The chief financial officer's responsibility has become more complex. He no longer just crunches number but also leads the company on various fronts.
Excellence in number crunching, innovativeness and effectiveness in tax planning are the first thoughts which come to mind when you think of a skilled chief financial officer or CFO. This was a true description till the early 1990s, but post-liberalisation, there has been a complete redefining of the finance function and the role that a CFO plays in an organisation.
There are several success stories that illustrate the opportunities for leadership available to CFOs. Take, for instance, Keki Dadiseth who managed various finance roles in India and overseas before taking over as the managing director and chairman of Hindustan Unilever. He went on to become Unilever's global director for home and personal care business. Likewise, Anil Singhvi went on to be the CEO from a finance role at Ambuja Cements. He is currently the vice-chairman of Reliance Natural Resources.
Even Uday Khanna led the finance function across various Unilever subsidiaries before taking over as the country head, India, for Lafarge. Praveen Kadle represents another success story - he rose up the finance function within the Tata Group and today leads the group's financial services business as the managing director and CEO of Tata Capital.
The complete leader
In today's dynamic environment, to be a successful CFO, it is absolutely essential to have a sharp business mindset and be proactive in enhancing knowledge about all aspects of the corporation such as manufacturing, product development, marketing and sales, in addition to the core area of expertise.
A higher level of inquisitiveness to gain information about the overall scope of business and the ability to gauge its impact on the organisation and the industry enables the CFO to understand the nuances of how to build a strategic partnership with the senior management of the organisation.
For instance, the recent Bharti-MTN negotiations saw Bharti Enterprises' Akhil Gupta working not only to review the financials of the company and raise money but also as Sunil Mittal's closest ally for the acquisition deal. The critical competence for effectively managing a CFO's role is to keep a balance between number orientation and strategic mindset.
It is important to have the intellect to identify short- to long-term business opportunities and potential roadblocks in a venture. In today's technology-driven environment, managing the routine accounting work and preparing MIS (management information systems) is not at all a time-consuming task, and therefore the intellectual stimulus for a high-calibre CFO will come from his interaction with other functions and participation in business-related matters.
Back to front
Today, a CFO with a big-picture mindset and the ability to contribute beyond the functional area is the most sought after talent by organisations across industry segments. The reality however is that while demand continues to grow, professionals with such well-rounded capabilities are in short supply. It is therefore important for finance professionals to take the initiative to develop interest in business matters and get a first-hand feel of business at the ground level.
A good reflection of this point is David Goulden of EMC, who is not only the CFO of the $14-billion information management major but also leads the globalisation initiative of the company. During his recent visit to India, he announced an investment of $1.5 billion as a part of his strategy. This was very different to a few years ago when CEOs rarerly led such strategic initiatives.
The transition in the CFO's role from a back-office support function to that of a strategic partner to the CEO has also resulted in restructuring of their compensation packages. In the past, the CFO's compensation would predominantly be a fixed amount, similar to that of other functional heads and with no amount linked to the performance of the organisation.
With CFOs now playing a critical leadership role in a company's strategy and business operations, it has become a norm that about 25-35 per cent of the CFO's compensation is linked to the performance of the organisation. Further, the total compensation package of the CFO would be amongst the top two to three highly-paid professionals in the organisation.
In addition to functional competence and commercial acumen, equally important are softer skills for a CFO to be respected as a thought partner by various stakeholders in an organisation. It is necessary to develop skills such as collaboration, influencing, negotiation, team work, people management and inspirational leadership to command respect both in the internal and external environments.
Companies are constantly evaluating if they have the right individual leading the finance function, keeping in mind not only the current business operations but, more important, the fitment with the future growth strategy. The CEOs ensure that they are supported by business-oriented CFOs who can be their sounding board, conscience keepers and have the toughness to express their point of view.
For the CFO to build strong credibility for the finance function and be accepted as a part of the think tank, he has to be well versed with the key operating levers of the business and at the same time be conversant with best-in-class accounting practices and procedures. A company looking to build a strong image in the external environment, especially with investors, business partners and customers, having the right person leading the CFO function is absolutely a critical decision.
In fact, private equity companies are always on the lookout for CFOs who have the right balance between operational competence and strategic mindset to advise their investee companies on how to efficiently run the business.
Even prospective employees take a closer look at the calibre of talent existing in the company before they take the decision to join the company. Therefore, having a highly competent CFO could be a key pull factor for attracting and retaining the best talent.
We also see this through a larger proportion of CFOs becoming CEOs today because of their 360-degree view of the business and involvement in a number of defining initiatives that the company undertakes.
The influence finance professionals have in large Indian groups is best demonstrated by the large portfolio of responsibilities being led by Amitabh Jhunjhunwala at Reliance Dhirubhai Ambani Group and Girish Paranjpe at Wipro.
In organisations where the CFO's function is isolated and there is limited interaction with other functions, it becomes a major bottleneck in running the organisation and can ultimately destroy the institution. It is essential that the CFO positions himself as a solution provider and an organisation builder.
In summary, the CFO's responsibility has grown exponentially more complex. The contemporary job description includes the ability to act as a strategic partner to the CEO, serve on the board and play a crucial role in presenting the public face of the company to investors, regulators and policy makers.
The CFO is also expected to change business processes to deliver improvements in performance. In addition, more sophisticated financial markets, vastly increased organisational size and complexity brought in by globalisation, changes in technology and greater focus on governance, risk and compliance mean that the CFO needs to be a highly skilled leader. This evolved role of a CFO within an organisation presents unparalleled opportunities for today's finance professionals as demand far outstrips supply.
Image: Keki Dadiseth
The writer is partner, Egon Zehnder International.