Spotlight turns on the CFO

OFFICE LIFE: More than the CEO, shareholders and directors alike now expect the CFO to navigate the company safely out of the global meltdown.

The financial tsunami that has engulfed the corporate world has brought into sharp focus the role of the chief financial officer or CFO, who has for long played second fiddle to the CEO.

A score of CFOs Business Standard spoke to say they now put in much longer hours in office, glued to television news channels and news agency terminals. More than the CEO, shareholders and directors alike now expect the CFO to navigate the company safely out of the current crisis.

Even as the situation changes by the hour, the CFO has to keep tabs on the money, commodity and foreign exchange markets. The brief is to make the correct call on these markets and minimise risks. Anybody who can raise money is worth his weight in gold. “Cash is critical,” says GVK Group CFO George Isaac.

A good CFO, headhunters say, can easily command up to a million dollars in present day circumstances. More in demand are India-bred CFOs than those from multinational corporations — people who are street smart and nimble-footed.

The money on offer might have improved, but so have the job hazards. One wrong move could be disastrous. “It’s the worst I have seen since 9/11 or the dotcom bubble. Volatility has hit us in every aspect. Who would have thought the dollar will touch Rs 48 to the rupee,” says a CFO who doesn’t wish to be named.

Many CFOs indeed failed to take the right call in managing their currency risks. Most of them had thought the rupee will appreciate and had hedged their export receivables at Rs 40-41 to the dollar, leaving imports open. Companies will be hurt both ways: Opportunity has been lost in exports as the rupee has depreciated to over Rs 49, while imports have become dearer as they left it open.

But they alone are not to be blamed. A CEO survey carried out by Business Standard in end-December last year had showed that a majority of them expected the dollar to fall to around Rs 37.50 by end-2008!

In these times of volatility, CFOs say it pays to think short-term. For instance, with commodity prices on the decline, most companies have moved to short-term purchases in anticipation of a further fall. “There’s an opportunity to be exploited if you are nimble-footed and do not take long-term positions,” says PepsiCo India CFO Praveen Someshwar.

The crisis has also meant more calls from the CEO, who’s anxious and wants to keep a close tab. “Given the uncertainty, there’s much more scrutiny by boards and senior management,’’ says Mindtree Consulting CFO Rostow Ravanan. “They are seeking a lot more details. They want to know where you have parked your surplus funds, are we sure about them, what’s the credit-worthiness of our customers.”

The CFOs in turn are doing more detailed reviews of sales to ensure that no money gets stuck in the pipeline. “The due diligence is much higher. Negotiations with customers have become difficult as they don’t want to concede price hikes, but we have to convince them,’’ added a CFO.

The changing environment has forced CFOs to become more alert, says JSW Steel Director (finance) Seshagiri Rao: “The CFO needs to be more alert in terms of investments and borrowings in this volatile market.” For instance, CFOs would earlier invest their surplus funds in mutual funds as these gave better returns. Now, safety has become important. “Whether borrowing or investing, one needs to be flexible and fast enough to change the asset class or source of borrowing without any lapse of time to sustain operations,” Rao adds.

Life has changed overnight for the CFO. He has to learn new competencies, like predicting currency movements — a skill he was not expected to have five years ago. Life has become more complex as he grapples with taxation and regulations in multiple geographies.

For many, the crisis has been a huge learning. "An event like this happens once in a century and nobody anticipated it,” says Arvind Mills CFO Jayesh Shah. “Certainly, it is a learning experience even for seasoned professionals.”

So, what is the survival mantra for the CFO? “Any company which has the right approach, the right principles and focuses on three areas — sales, collections and production — will not be in trouble,’’ says DLF CFO Ramesh Sanka.