Panel discussion II

Thursday, 17 October 2013 00:00 -     - {{hitsCtrl.values.hits}}

The second panel of the forum featured PricewaterhouseCoopers Market Leader Sujeewa Mudalige, Diesel and Motor Engineering PLC Director/CFO Suresh Gooneratne and Brandix Lanka CFO Hasitha Premaratne. During the course of the discussion, the operational areas connected to a CFO were under scrutiny. The panel was moderated by MTI Corporate Finance Associate Consultant Mano Tittawella.  Below are excerpts from the panellists’ comments:     PricewaterhouseCoopers Market Leader Sujeewa Mudalige Sharing the findings of a global survey recently conducted by PwC, Mudalige listed the key functions of a CFO according to CFOs in companies operating in over 100 companies (Unilever, Shell, Bank of America, etc). Some of the functions noted were: organisational strategy, financial planning (forecasting on budgeting), management reporting, business analysis, performance improvement, controls, and month end financial closing. “If you are the chairman you have to ensure your CFRO gives you a set of accounts that can be relied upon,” he said. “We asked them how they rate the CFOs – to get a one you must do it within 24 hours, if you take more than 10 days you’re virtually no good.” On passing manual journals months end, if there is more than a single digit shows incapability as CFO. A CFRO’s function also includes financial statement closing, technology and people management. The survey also took note of chairmen and the MDs of the companies with a 30 point questionnaire. According to this, M&A, compliance and risk governance is not looked at as a CFOs function. “In the local companies most of these functions are also done by our CFOs. They play a much larger role.”     Diesel and Motor Engineering PLC Director/CFO Suresh Gooneratne Accounting proficiency has acknowledged the irrelevance of current day financial reporting. As a solution there is integrated reporting. It is in the initial stages. The essence is that independent reporting looks to relate or narrate value creation story of the company, so it is not only about finances but all your non-financial assets. Currently there is nothing to go by except a guideline available from next year. Initially there may not be evaluations on non-financial assets but it will start at least as a description so that a potential investor can get some idea. Getting back to the presentations – working capital – traditionally when people talk about working capital, you automatically make reference to managing receivables, payables, inventory and so on. I think managing these is a job of everyone in an organisation; it is a cultural phenomenon. I think a CFO should go a little beyond that, in the presumption that everyone will play that role, a CFO should be able to read the working capital cycle well as many financing has to be done in relation to your working capital. With regard to risk management and compliance I fully agree with Cader and note that we are in fact overemphasising on compliance and are spending too much energy there. Definitely something needs to be done, but how? Link to the board of a CFO, I was part of this survey and my answer is we are one team. I don’t see the CFO on the opposite side of the business. The CFO and CEO must work together and maintaining independence lies in his personality, rather expecting the structure to do so.     Brandix Lanka CFO Hasitha Premaratne “The CFO has a role of bringing the different functions and sections of the organisation together in order to achieve mutual objectives,” Premaratne said. Sharing some of Brandix’s activities on bringing the full cross functional involvement of the organisation to achieve a finance or business objective, he categorised working capital into financing and managing. A CFO must be on top of the working capital financing whereas in working capital management a CFO must get the involvement of the rest of the organisation and drive it by decisions made by different parts of the organisation. “If a CFO is trying to mange working capital cycle alone, that won’t work. A CFO must bring the people together and ensure there is adequate knowledge on the need to manage working capital. He must also ensure that actions of decision makers (whether finance, marketing, or CEO himself) is reflected towards ultimately managing the cycle better.” When it comes to cost management, CFOs need to take strategic action rather than cutting down on people costs and R&D. In 2008 during the crisis, Brandix rolled out what was termed ‘group cost management process’ where they identified the top 10-12 cost items, outlined them and requested details from across the group to understand the inefficiencies happening across the group as they operated in India and Sri Lanka then. “We were paying different amounts to the same item due to poor coordination,” he reflected. “The company then brought in cost owners from cost functional teams, made them understand the cost structures and gave targets. Periodic meetings were held driven by the high level.” This managed to bring people from different aspects of the organisation structure together with a lead role being played by CFO and proved highly successful, he said.