With $26.6 billion foreign direct investment inflows between 2000-2006, $8.8 billion foreign institutional investments in the first eight months of the year, and many Indian companies getting listed abroad, the chief financial officer's role in a company has moved from that of one who efficiently runs finance to one who effectively manages the business.
Speaking at an event organised by the Confederation of Indian Industry on The changing role of CFO, K Sridharan, CFO, Ashok Leyland, said, "It is not a changing role but a changed one.
The Indian market saw a jump of 164 percent in merger and acquisition deals from $1.7 billion in 2004 to $5.4 billion in 2005. The average value of M&A deals by Indian companies increased from $32 million in 2005 to $65 million this year.
Indians are also witnessing the process of wealth creation at a pace like never before, with over 44 percent of top Fortune 500 companies setting up base in India and around 20 Indian billionaires compared to China's 15 billionaires, said L Ramkumar, president & director, Fenner India Ltd.
Due to the emergence of all these factors, the role that a CFO plays is very crucial as he is no longer the finance officer who takes care of the accounting process alone.
Sridharan said that there are a few hidden roles a CFO needs to fulfil, which includes target cost setting and negotiations with suppliers and developing and training a finance team.
Elaborating on the evolving role of a CFO, he said that he should be efficient in resource mobilisation at a fast pace, balance growth with stability, be a value chain leader and a company ambassador. He also noted that one-fifth of all CEOs in the UK and USA served as CFOs.
He also emphasized the CFO's role in equipping the operating divisions with analysis of performance and sharing the revenue/cost information at all levels of the company. Success lies in 'sensitising' cost at different operating levels, because the finance function is no longer the sole depository of 'cost' information.
"Most of the time, the CFO is not involved in the pricing action, which is not the correct procedure. He should play a major role in revenue minimization and in unearthing pricing potential."
Ramkumar said that an efficient CFO should be able to integrate and consolidate financial information across the globe, transfer the best practices from one location to the other, disaggregate businesses and study them separately and optimize benefits within the framework of tax laws.
Till the 90's, a CFO's role was limited to that of a backseat driver, whereas now, he has become a navigator who not only adds value but also value-adds to the company's products and services, said K B Pranesh, managing director, Fivescail-KCP Ltd.