- CFOs driving change
- The evolving role of the CFO
- Growing investor confidence
- The CFO Forum South Africa
- Corporate Treasury
- Cost of treasury impacts bottom line
With turbulent times around a volatile global market, being a CFO is definitely no simple undertaking. In business today, a good way to benchmark one’s decisions is by gaining an understanding of what others in the CFO role are doing or thinking. Read what three noteable CFOs have to say
SHABEER KHAN CA(SA)
When Shabeer Khan decided to join the Department of Trade and Industry (dti) in February 2013, he was given a list of reasons by most people why he should not join government. But he believed you gain a deep sense of fulfilment and reward through knowing that the financial decisions you make will impact influence and enhance not only the economy but the lives of fellow South Africans. He followed his convictions and joined as CFO of dti.
He found a department that was doing well in many respects. ‘We were paying our creditors within 30 days, and the dti was ranked as the top department by the Department of Performance Monitoring and Evaluation. However, it was struggling with the basic disciplines of financial reporting and compliance to supply chain management legislation.’
The dti managed to reduce an audit with no fewer than six findings across areas of performance and compliance in 2012 to one with two findings in 2013 and one finding in 2014. ‘Producing financial statements that were free from material misstatements was of the utmost importance; so we improved our discipline with regard to preparing and reviewing regular financial reports. Producing financial statements of the highest quality is something we now pride ourselves on. To get a deeper understanding of the environment I spent days analysing everything on a micro level, and luckily my understanding of audit and risk guided us in the right direction,’ says Shabeer.
In September 2015 the Minister of Trade and Industry proudly announced that the dti had received a clean audit for the 2014/15 financial year. He also deservedly deflected much of the praise to CFO Shabeer Khan and his highly committed team. For Shabeer, it was one of the proudest moments of his career.
Before working at the dti, Shabeer worked for the Auditor-General of South Africa for ten years where he was responsible for managing numerous portfolios of audits and taking the lead of many UN audit assignments.
The dti has received its first-ever clean audit, for the 2014/15 financial year. It’s been one of the proudest moments in your career. Tell us how you got this right?
Late nights and lots of coffee! Seriously, though, it took a dedicated and committed team. We set a target and standard that needed to be met, and we worked tirelessly to achieve it. It was not an easy road and at times it seemed impossible, but through determination my team was able to persevere and in the end it was all worth it.
A clean audit plan was developed and we enlisted the support of the executive management of the department, improved our discipline with regard to preparing and reviewing regular financial reports, implemented an internal control unit to review transactions proactively, got the basics right, produced financial statements that are of the highest quality, and ensured that all supply chain legislation was adhered to. Once these were in place, together with hard work, a clean audit was inevitable.
In your opinion, what are some of the soft skills required by a successful CFO?
I think the first if not most important soft skill of any CFO is the ability to lead effectively and teach people of different walks of life, knowing your team’s strengths and weaknesses, and working with them on their weaknesses. I also believe in both giving and earning respect to and from staff at all levels and ensuring that everyone understands the importance of their contribution.
Another important skill is having the emotional intelligence to deal with both positive and negative criticism effectively and also to learn from constructive criticism. But most importantly, I believe in striving for continuous improvement.
Tell us more about how you managed to successfully climb the ladder to the rank of CFO?
Hard work, discipline and a passion for what I do provide a solid foundation, both professionally and personally. This was recognised and it was the cause of my direction to the position of the CFO.
What exposure and experiences have added the most value to your career?
My career has allowed me to meet people in all walks of life. I have met leaders in the industry who have inspired me to try harder and also people from different walks of life who have shown me that it is possible to make a difference in the lives of people around you. I think that exposure and experiences cannot be graded on a scale, as all my experiences and exposure have added value to my career and I am grateful for each one.
In your opinion, what are the three greatest challenges that you and other CFOs are facing in these turbulent times?
Tough global conditions, low levels of growth, and fraud and corruption have placed additional emphasis on the role and importance of CFOs. CFOs need to wear different caps and be more than just ‘conventional’ CFOs. We have to be flexible, we need to recognise technological changes, be business leaders and right-hand advisors. We need to improve outputs, curb expenditure, recognise key priorities, and have the ability to stretch the available budget to achieve as much as possible.
How do you aim to overcome these challenges?
In general, to overcome these challenges, we should look to practices and procedures of other countries that have faced or are facing similar challenges and implement similar strategies to progress as a country. I believe that a positive state of mind and strong faith will help to overcome any challenge.
Research has shown that countries that have successfully industrialised their economies have been able to weather the current tough global conditions. My role as CFO of the dti has become even more important in these challenging times by ensuring that strategic allocation of the appropriated funds from Parliament continues to support new investments and businesses in the South African economy.
What will the CFO of the future look like and in your opinion, what should his or her role be?
Future CFOs should have a modern and social approach to their job. This goes beyond dealing with just numbers and rather refers to developing business relationships that can operate on many diverse levels – be they social, economic, or otherwise.
Today, the role of the CFO is arguably the most influential role in any organisation, particularly at a time when economic uncertainty continues to place unpredictable demand on capital availability and cash flows. CFOs have long been regarded by the outside world as the financial gatekeepers of the organisation, the guardians of shareholder value.
Now they are also the internal conscience, ensuring that all projects are aligned to create enduring value.
The role of the future CFO would be much like the role of the CFO today. However, because of the changing times and the advances in technology, the future CFO needs to be able to interact comfortably in the boardroom or on the beach!
In your opinion, what are the greatest uncertainties companies in South Africa are facing at the moment? What are you doing to navigate these?
Tough global conditions, falling commodity prices, a volatile currency, and the impact of the current drought across the country are but some of the many factors impacting companies in South Africa. Although these factors may have created some uncertainty among investors, the long-term potential for the South African economy is positive, with foreign direct investment (FDI) on the rise. At the recently concluded World Economic Forum in Davos, President Jacob Zuma announced the establishment of an interministerial committee on investments and of a one-stop interdepartmental clearing house at the dti to make it easier for companies to invest. The focus of the clearing house will be, among others, cutting red tape significantly in order to address concerns raised by investors.
Do you subscribe to succession planning? If yes, how do you develop talent in your department?
Yes, definitely! No organisation can develop and grow effectively without succession planning. I believe that in order to develop talent we first need know and understand each individual within the organisation, their strengths and weaknesses, their abilities and shortcomings. This is especially important when pairing individuals to work as teams, and enables individuals who excel in certain aspects of their job to assist those who may not be as strong.
I also understand the importance of empowering staff. I try not to work alone and recognise the importance and value of team work. I invest time in meeting personally with my team at all levels, making sure that they recognise that the organisation is committed to their success. I also encourage fresh and innovative thinking. I believe in developing skills, talent, experience and support, and I communicate, share and generate ideas with my team.
What difference do you believe you make in your organisation?
I believe in bringing a fresh and modern approach to sometimes outdated methods and practices. The saying ‘if it’s not broken don’t fix it’ isn’t always true. In fact, I believe that if it’s not broken, upgrade it so it works better!
RONEL VAN DIJK CA(SA)
Ronel’s ‘career’ started as a Spur waitress in 1988. Supplementing a part bursary with the income from her waitressing job, Ronel graduated with a B Rek Hons degree from the University of Stellenbosch in 1994. She completed her articles in 1997 and after a year in London returned to South Africa as an audit manager. Ronel joined Spur as group financial manager in 2003.
In 2005 she was appointed as chief financial officer and company secretary, joining the board in 2006. Ronel is responsible for the finance, company secretarial, administrative, legal and compliance function of the group. She also fulfils a supervisory function for IT, HR and Transformation. She is involved in the international growth strategy of the group and runs the Spur Foundation.
In your opinion, what are the three greatest challenges that you and other CFOs are facing in 2016?
Foremost in everyone’s mind is probably the poor performance of our currency. This will have far-reaching consequences for everyone in this country, especially combined with the drought. Already we have to import vast amounts of maize, and at the current exchange rate it will have significant knock-on effects in our economy. Bottom line: inflation and for us in particular, food inflation.
We can expect high food inflation for the man in the street, but also in our industry. Another challenge for this year is the high cost of energy. Combine this with the anticipated high food inflation, and our customers will have less and less disposable income. Discretionary spending will be squeezed.
And the third biggest challenge for me is political uncertainty and the impact thereof on our economy, general consumer confidence and our currency.
How do you aim to overcome these challenges?
As a business we have to continue doing what we do and we have to do it well and better than our competitors. We have to be cognisant of the challenges facing our consumers and we have to ensure we provide consistently good service and product, with value for money offers all year round. We have to cut our cloth accordingly in our restaurants with innovative ideas to cut energy and reduce costs.
From a Spur Corp perspective, we have to turn every cent over three times while at the same time ensuring we have the necessary resources to run our business effectively.
What value do you believe you add as a CFO to your organisation?
By definition a CFO has insight into every aspect of the business and as such is able to be a unique business partner to the CEO and COO. I make it my business to understand the challenges faced by and the opportunities available to our operational business units and I do my best to accommodate their needs while still falling in step with the treasury and finance requirements of the group and complying with good corporate governance.
I see my role very much as one of how to make things happen within the legal and regulatory frameworks we have to operate in.
What will the CFO of the future look like and in your opinion, what should his or her role be?
Today’s CFO is most definitely no longer the ‘bean-counter’ of the past. The CFO is a business partner with the CEO and the COO to ensure the overall health of the business. It is no longer adequate for the CFO to be knowledgeable in accounting and IFRS and treasury matters only: the CFO has to have a good understanding of all aspects of the business in order to provide the strategic and governance support the CEO requires.
The future CFO will become even more involved in steering the direction of a company, as part of a strategic team with the other +executive directors.
How do you plan on growing your company/markets?
We have a dedicated team for the development of the African and Middle East markets. We intend growing our African market and creating a presence in the Middle East. Australia is another region where we see opportunity for future growth, and we will soon be opening our first restaurant in Auckland, New Zealand. Locally we intend to continue investigating opportunities in vertically integrating our core products. We have recently (March 2015) purchase a majority stake in a brand called RocoMamas, and will continue to invest in opportunities such as these as and when they come along.
In your opinion, what are the greatest uncertainties companies in South Africa are facing at the moment? What are you doing to navigate these?
I believe the challenges noted above are in fact also the uncertainties companies in South Africa are facing. It will be interesting to see whether the political uncertainty and the poor performance of our currency will result in another brain drain and what impact that will have on our businesses. Our challenge will be to retain talent through motivation, remuneration and morale.
Do you subscribe to succession planning? If yes, how do you develop talent in your department?
Most definitely. I believe it’s all about empowerment, handing over responsibilities to the next tier and allowing them to make decisions and be accountable. It is key, however, to be there to mentor and coach them when needed.
As they say: once you have delegated yourself out of a job, you know you have done your job of identifying your successor!
What advice would you give young CA(SA)s who aspire on climbing the ladder to CFO?
Get to know the business you work in. Attend meetings where you may not add any value, but where you will learn. Apply that knowledge in the work you do. Do not be scared to ask questions and do not be scared to offer your opinion. And work hard!
Did you always want to be a CA(SA)? If yes, why? If no, please tell us more
No, when I applied to the University of Stellenbosch to study B Rek, I had no idea what a CA(SA) was. I was just following the advice of the career counsellor who told me it would be better to become a CA than an architect! Very good advice, indeed!
What difference do believe you make in your organisation?
I believe I provide the CEO with the support he needs to steer the business in the right direction.
I take pressure off him by overseeing Finance and Legal, IT and HR, and by running the international business with him.
I also run the Spur Foundation and I believe this is an extremely important element of our business; not just showing our customers we care, but also providing an opportunity for our employees to volunteer, which is good for morale.
As CFO, strategic decisions-making is crucial. Can you tell us more about your decision-making process?
I gather as much information as I can and I consult with all role-players, ensuring as many needs as possible are met while the particular issue is being resolved.
All actions are measured against the company’s vision and mission – will this decision contribute towards the company’s ultimate goal?
MEGAN PYDIGADU CA(SA)
Megan Pydigadu was appointed as CFO off MiX Telematics in August 2010. In August 2013 the company raised capital of $100 million ($65 million for the company, $35 million for shareholders) in the US and listed on the NYSE as a foreign private issuer using an ADR (American depositary receipt) program. The company has a dual listing with its primary listing on the JSE.
Pydigadu says she likes her team to question and not to accept everything. ‘I always want to see if there is a better way of doing things.’ For her role as CFO of MiX Telematics, Pydigadu was nominated for the CFO Awards in both 2014 and 2015.
Before joining MiX Telematics, Pydigadu was at Bateman Engineering and De Beers. She completed her articles at Deloitte and stayed on for two years as a manager. She is married and has a daughter (7) and a son (4).
In your opinion, what are the three greatest challenges that you and other CFOs are facing in 2016?
A country facing an economic downturn with a highly volatile rand, consumers under pressure, an all-time-low oil price, and a global bear market in equities mean that enhancing shareholder value is going to be increasingly difficult.
Defending and protecting capital while trying to increase shareholder returns are going to be challenging.
Access to funding is going to become increasingly difficult but given MiX is in a very healthy position with ample gearing capacity and cash on hand, this should not be a problem. Some CFOs in industries such as mining, agriculture and financial services are going to be facing some interesting times.
How do you aim to overcome these challenges?
Having a balance portfolio is key. Ensuring we derive revenue and profits in different currencies helps cushion the impact of a volatile currency and the impact of economies facing difficulties. Ensuring the markets we are selling to are diversified, that is, selling into different verticals who are less impacted by the falling oil price.
I also think every CFO should play a part in contributing to the dialogue regarding the South African economy and the socio-economic issues we currently face, which are very real. The landscape affects all, no matter how diversified and global your company. From a staffing perspective you want to have engaged staff who are focused on their jobs and not worrying about their financial situation – so that needs to be innovatively addressed.
From a capital preservation perspective, capital allocation is key. In uncertain times like these, you want to have cash on your balance sheet to protect you through the bumpy ride, so we need to be circumspect in terms of where we deploy our cash, be it returning it to shareholders in the form of dividends, share repurchases, funding our offshore business, or looking at acquisitions.
What value do you believe you as CFO add to your organisation?
Simplification and distillation of what the numbers say. Adding critical reasoning from a factual perspective. Numbers don’t lie and always tell the true story.
We are also listed on two exchanges, so our reporting environment is complex. I have brought structure and process to the organisation to ensure we are a well-oiled machine (or as best as we can be) in dealing with our regulatory requirements.
I also have a naturally curious mind, so I like to constantly question the status quo and see if there is not a better, more efficient or effective way to do things.
What will the CFO of the future look like and in your opinion, what should his or her role be?
The CFO of the future has to be a partner to the business and be intimately involved in delivering the organisation’s strategy. The CFO should also be partly entrepreneurial and innovative in solving problems. There are so many factors at play in business now that innovative problem-solving and truly understanding the playing field your organisation operates in are key. Organisations who have been around for decades are facing threats they probably would never have imagined and disintermediation of value chains and the disruption of business models is at an all-time high. Being able to adapt and understand these threats is important.
Understanding big data and deriving meaningful, timely information are also key in driving organisations of the future. The CFO has to be a critical thinker who can distil big data and understand what it means to the organisation – be it opportunities for growth, profitability or managing risk.
How do you plan on growing your company/markets?
Luckily for us, the telematics industry has a large addressable market and a long runway for growth. There are opportunities for growth globally – we have offices and a presence in the United Kingdom, Dubai, Brazil, Australia, the United States, Uganda and Australia. We plan on growing all the markets we are present it. We also invest heavily in development and have over 90 developers in Stellenbosch innovating and bringing new services to the market. We are primarily a software-as-a-service company, so one of our other big drivers it to sell added services to our customer base (we have over 500 000 subscribers worldwide).
Do you subscribe to succession planning? If yes, how do you develop talent in your department?
Succession planning is critical. I have confidence in the team that I have built at MiX over the past six years. We have searched and found the best person for each role in our group head office function, ensuring that we not only have the best people in our team but that each person is playing in the right position. For me, it is critical to employ passionate individuals who love what they do, are innovative, are critical thinkers, have a passion for the industry we are in, and embrace and understand the key drivers and how we deliver value to shareholders. The days of employing bean-counters who are in the background are over. Finance people need to be involved in the business and have a deep understanding of it.
What advice would you give young CA(SA)s who are aspiring to climb the ladder to CFO?
First, love what you do – it’s easier to succeed when doing something you enjoy. Never underestimate the importance of staying close to the strategy of the organisation and get involved in understanding the business. Don’t be bound by your job description or duties – be proactive and assist wherever you think you can add value.
Did you always want to be a CA(SA)? If yes, why? If no, please tell us more
Yes, from high school I always had a love for numbers and accounting. It was a natural progression to go to university and study accounting and then complete my articles and the board exam.
What difference do believe you make in your organisation?
I believe I act as a great sounding board for my Exco and my board, adding the right amount of risk mitigation as well as hunger to succeed and deliver shareholder value.
As CFO, strategic decision-making is crucial. Can you tell us more about your decision-making process?
From my perspective, I like to deal in facts and numbers. Having information at hand is key in making decisions. This is not always possible, so leveraging off colleagues’ insights and experiences is also key. Healthy debates are important, as you then ultimately end up making a better decision with input from other people.
Technology is rapidly transforming and enhancing the way we work. We have seen job descriptions change in accordance with technological change, with the CFO probably seeing the most dramatic change in roles and responsibilities over the past few years. By Pieter van Niekerk
In today’s business world, chief financial officers are responsible for much more than managing the accounting and financial aspects of their organisations. They act both as an expert advisor to the CEO and a trusted ally to management. With their deep understanding of everyday operations, CFOs are perfectly positioned to communicate across the organisation. CFOs are able to bring people and ideas together in new and profitable ways while at the same time mitigating risk.
The role of the CFO differs materially from one organisation to the next, and the role faces a variety of unique challenges depending on the maturity of the organisation. The future of this role is more important than ever before as the CFO of today wears many hats and is involved in various areas of business as they work to grow their organisations strategically and responsibly.
As reality changes, the perception hasn’t been as fast to catch up, and globally CFOs are seeing a separation between their titles and what their jobs entail. This leaves us with the question: ‘What does CFO stand for today?’
C IS FOR COMPELLING CHIEF/LEADER
C stands for ‘compelling chief/leader’ – being the leader or driving force behind change.
The days of managing in silos are over and it’s very much the job of the CFO to communicate and drive change. To do this, the CFO needs to be a compelling and persuasive leader. Collaboration and relationship-building across departments are imperative to an organisation’s success and it’s the only way to ensure future success.
CFOs are now increasingly involved in key decisions across all major areas of an organisation, requiring direct collaboration with all main organisational figures (CEO, COO, CIO, Marketing, HR and Sales).
This includes signing off on capital allocations for projects, such as a new marketing campaign or business development expansion. This involvement requires strong relationship-building skills and a degree of diplomacy, as the CFO is the gatekeeper that is required to scrutinise proposals for optimal expenditure and risk mitigation and therefore may have the critical final say on the approval or rejection of these projects.
These decisions invariably affect different organisational departments, and also employee morale. Communicating these decisions requires diplomacy on the part of the CFO to ensure everyone involved understands the reason for the decision and that it is in the best interest of the organisation as a whole. With their in-depth knowledge of how to balance spend and risk, CFOs can help to shape a thriving, innovative organisation and encourage a workplace culture that is connected, responsive, and feels alive.
F IS FOR FLUX
F stands for ‘flux’ – remaining steady in an environment that is constantly changing.
It’s a prerequisite for a CFO to be adaptable, open to change and always willing to take on a new responsibility, often in areas they have not been trained in. This requires an openness to the diversification of their role, to step out of their comfort zone to handle new tasks, and to be prepared to continually learn, often from scratch, this requiring significant time, discipline and dedication.
To keep up with this fast-paced world, a mind shift change has occurred and this has caused lasting change, not only in product offerings that organisations take to the market but also in how these organisations manage their internal processes. With such rapid change, CFOs must be ready to implement correctly and efficiently new compliance procedures and protocols.
The fast-paced environment adds an extra layer of responsibility to the CFO role, as they must ensure costs are reduced by considering more options, and continually review choices. This is done by obtaining and reacting to data in order to mitigate uncertainty to do with industry and the organisation, and to make informed decisions on regulatory change, competition, price and availability of raw materials, to name but a few.
To do this effectively, a CFO must stay well informed about industry updates and changes and have a few game plans in his playbook. A big component of obtaining information is combining financials with IT, social, mobile, analytics, and other technology, a move that provides them with enough data to allow them to make educated and well-rounded decisions for their organisations.
The CFO also needs to mitigate and respond to risks from outside the organisation, uncertainty during global economic and political events are sometimes impossible to foresee, and can cripple or even bring down an organisation entirely. One of the best approaches is to be as ready as possible for unexpected events to transpire and to protect organisations by diversification and not be over-reliant on specific business divisions, regions, customers or suppliers.
O IS FOR OBJECTIVE
O stands for ‘objective’ – identifying and defining the goal or opportunity that needs to be attained.
CFOs have to act quicker in light of factors such as increased competition, regulation and changes to market conditions and think differently in response to the continued budget pressure that comes with these pressures. They need to analyse all business departments and how to best structure the organisation to be efficient, consistent and cost-effective. The goal posts need to be clearly identified and promptly communicated to all relevant stakeholders, and the CFO needs to remain ahead of the game.
This includes managing and setting clean, clear goals and objectives for:
- Meaningful relationships with both internal and external stakeholders
- Opportunities for innovation and managing innovation and improvement of internal operations and successfully identifying strategies that allow their organisations to differentiate themselves from their competitors’
- Structural stream-lining especially in acquisitive groups, and saving money across the organisation by way of cost management and identifying synergistic benefits
- Managing a team and steering them in the right direction while having a clear understanding of the emotional intelligence required to keep the team successful and happy, in difficult and normal conditions
- Giving consideration of business process outsourcing for certain functions, ensuring the functions are scalable and able to service the current infrastructure
Stakeholders should not be hesitant to embrace the ever-changing role of the CFO, because this comes with many benefits. CFOs that understand and embrace these changes and challenges are in greater demand than ever before.
As information technology causes business processes to evolve continually, the need for CFOs that can adapt to these will grow. As the role of the CFO continues to evolve, we can expect to see great things as new, modern, forward-thinking leaders step into the spotlight.
AUTHOR | Pieter van Niekerk CA(SA) is Deputy Chief Financial Officer at Ascendis Health Ltd. He was also a finalist in the 2015 Top 35-under-35 competition
With the weakening rand and increasing interest rates, every CFO has to take drastic measures to ensure that investors are confident that their investment is in a safe pair of hands. By Cobus Grové
During the past 30 months, I had the privilege to be the CFO of DigiCore Holdings Limited, a company that was listed on the Johannesburg Stock Exchange until 5 October 2015 and that provides the Ctrack vehicle-tracking and stolen vehicle recovery services in 55 countries. In this time we saw an increase in the share price of 252%, which ultimately led to an acquisition of all DigiCore shares by Novatel Wireless Inc, a company listed on Nasdaq in the US. During this period we thoroughly tested the nerve of our investor base, who had little choice but to have confidence that the management team would look after their investment.
I also received a master class on how investors perceived me as a CFO and what we had to do as a management team to gain their confidence.
SIX CRITICAL ITEMS
After analysing the events of the past 30 months, I outlined six items that our management team focused on to gain the trust of existing investors to the extent of a full buy-out by a foreign investor. These are discussed below.
Communicating a clearly defined and measurable strategy
It was extremely important for investors to understand that management have a clearly defined strategy that is realistic to implement. This strategy should be the cornerstone of every investor presentation and include measurable milestones that management believe should be achieved throughout the various stages of the strategy.
As CFO, it is of critical importance to continuously highlight to shareholders how the company is meeting these milestones and, if not, which corrective measures have been implemented to ensure the entity comes back on track.
Under-promise and over-deliver
Management should be realistic in any expectation to be created among investors. Investors use any communication provided by management to build a future business valuation model, and if these expectations are not met, investor confidence in management could significantly deteriorate.
The timing of announcing a new strategic path or successfully signing up a new client is also critically important. Our experience is that the communication should only be done when you as management have reached implementation phase, or the contract has been finalised. Making the announcement too early may lead to expectations among existing and even new investors that may never realise, and may significantly harm the trust in management.
Don’t be afraid to do the right thing!
Investors have a clearly defined picture of the financial health of an entity and where it should be. If management provides a different message without sufficient justification, investors tend to become suspicious of the accuracy of the results or the effectiveness of the strategy being implemented.
In the case of DigiCore, management made the decision to restate prior year published results. This resulted in a 20% increase in the share price on the date of issuing the SENS announcement detailing the restatement. The majority of our investors indicated that this was due to the restated results being more closely aligned with their expectations.
Relationship between the CEO and CFO
The results presentation given to investors every six months by the CEO and CFO is the best opportunity for investors to analyse the financial health and strategy of an entity. For investors evaluating the effectiveness of the management team, the interaction between the CEO and the CFO is of critical importance.
I was fortunate to be supported by an experienced CEO who had already proven his ability to investors before and who publically endorsed me as a thorough and effective CFO. This, specifically coupled with a restatement, resulted in investors warming to me and the story I had to tell.
Governance is king!
One of the most important investor protections is the proper application of good principles of corporate governance. It is therefore critically important that compliance with and a minimum level of assurance is clearly communicated with investors by CFOs.
The DigiCore audit committee was a strongly constituted committee that is well known in the South African market as leaders in corporate governance. This resulted in investors knowing that their interests were always protected and took significant pressure off the executive management team to prove that good corporate governance was implemented.
CFO to truly understand the business
In the first month as CFO of DigiCore I spent all my time at the various operations, following all transactions through from origination to processing in the general ledger. This gave me full insight into company operations and helped me understand how each business operation and geographical area contributed to the financial health of the group. The information also allowed me to give confident answers to investors’ questions about the different areas of the business.
IN SUMMARY
Every CFO will have a different mixture of investors with different priorities. From the six points outlined above, it is clear we have to earn investor confidence by actually doing the things we promised we are going to do and clearly communicating our progress to investors.
AUTHOR | Cobus Grové CA(SA) is CFO at DigiCore Holdings Limited. He was also a finalist and runner-up in the 2015 Top 35-under-35 competition
The CFO Forum South Africa
The CFO Forum functions as a peer group for the community of South African CFOs. The purpose and objectives of the forum are set out in this article.
The CFO Forum was founded in 2012, with the original support of the South African Institute of Chartered Accountants (SAICA), as an independent body drawing in membership from the CFOs of a diverse cross-section of South Africa’s largest corporate entities including CFOs from the Top 40 JSE companies and the top state-owned companies in South Africa. The forum has since encouraged participation by CFOs who are not in the Top 40 JSE companies in the interest of obtaining broader industry coverage and influence.
The forum has been constituted in a manner similar to the 100 Group of Finance Directors in the UK. The founding committee actively pursued insight into the purpose, objectives and governance of the UK body and found it to be a good model to follow in establishing the forum. At the time of its establishment, the forum members performed a detailed assessment of the role the forum should play in the South African economy.
The result of this initial focus has driven the approach of the forum’s membership and activities to clearly link them to achieving the identified purpose by applying a consistent approach of active engagement with key stakeholders.
These targeted stakeholders are those with mandates that fundamentally affect the interplay between the South African economy and the South African business communities as represented by the largest role-players.
The forum has engaged with the large accounting firms across the identified focus areas listed below. This has been particularly beneficial for the forum due to the technical and administrative support that the four large accounting firms and SAICA have been able to provide, including insights and access to experts in specialist areas.
OBJECTIVE
The objective of the forum is to contribute positively to the development of South Africa’s policy and practice on financial matters that affect business, for example in the areas of government regulatory issues and initiatives, taxation, financial reporting, corporate law and governance, capital market regulation, and stakeholder communications. The activities of the forum are undertaken as a collective, aiming to represent the CFO voice in the business community.
The focus areas of the forum and sub-committees are:
- Capital markets and other regulations
- Financial and integrated reporting
- Taxation, and
- Company law
Simon Ridley, Group CFO of Standard Bank and CFO Forum chairperson for 2014 and 2015, says: ‘The CFO Forum is a valuable channel for debate, opinion formation and the exercise of strategic influence and should be used wherever possible by the CFO community.’
Christine Ramon, CFO of Anglo Gold Ashanti and recently elected chairperson of the CFO Forum for 2016 and 2017, adds that, ‘The CFO Forum is well respected and has established invaluable relationships with both government, professional and business stakeholders. We encourage CFOs to participate in the forum, which covers a broad range of sectors to bounce off ideas and share experiences to help address the challenges that we face in the current environment.’
Current market conditions could adversely impact a corporate’s financial strength and flexibility. The treasury function is well positioned to ensure challenges can be managed and even turned into opportunities, thereby creating value for the organisation. By Riaan Bartlett
Treasury is the face of the corporate to the external financial markets, underlining its high profile and strategic importance. Since the global financial crisis (GFC), more is expected of treasury, as it has become the financial nerve centre of the organisation. There is also increased expectation that treasury has to prove its value to the organisation without necessarily having the luxury of more resources – this against the backdrop of an environment that continues to change. Here are some of the lessons for the treasurer from the GFC.
WHAT DOES TREASURY DO?
Depending on the size and sophistication of the corporate, there may not be a separate treasury function and the treasury activities will be done by the finance manager or even the FD/CFO. Treasury’s activities will typically consist of the following.
Cash and liquidity management
Cash is king. Working capital management in combination with accurate and timely cash forecasting process, including the input from the business, is crucial to any organisation.
Some practical challenges are:
- What is the optimal liquidity buffer that should be maintained to ensure that cash flow cyclicality and volatility can be managed?
- Does the corporate have visibility of and access to all its cash, especially if it has worldwide operations?
Funding
This covers the different techniques and sources for raising funding to finance the business. The relationships with lenders and investors will need to be built and the company’s business and risk characteristics explained to credit analysts and credit-rating agencies.Some practical challenges are:
- How should the corporate be funded given that over-reliance on one source of funding (for example banks) can limit financial flexibility, especially in adverse market conditions?
- Will the funding approach be to fund all operations from the centre, or can subsidiaries raise their own funding under certain circumstances?
Corporate financial management
This answers the fundamental questions as to what assets the business should invest in and what capital and financial structure should be put in place. It is therefore all about ensuring that the financial activities of a company fit with the organisation’s business strategy. Some practical challenges are:
- Financial flexibility and discipline must be maintained. For example, do not over-gear the balance sheet when times are good – if circumstances change, the corporate will be under significant pressure (this has happened to mining companies over the past 12 months).
- How can the corporate position itself to maintain its growth spend or expand capacity under adverse market conditions, when cash preservation is more sensible?
Risk management
Risk management is about determining what can go wrong, how bad it can be, what can be done about it, and then taking action. Recognise that low-probability, high-impact events do happen. Some practical challenges are:
- Should the company’s foreign exchange exposure be hedged, for what tenor and with what instruments?
- What is the maximum amount of debt that should mature within a certain period (refinancing risk)?
Operations, controls and accounting
This is about the day-to-day running of a treasury function, taking into account the overall policies, the procedures, staffing, systems and controls. When implementing a treasury system, get the right experts in as early as possible and don’t be afraid to commit resources – in the long run it will be worth it. Some practical challenges are:
- Should the corporate have an in-house bank where treasury effectively acts as the ‘bank’ for the rest of the organisation?
- What is the best way to use technology to have visibility of exposures, positions, etc?
Career route
There are different ways to progress internally to a treasurer role – it can be from within the treasury department itself (moving up the ladder), coming in from the business (business unit CFO, finance manager), or another group function (such as a controller). The natural progression for a treasurer is to the CFO role.
A CFO with solid treasury experience can be very valuable to any organisation, especially when there is a need to fund the organisation while market conditions are challenging.
CONCLUSION
The treasurer’s role was previously seen more as a support function, protecting the corporate’s resources, as opposed to creating value. Given increased financial market uncertainty and volatility, the wider organisation now understands that liquidity ensures business continuity. Given that treasury is responsible for ensuring liquidity, its role has been elevated.
Treasury is now also more likely to be consulted on strategic issues such as entering new markets, and although this makes life more interesting for treasury, it also means that the skills set required has to be broader.
Whether it is as a stepping stone towards a more senior position, or as a career in itself, working in a dynamic corporate treasury environment can be a very fulfilling experience for any individual.
AUTHOR | Riaan Bartlett CA(SA) is a treasury and corporate finance consultant based in Pretoria
Cost of treasury impacts bottom line
Optimising corporate treasury is often limited by the price tag, but clever cloud technology is now lifting barriers to entry and changing the treasury landscape, writes Hennie de Klerk
There are a number of issues keeping the CFO awake at night, not least of which being market uncertainty and corporate growth and constant change in role structures. There is a need for greater strategic thinking and decision-making as well as broader responsibilities within the areas of risk and compliance, internal auditing and investor relations.
In addition to internal changes, financial markets are volatile. Upheaval seems to be another word for economy, and this is placing no small amount of pressure onto the organisation and the CFO. Establishing the path that a business needs to take through these financial obstacles is obviously not easy, and many don’t have the right systems or solutions. While the CFO’s role remains pivotal for the organisation, they are often not backed up by a full complement of treasury personnel and technology.
These pain points can be supported in one of two ways. The organisation can invest heavily in creating a treasury department with specialised employees, or they can invest in a bespoke treasury solution and develop a system that can take on the role organically. However, the cost of both has traditionally been high, allowing only the larger enterprise access and opportunity. Many treasury systems were designed for the corporate behemoth and could not be scaled down for the smaller business. This has been a significant issue, especially in South Africa, where the majority of organisations are classified under the small to medium enterprise umbrella. The company that requires treasury functionalities is unable to afford it or implement it properly, and the resultant errors and lost opportunities have cost them over the long term.
It is at this point that technology becomes the stepping stone, providing a treasury solution that’s both scalable and affordable. It is resting in the increasingly popular and viable cloud. Cloud-based systems offer dynamic and modular systems that can be adapted and adjusted to suit a variety of business needs. The organisation can access a world-class treasury system with all the right tools alongside expert support and guidance. Most of the leading offerings allow the user to select only the modules they need for each stage of their business growth, which makes for better integration across the organisational silos. It’s also far more cost-effective than the traditional methods.
A well-designed system should also integrate with existing enterprise resource management (ERP) infrastructures, alleviate implementation challenges, and allow users to gain access to financial data when needed. The benefit of a cloud solution also provides for seamless information retrieval on any device and from anywhere.
This high-level cloud technology system has the capability to create a full-service treasury department, complete with risk assessment, financial management and strategic financial planning, within the constraints of tighter budgets and smaller operations. The benefit of the centralised system extends to all relevant members of staff, not just the CFO – they can locate and download bank statements, gain instant visibility across all accounts, pay off bills and plan payments. Forex modules could also handle international currencies and forex purchases at optimum rates and with reduced bank charges. In fact, this platform can be so completely immersed in the business structure it will save money on banks, payments, interest rates and improved investment returns through organisational cash forecasting and visibility.
With the pound sinking and the Swiss franc dropping its cap, the time has never been more right to invest in a treasury department and its valuable expertise. The benefits of having professional advice and support to guide the business through cliché-ridden waters are clear; it’s just a matter of figuring out which option is best. Will it be a treasury department with its overheads and HR concerns, an expensive and exclusive system, or an outsourced solution that delivers all the skills and tools of the full service treasury, but without the high costs and maintenance?
A treasury solution can provide the organisation with the support they need without the price tag, but it is entirely dependent on their specific needs and structure. Either way, it is essential that the business have something in play because, as the old Chinese curse says, we are living in interesting times …
AUTHOR | Hennie de Klerk is CEO of TreasuryOne
