The Chinese proverb ‘May you live in interesting times’ finds new meaning in today’s uncertain world. Manning more than the traditional cost paradigms, a CFO is required to be future-ready and resilient
Welcome to the future of the chief financial officer’s (CFO) role. In what has been a year down the rabbit hole, CFOs have chased the white rabbit of resilience to emerge in renewed avatars that are digitally ahead, cash-conscious and risk-aware. The CFO is more than a financial steward in today’s dynamic world. They command a bird’s eye view of the organisation and lead as strategic business partners to the CEO. The contours of cost, compliance and transformation have expanded astronomically in what can be called an 18-month blue moon. Along with this, the concept of quarterly reviews and annual outlooks are slowly becoming obsolete in an age of weekly reviews and monthly outlooks. In such fast-changing environs, the big question is: what now is the role of a CFO? BW CFO World tabled this in the fifth edition of the BW CFO and Finance Strategy Summit and Awards (2021).
Keeping up with compliances
Finance leaders in India over the last five years have witnessed myriad changes including demonetisation, GST, eWay Bills, ITC claim restrictions, e-invoicing and stricter compliance, to name a few. Speaking at the summit, S Ravi, Managing Partner, Ravi Rajan and Co. and Chairman of TFCI, stated that compliance and the cost of compliance has gone up by 4 per cent in recent times rendering CFOs as midfielders who know when to switch between attacking costs and defending balances. He said that their role in the pandemic has been focused on reducing debt, raising resources, improving ratings and coordinating with regulators, board members and auditors.
Swaroop Repaka who leads strategy at Clear said we live in a time ‘where there are over 170 business compliances in India’. Highlighting their importance, he stated, “Strong compliance is a signal of quality for investors. There is hence a disproportionate value placed on compliance when investors look at developing markets.” Repaka envisioned a future where a CFO will have to deal with a greater level of business process automation, AI-based surveillance for tax compliance, interlinked direct and indirect tax systems, greater interaction across vendors and distributor ecosystems alongside a proliferation of a technology-led credit and invoice discounting.
If one looks closer at the framework of regulations, the clarion call for a principle-based compliance framework is not new. Ramesh Swaminathan, Executive Director, CFO and Head of Corporate Affairs, Lupin said that it is time to bring a moral compass into the compliance framework. “We need principal-based compliance, not a rule-based one. It (the latter) suffers from the ills of subjectivity and estimation which makes it often not congruent to the context,” Swaminathan said.
The economic report card
A key to the evolving role of the CFO has been the concurrent economic scenario. Some corporate sectors have benefited from the low-cost, work-from-anywhere model while others have suffered irreparable losses, leaving them thinking about when the economy is going to fully recover. Among the latter group are the MSMEs (micro, small and medium enterprises), often cited as the backbone of the economy. As one of the largest sectors of employment after agriculture and construction, MSME recovery is of primary concern for the government. However, the larger question that remains is whether the government stimulus is adequate, far-reaching and all-inclusive.
“There are design flaws in the stimulus package. While the intention has been good, the reach to the vulnerable is limited,” said Vikas Wadhawan, Group CFO at Housing.com, PropTiger.com and Makaan.com. With many MSMEs still in the unorganised orbit, their access to credit and some of the stimulus relief afforded by the government remain elusive.
“The government should have provided direct stimulus, direct support and direct lending. Even the fund of funds scheme hasn’t been launched yet,” stated a concerned Anoop Bali, Executive Director & CFO, Tourism Finance Corporation of India, representing an industry that has been among the worst hit by the pandemic.
As vaccination efforts drive hope in the hearts of citizens and corporates alike, Ashish Kumar, VP-Corporate Finance and Treasury, InterGlobe Enterprises said, “Sentiments are important on the road to recovery.” The need of the hour remains a government investment for sustainable infrastructure and encouraging long-term change.
The fintech red carpet
Digital transformation in operations and transactions has always had a place on the CFO agenda, but it has now claimed the top spot. A necessary contactless economy seemed the most fertile ground for bridging the digital infrastructure gap, leading us to question the role of cash and the concept of the currency itself. Technology has slipped from the shotgun seat of an enabler to that of a driver.
Will the future of assets be digitised into tokens online and what will the future of smart contracts look like?
Cloud adoption and intelligent automation along with superior internet connectivity such as 5G and biometric payment authorisation are the flagbearers of the future of transactions. Also, there is a rise in the popularity of digital currency: while many governments look at cryptocurrency warily, stable coins are expected to pique international interest. India, the US and China are some of the countries taking interest in an authorised digital currency.
A new survival guide
Business models, economic ecosystems, the external environment are all changing rapidly before us thanks to technology. It helps offer superior cost advantages, operational improvements, predictive data insights and in better management of stress scenarios. From the seat of a CFO, these help drive changes proactively rather than reactively.
The next step in this journey is an integration of data with forecast stimulation, converting non-financial data points into financial numbers and making this data accessible to all the members of the organisation so they can better use them. Sameer Madan, who leads the finance operations at Agilent Technologies, is of the view that everyone in the organisation should take things to finance so that it becomes all-pervasive and financial insights can come from all the departments of the organisation.
ESG (environmental, social, and governance) and sustainability goals are buzzwords not limited to the Indian subcontinent. With the latest IPCC report issuing a red alert for corrective measures, the corporate responsibility towards the environment extends beyond societal consciousness to investor mandate. Companies are judged on the merit of their sustainability actions, and corporate reporting has expanded to include not just finance but sustainability paradigms too. “The (environmental) cautiousness will increase only when you have to report on it, as this will lead to concentrated efforts,” stated Ankush Jain, CFO, Dabur India. Sustainability reporting becomes more important for established companies in the context of evolving business models as new companies that emerge are designed with sustainability at their core.
From VUCA to resilience
The term VUCA (volatility, uncertainty, complexity and ambiguity) has long been a word of common parlance in business circles. And, the pandemic has afforded the term a litmus test like no other. It has fast-forwarded the leadership thought on transformation, business continuity and technology. Perhaps it’s now time for a new word that will emerge as a solution to VUCA: “Resilience”. It is a term also fundamental to human nature which will now reign supreme as businesses become more people-first. Moreover, leaders agree that the CFO of the future will need to be an economist who is comfortable with IT apart from the traditional accounting responsibilities.
Sandeep Batra, CFO, Crompton Greeves stated, “If anything, the pandemic has brought three affirmations: first, cash is king, second, digitisation is universal across industries, and third, the certainty of dealing with uncertainty. Therefore, the agility of our response is more critical than the accuracy of our forecasts.” Along with the call for agility comes the necessity to have a growth mindset to re-learn and unlearn older practices.
Building a sense of trust with organisation-wide teams and forging a relationship with colleagues have become paramount in times when there is no data to fall back upon. Though the end of the rabbit hole is still not in sight, CFOs now agree that the future of the role involves upskilling themselves, building a talent pipeline to carry on the traditional legacy of finance operations and honing strategic thinking not just as a reaction but as the first response — making them the most important skills for the Chief Future Officer.