EMERGING ROLE OF CFOs FICCI ICAI Conference

A presentation by

Sumant Sinha
August 28, 2003

A CFO Wears Many Hats

Strategic Role Value Creation Captain Performance Measurement

Risk Management
Corporate Governance Investor Relations

Role of the Finance Function

Corporate Governance Market Value of Capital Investor Relations Managing Finance professionals

Usage of Cash : Allocation decisions

CAPEX

CAPITAL

Generation of Cash : From existing capital employed - Performance / Returns - Quality of reporting - MIS Risk Future Visibility
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M&A

Best Use of Capital

Strategic Role
CFO should be part of core vision team

Strategic partner to line management Cannot perform allocation of capital task without strategic context Cannot perform IR role without understanding strategic context

Value Creation Aspect

Understand where value is created in value chain
CFOs as Value Chain captains Disaggregate businesses and study each separately Peer comparisons

Good information metrics required

Downward cascaded MIS systems

Must focus line management on correct value creation measures

Identify key value drivers Put systems in place to measure both financial and non financial measures

Performance Measurement & Planning

The key is information at the fingertips

Sorted, diced, sliced any way you want But must be reliable and accurate Take the risk out of decision making, reduce reliance on gut feel

At the speed of thought Insightful

Decision support based Better forecasting techniques

Performance Measurement & Planning

Critical for measuring efficiency of employed capital Should be linked in to incentive systems CFO should lead planning cycle
Aligned with pace of market change Embed market-relative performance evaluation

Integrate planning with

Performance measurement system (VBM) Capital allocation decisions

Reorientation away from incrementalist to quantum

Risk Management
CFO needs to constantly balance generation of cash and

its utilization in value generating activities In a stretching-for-growth corporation, this will be a fine balance
Hence variability of cash flow is important

Understand the risks in the system Both quantifiable and non quantifiable

Risk Management (Contd.)

Quantifiable risks
FX risk Financial / Capital structure risk Commodity risk Derivatives Quality of assets Processes / systems Capturing the full picture Event risk People risk

Non quantifiable risks

Investor Relations
Maximize market value of capital employed Be the companys ambassador Proactive investor relations Focus line managers on P/E multiples, not just E Investors focus on CFOs standing in an organization

Every company has the same product - its stock CFO must treat investors as his consumers

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Corporate Governance
Enough has been said time for action CFO to be accountable to the Board for providing accurate information International Accounting Standards Fair, transparent and clear financial reports to all constituents Ensure internal compliance and control mechanisms function effectively
Finance function Internal audit External audit

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Disclosure & Transparency Standards

Quality of financial reporting Credit Ratings Corporate Governance framework and ratings Emphasis on Minority Shareholders interests
External perception management Independence of Board of Directors

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People Development

Build bench strength Participate in strategy and business direction Should lead development of finance professionals
Job rotation Out of finance into other areas

Track careers in coordination with HR and in consultation

with business managers

Encourage external learning best of breed practices

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CFO Qualities

Patience, patience, patience Must be able to say NO Must be able to say YES Must be constantly on the look out for new ideas and concepts Must be flexible, responsive and international Must have strategic orientation

But the good news Need not be Superman That well leave to the CEOs!

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