FROM THE EDITOR

Evolving Priorities

Over the last two decades the CFO’s role has evolved from crunching data, into providing strategic insights and really a more wholesome partnership with various aspects of the organisation. A top priority therefore, is to help the business grow. To prod this process along, financial systems need to consistently transform to improve the company’s ability to plan and forecast, provide authentic information and finally identify risks before they can play out. As a part of this process, many companies are replacing legacy systems with tailored comprehensive ERP packages. The intent to upgrade is to get clear information in a timely manner that is robust enough to allow the finance function to effectively partner with business, so that the real time impact of decisions can be identified.

CFOs are looking at risk from a more wholesome perspective, rather than simply financial perils.

CFOs have begun to institutionalise a meetings process with business managers. This helps to determine what reports are needed, with new ones being added and the less effective dropped, to help make better decisions. Close working relations with business managers also helps CFOs improve presentations to the board, particularly on issues such as economic trends that could affect sales and the sort of capital structure that may be required during disruptive events. Now CFOs look at risk from a more wholesome perspective, rather than simply financial perils. Other factors too, ultimately effect financial results and disclosures. Finance must understand business risk assumptions and how they would play out in the numbers. Constant dialogue between CFOs and business managers helps, with a risk framework as the basis for discussion. Everyone must understand the assumptions and feel comfortable with the numbers.

CFOs have argued that an essential imperative these days, is addressing a rising interest rate environment, where capital becomes both scarce and expensive. Therefore, they are looking towards tweaking business models so as to become asset-light and generate cash flows without the burden of excessive capital expenditure. One way to do this is by managing the net working-capital days, driving down the order to cash cycle and where possible, extending the payment period to vendors. Many companies are also seeking to access bond markets with long maturation periods.

Finance managers are looking for ways to tweaking business models so as to become asset-light and generate cash flows without the burden of excessive capital expenditure.

Another priority for CFOs is to consistently develop and nurture finance talent. Some companies rotate finance professionals along a diversity of roles throughout the organisations, without limiting their exposure to purely the finance function. Many, for instance, are posted in the sales department or logistics, in order to gain a fuller understanding of business. They can then contribute more effectively in financial planning and risk identification.

A necessary aspect of the CFO’s role is to develop and maintain strong relations with the audit committee. In addition to the CFO, the external auditor and the head of internal audit usually engage with the audit committee but it is the CFO who provides the ultimate perspective on management. The basis of this relationship is trust. In order for this to develop there must be open discussions, especially on sensitive issues. As audit committees often examine a wide range of subjects in areas of control and oversight, the CFO should ensure that there are the right people from his team available to address questions. This should include line management, not just finance, as line managers are also responsible for asset ownership and control. Stewardship of finance is therefore as much about business, as it is about the function.

Adit Jain, Editor

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