the integrated reporting framework. The prototype is out, a formal consultation draft will be released in April, and the aim is for a final version in December.

These are just a few examples of the compliance and control-related initiatives that will land on the CFO’s plate in 2013.

Sure improving standards and the regulatory environments in crucial, and forward thinking in many important areas of disclosure and control is necessary for business management to evolve, but how is it possible for the CFO, particularly in SMEs, to remain strategic under the weight of all this new direction?

McKinsey echoes the sentiments of many CFOs today in asking where it will all end and pointing out that ‘It’s unproductive to stretch the role too far and unreasonable to expect a CFO to be good at everything’.

This post first appeared in Accounting and business, February 2013

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Changing role of the CFO: interview with Richard Moat FCCA

accapr —  20 February 2013 — 1 Comment

“The talent agenda is vital” says Richard Moat FCCA, Chief Financial Officer at Eircom Group and Chair of ACCA’s Accountants for Business Global Forum, in this latest video about the changing role of the CFO.

He adds: “To be an effective business partner, finance people have got to understand the commercial realities of the business – have to have a strong commercial link as well as experience in finance.”

Richard also talks about how managing cost, rather than growth, is a big priority for CFOs today.

The Changing Role of the CFO report explains how the financial and business landscape is changing: greater uncertainty for the global economy, fluctuating energy costs, rises in commodity prices, currency fluctuations, government deficits and cost cutting.

In ACCA, Accountants for Business, CFO, Finance Transformation, Global Forums, IMA, Jamie Lyon , , , , ,
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