How A Company's CFO Can Make Or Break Your Investment In It

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How A Company's CFO Can Make Or Break Your
Investment In It
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Regular engagement with the market/investors and
with the analysts is crucial in building investor
confidence
In recent years, CFOs have assumed increasingly
complex, strategic roles focused on driving value
creation across the business. Growing shareholder
expectations and activism, more intense MA,
mounting regulatory scrutiny over corporate
conduct and evolving expectations from the
finance function have put CFOs in the middle of
corporate decisions. While financial performance
is what it is, the CFOs role in helping
stakeholders interpret the numbers in the context
of the business environment is critical. This
article signifies the role that CFOs have to
play in managing investors, communicating with
customers, suppliers and internal teams, bridging
cultures in MA situations, without dropping the
ball on day-to-day finance functions.
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Smart performance good communications Better
valuations
In a changing business environment, the CFO is
charged with creating economic value through
smart performance. It is also his responsibility
to ensure that the value thus created is visible
and an easy to understand parameter for investors
and other stakeholders to gain their confidence
and trust. Businesses today are rapidly
undergoing a metamorphosis in India. From the
traditionally managed family run businesses with
traditional/ informal performance measurement
mechanism, traditional modes of raising capital
and a certain lack of permeance of transparency
through the organisation about the future, we are
beginning to see increasing number of existing,
as well as new age, companies with a professional
outlook living in an environment which is
increasingly inter connected and inter
dependent. The one key element that has changed
in the way of doing business in this modern
landscape is the flow of information.
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The new age CFO, therefore must now realise that
he is no longer expected to linger in the
background and surface every time the results are
to be announced. As the one person in the
organisation that has intimate knowledge of both
the past performance and the expected future
growth it becomes his responsibilty, not only to
steer the company towards a better future through
smart performance but also be able to provide a
transparent, big picture view of the future, to
internal stakeholders, customers and investors.
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What is smart performance?
A CFO today understands that the word
performance has a broader meaning than just the
underlying numbers. There has been a shift in
focus in measuring performance from profits to
profitability, earnings to economic value and so
on. The focus is on creating value which comes
from both increased sales, driving better
margins, increase efficiencies in operations
amongst others which improves stakeholder
confidence and builds company valuations. Smart
performance would, therefore, mean looking
constantly for opportunities to improve economic
profits for the company both inside (operational
productivity) and outside (sales). Smart
performing companies and their CFOs are serially
identifying, recording, measuring, comparing and
finding ways to improve scores on the short and
long term value and growth metrics. by working
on
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Processes and Systems
One of the challenges that companies face is for
them to constantly look at improving each of
their key processes, be it the sales, operations,
HR etc. The CFO plays an extremely important role
in defining the key metrics and more importantly
tracking them on a consistent bais which not just
helps in measuring business performance but also
bring out possible areas where process
improvements are possible. The need to evaluate
and implement systems particularly IT systems
that cut across functions and intgrate them is a
role that most CFOs are involved with. The CFOs
input in the selection, design and implementation
of an integrated system (ERP) which involves
massive amount of change management cannot be
emphasized more. In that sense, the CFO is only
next to the CEO in terms of importance within the
organisation.
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Vision Alignment and relentless execution
Being a leadership role, it is essential for the
CFO to have alignment with the CEO/Companys
vision. Let me illustrate this with an example -
We recently had an opportunity to work with this
company, which was on a high growth trajectory
and was looking to grow its revenues to 2x in the
next 3 years. The CFO and the Finance leadership
team needed to be ready to support this
aggressive growth path by providing the CEO
decision making support and putting in place
performance management systems. The company
struggled with multiple versions of the truth
and a lack of standard performance measures,
resulting in management discussions that were all
too often spent on reconciling differences in
assumptions. Sponsored by the CFO, a project was
created to focus on transforming the finance
function into a highly valued partner in the
business. The CFO set out to lead a strategic
change in the business by establishing and
modeling a high-performance culture in finance
and then transferring it to the rest of the
organization with the help of HR. Alignment of
thought process and being able to articulate the
companys vision is paramount for a good CFO.
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The CFO also needs to have a strong buy in to the
CEO/Companys strategy and should also play the
role as an implementer of the thought process/
strategy to the hilt. Increasingly, CFOs are
playing a key role in developing and implementing
strategy within their company, partnering with
CEOs to creatively design growth opportunities
for the future. Successful CFO leadership
requires a deeper understanding of strategy,
increased leadership skills, and an ability to
effectively communicate financial acumen and
knowledge to non-financial colleagues. A CFO
cannot wait for things to happen, having an
entrepreneurial bent of mind to get things done
is the key.
Communication
A number of CFOs that we meet today spend a
considerable part of their time in communicating
with investors and analysts. The CFO needs to
communicate on an ongoing basis and also provide
an assurance on the direction and pace of growth.
It is important for the CFO to be seen as
independent, to be able to provide insights on
all aspects of business and be transparent.
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A CFO has got to do the communication
himself/herself as far as possible so that the
intent of what is being communicated is not lost
or misinterpreted. Any kind of misinterpretation
can have significant implications on the company
concerned. Larger organizations build investor
relations teams who work closely with the CFO and
who feed information or analysis relating to the
company or the industry which could be of
importance to analysts who track the company's
shares closely. Regular engagement with the
market/investors and with the analysts is crucial
in building investor confidence.
A CFO needs to work closely with multiple
stakeholders. A CFO probably needs to work hard
on influencing others, improving his/her
diplomatic and people management skills. It helps
a great deal if the CFO is seen as someone who
participates and contributes to strategic
discussions, which helps in building influence
particularly with the board of directors and
investors. A CFO needs to be a leader, understand
the business dynamics and be familiar with all
the elements of the business as well as the
operating model in order to be able to be the
Quasi CEO or the next in command. In todays
economic scenario, CFOs are increasingly seen as
natural contenders to the CEO position. And then
the magic happens.
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CFOs find themselves assuming greater leadership
and responsibility while also asserting more
influence on strategy. Outstanding CFOs with all
of these skills and the right personal chemistry
with the CEO have the ability to become his/her
right-hand person. Ultimately, such CFOs become
agents of change, creating smarter work patterns
throughout their organization with insights that
drive performance and help achieve better
results. Improvement in company valuations is a
result of doing the right things consistently
over a period of time. As they say, Rome was not
built in a day.
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