The evolving role of the modern-day CFO

The role of the modern-day CFO has transcended beyond simple monitoring of financial data. The CFO of today is a pioneer who leads from the front and acts as a strategic analyst, accountant, advisor, and leader for future business expansions. And, this role has only become more critical since the advent of the pandemic, as the CFO also spots and assesses potential business risks in order to strategize the plans that steer the organisation into the path of a better tomorrow.

We interacted with Mayur Padhya, CFO of Bodal Chemicals Limited for ‘Mint and SAP present Being a Future-Ready CFO: Gearing up for uncertainties’ recently, and he talked to us about planning for uncertainties in the post pandemic world and how one can become a future-ready CFO.

Some excerpts:

Q. As a leader at one of India's largest chemical manufacturing companies with an experience of nearly three decades in the area of finance and corporate affairs, what are your thoughts on how the role of CFO has evolved with increasing focus on risk assessment and future planning rather than just finance?

Mr. Padhya: Traditionally, a finance head had a limited role of looking after day-to-day finance, banking, etc. On a lighter note, earlier when I was used to say I am the CFO of a company, people thought I was an officer reporting to some manager. Now, that has changed a lot. The CFO today, is next to the Director. In my 21 years with this company, I have seen all the eras – when a CFO’s important was not there when CFO’s important is there.

Risk assessment and future planning are both correlated. Without considering risk assessment, no future planning is possible. Today, when we take a decision about anything in acquisition or capex or adding our stake in a subsidiary, we consider risk management which was not done earlier.

Q. How has the pandemic affected the way businesses handle risk assessment from a long term versus short term perspective? In your 21 years at Bodal Chemicals, how have you evaluated risks and KPIs differently after the pandemic?

Mr. Padhya: Let me start with what has happened during the pandemic to understand this better. The situation was very uncertain – we were not able to see what will be next in next quarter or next month or even next week. Initially when pandemic started, we thought that it will have some financial crunch for the company. At this time, goodwill for the company has played a great role to battle financial uncertainty. Our limit utilisation was at a minimum level, which gave us a clear indication of how to progress the future. Our fixed expenses including interest and salaries are huge and we need to consider these. The most important change we have made after the pandemic is to keep the unutilised reserve at a higher side. That gives us comfort in how we can address the future. Another important learning is to be positive.

Q. Speaking of tomorrow, what does it mean to be future-ready, especially for CFOs, to create the most value? And, as a CFO, what are the steps that you take to make sure that you're always looking ahead while balancing traditional responsibilities?

Mr. Padhya: To be future-ready, first visualise what uncertainty can come your way and be ready to face them. You cannot do anything about what is beyond your imagination. To be future-ready, there are various types of risk. We need to visualise it and then find an answer to it. This can enable you to run the business the way you were running earlier, even in uncertain times.

Q. Given the uncertainty of global businesses, how to understand risk? In your opinion, what are the different types of risks one can usually anticipate?

Mr. Padhya: There are various types of risks. For me, the most important risk is the cash flow mismatch. If your inflows and outflow of cash match, you have won 90 percent of the battle. Some of the other risks are currency fluctuation, political risks, demand-supply risk, logistical risk, and credit risk.

Q. In that span of risks ranging from logistics to credit risks, what are the preparations required in response to these anticipated risks from a financial standpoint?

Mr. Padhya: Every risk has a mitigation policy. For example, ECGC is a solution to the credit risk for export. Nowadays, ECGC and other agencies are giving good credit coverage, and that gives you the freedom to export to all the countries without worrying about other risks like political risks or inflation. For currency fluctuation risk, one has to look for hedging mechanisms. For demand-supply risks, you can enter into a longer-term contract with the supplier for raw material availability or a long stock position. For cash flow mismatch, you have to have a buffer fund facility.

Q. In our modern world, technology is the driving force for progress. As digital transformation spreads across sectors, many silos within organisations are coming off. In this context, how can the CFO and the CTO work together to ensure better risk management?

Mr. Padhya: Technology has become very important, without which you cannot grow or you cannot sustain at higher levels. Better technology translates into ERP, which gives us solutions. In practical life, a correlation between the CTO and CFO is important in that technology plays a very critical role because manually to handle such a thing is not possible at all. To control data, inventory piling or any other situations where there is working capital blockage, you can partner with the CTO and start continuously monitoring of all aspects to take timely corrective action. This also gets you ready for the future.

Q. CFOs are seen as change agents now. According to you, what are the skills necessary to be a successful and future-ready CFO?

Mr. Padhya: To be a future-ready CFO, one must have knowledge of the market and should be ready to adapt and implement whatever is suitable to the business. About 15-20 years ago, when we were referring to a small or mid-size organisation, there were very few available sources for raising finance like term loans. But, today, the CFO has to be aware of what kind of avenues are available, like CP, bond market, lease finance, or ECBs. The CFO must be well-updated about market trends, only then he will able to properly manage the finances as per the requirement of management and add to the bottom line of the organisation

Q. What is your word of advice to finance heads or CFOs about the road ahead, especially if their business is new?

Mr. Padhya: Be positive, be unstoppable and start thinking like an entrepreneur. Don’t limit yourself to the traditional roles and expectations of a CTO. Lastly, try and understand the technical aspects of your organisation to become an all-rounder.