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A Real Life Look: The role of the modern CFO

Stepping into the world of the CFO gives us perspective of this modern role and of what it takes when the going gets tough.

Mmankgere Modise | Companies Tribunal

The role of a CFO has evolved over the years into a more strategic role in business. And I believe that a CFO’s job can be broken down into 3 major components.

  1. Controlership duties
    This entails the responsibility of presenting and reporting accurate and timely historical financial information of the company the CFO works for. Stakeholders rely on the accuracy and timeliness of this information.

  2. Treasury duties
    The responsibility for the company’s past and present financial condition.

  3. Economic strategy and forecasting
    A CFO must be able to identify and report on which areas of a company are most efficient and how the company can capitalise on this information – in other words, trying to predict (given multiple scenarios) the best way to ensure the company’s success in the future.

The key goal of any entity is to create long-term sustainable wealth for the shareholders. In a private sector it will involve objectives such as maximising long-term shareholder return on a sustainable basis, at the same time taking cognisance of the responsibility of the entity creating value for all major stakeholders and minimising negative impacts on society and the natural environment. Our CFO is the most important person relevant in achieving these objectives.

Modern CFOs are faced with very complex and difficult tasks in strategising the financial aspects of the company/entity. They need to work together with the different departments within the company and must engage with various stakeholders in order to meet their goals. The CFO also reports directly to the CEO, and is responsible for analysing and reviewing financial data, reporting financial performance, preparing budgets and monitoring expenditure and costs.

You are required to present this information to the board of directors at regular intervals and to provide it to shareholders and regulatory bodies such as the Securities and Exchange Commission (SEC).

Usually referred to as the senior vice president, the CFO routinely checks the corporation’s financial health and integrity. But there is a big difference between a good and a great CFO. A good CFO will run a company’s finances well, but struggle to think of innovative ways to lead and grow the company’s financial portfolio. A great CFO has to be an analytical thinker who is able to think outside the box and see the future of the company when nobody else can.

He or she must be able to provide insight to the stakeholders of risks and returns that the company could be subjected to, at the same time advising the board and shareholders based on previous experience and the use of different financial models. Looking at financing and investing activities available to them, they must be able to indicate which investments to make.

Financing activities – deciding on which sources of funding should be used (debt or equity)
Investing activities – deciding which investments should be made, taking into consideration the limitation of available funds.

This aspect of decision-making is very important to a modern CFO as we face a global environment with challenges of rapidly declining natural resources (water, biodiversity, minerals and marine life) and an ever-increasing population, all competing for these resources, while social inequality and poverty still prevail for many.

As a CFO it is ultra-important to have good leadership qualities, as you are faced with leading the entity financially. You also lead its stakeholders including directors, managers and shareholders on a daily basis. Thus, a good CFO would be one that can balance his EQ with his IQ as both work together and are essential skills to have when leading an entity. CFOs must have a good eye for business ventures, in order to develop the business to reach the optimum profit maximisation that the company desires. The ability to know how to take over existing companies’ i.e. whether to focus on horizontal, vertical or conglomerate acquisition and at the same time being able to engage in the relevant economic arguments that may arise while trying to develop the company e.g. the economies of scale and synergy. The Integrated Reporting Committee of South Africa (IRC) views a company’s ability to create and sustain value as dependant on the quality of its leadership, and how the entity is governed. And who else would be the best leader to achieve these goals, if not the CFO? The foundation of good corporate governance is seen to be:

“Intellectual honesty” with its supporting pillars being “responsibility”. “accountability”, “fairness” and “transparency “ (RAFT). Consequently, ethical leadership is paramount and the role of the CFO entails accountability for regulatory compliance too. In terms of good governance practice, and consistent with the “King code of governance principles for South Africa of 2009” the company’s board of directors is accountable to the company and to the shareholders and that includes CFOs at large.

What to do when the going gets tough?
In the past two years as managing director of my small enterprise I had to face different and difficult situations whereby I had to make decisions that would bring the enterprise to a thriving position. I had to choose whether to acquire debt from financial institutions to make sure that the company is financially viable or whether to lend from friends and family who are more likely not going to charge as much interest as the financial institutions would. During these processes you realise more and more that you have people who can help you financially when the ship is sinking, and that you might as well choose that route rather than putting the company into more debt. You can also decide to offer shares in your company to the people who are willing to help you with the intention of sharing the profit according to the percentage that has been contributed.

Some people may also lend you the capital with the option of you buying back the shares from them as soon as you feel comfortable to do so. In this way you end up with more shareholders with different expertise and skills to help you in the running of the business, thus achieving the objectives of the company with less difficulty.

I am also very grateful to government financial initiatives like SETA and UMSOBOMVU that are helping people, especially the previously disadvantaged, to set up businesses and at the same time help existing businesses that are sinking to get back on their feet. Even though I am not presently a beneficiary of such an initiative I know many people who have been helped by these institutions.