Role of the CFO as a Corporate Governance, Transparency and Social Responsibility Leader

In an uncertain business environment, the pervasiveness of interdependency among companies is very much evident. The role of the management has undergone a sea change and a Chief Financial Officer or the CFO is no exception to this either.The CFO needs to adapt and thrive regardless of the turbulence in an increasingly dynamic environment. The CFO, besides acting as a strategic partner to the CEO, plays a vital role in presenting the public face of the company to investors, regulators and policy makers. He should be a total believer of principle based governance which is defined as disciplined practices. The principle based governance can steer an organization through any landscape; unlike rule-based governance which quickly grows out of date.

In an interesting survey conducted by one of the leading consulting organizations, the role of CFO has been defined as “One face Four roles, each with its own unique responsibilities”.

Organizer : The organizer role is to protect and preserve the company’s assets and to comply with the financial reporting and control requirements.

Operator : An effective CFO demonstrates the ability to create centers of excellence – handling of specific operational tasks in Accounting, Human resources, IT, Legal, Compliance and Taxation.

Strategist : In the strategist role, the CFO helps set the future direction of the company to enhance business performance and shareholder value.

Catalyst : To be an effective catalyst, CFO should build a framework for disciplined execution, understand what it takes to get things done within the company and apply that knowledge consistently to drive execution.

Governance and transparency are pervasive in nature and are embedded in all the above four roles. For instance, whether it is tax planning or capital alignment or business reviews, prudence is important for sustainability and credibility.

Assurance and transparency of corporate reporting – A Corporate Governance Leader

Honesty, integrity, accountability and mutual respect are the key elements of good corporate governance. The changing political environment within which decisions are taken and services delivered creates a web of stakeholders whose interests and influences must be acknowledged, understood and managed. Different stakeholders look for corporate reporting based on their priorities and the role of CFO demands that these requirements are met with transparency and openness without distorting information. The CFO should adopt a ‘substance over form’ approach focusing on the principles and report both compliance and non compliance to demonstrate commitment to good practice in both governance and financial management.

Engagement with the Board

CFO should engage the Board and various sub-committees in keeping them informed of changes within legal, regulatory, industry requirements and standards. Special presentations on operations will have to be provided to all Directors from time to time. CFO should ensure that there is a comprehensive Board pack to achieve better engagement with the Board and leverage Board’s experience. A comprehensive Board Pack should comprise following sections
Company wide Financial Closing Process
Performance Highlights
Assurance, Audit, Compliance and Disclosures
Press Release and Earning Calls
Management Accounts
Early Warning Indicators
ERM and Mitigation Plans
Corporate Actions
Director Orientation

Communication with Investors

CFO acts as an essential point-person in communicating with financial markets which is of critical importance to all the stake holders. The CFO should play the lead role in keeping the investors well informed about the company. He should ensure that the company maintains an open and transparent communication with its investors in order to build and enhance investor confidence. Investors always look for transparency in communication in a CFO. The CFO needs to understand the strategy of the company and demonstrate how it can impact the future revenue streams and performance. Through pro-active investor communication, CFO can address investor needs by providing quality and timely information and enable the investing community to better understand the company’s business activities.

Social Responsibility

Corporate Social Responsibility or CSR is becoming the way of life for many Corporates across the globe. Today, CFOs are getting involved in the management, measurement and reporting of the CSR activities. This involvement has expanded the CFO’s role in ways that would have been hard to imagine a few years ago. Corporate social responsibility or corporate responsibility is a system approach to the

relationship between business and society which acknowledges responsibilities to both internal and external stakeholders.

Concluding Note
Laws, regulations, and norms are absolutely necessary for governance and serve as safeguards against arbitrariness in practice. Yet by themselves, they cannot be effective. This is where the emerging role of a CFO as a corporate governance, transparency, and social responsibility leader helps in achieving the desired effectiveness while managing  business economics throughout the value chain.