Risk loaded onto cfo's plate | ACCA Global
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CFOs in Singapore rank enterprise risk management as the functional responsibility that has grown the most in importance in the last three to five years, according to a recent survey.

This article was first published in the January 2013 Singapore edition of Accounting and Business magazine.

Hot on ERM’s heels are strategic planning, cash management, financial risk management and analysis of business unit performance, according to the findings of the survey by the Singapore CFO Institute and Singapore Management University (SMU).

According to the survey report, Building the CFO Function: Roles and Responsibilities, the traditional controllership and compliance functions of the CFO office have not changed. However, the increasing complexity and scope of the finance function means that CFOs have had to take on other roles.

The report was released at the CFO Connect Symposium in November. Andrew Lee, associate professor at SMU’s School of Accountancy, noted in his presentation at the event that the CFO’s responsibilities have clearly expanded into many other areas including capital structure management and investor relations as well as ERM.

The report says: ‘While financial risk management is a responsibility for 91% of the CFOs, enterprise risk management is a responsibility for only 67%. Yet ERM tops the CFOs’ selection as the role that has increased the most in importance in recent years.’

Critical challenges

CFOs in the sample also regard the ability to manage enterprise risk as the second most critical factor challenging the effectiveness of the CFO function today. The ability to attract and retain talent is the top critical factor.

‘More needs to be understood about the role of ERM both in organisations and in the CFO office. As enterprise risks permeate many facets of business operations and extend beyond the financial aspect, how those risks can be tracked and mitigated and who can best oversee them are key issues to be addressed going forward,’ the report suggests.

In her address at the symposium, Josephine Teo, finance and transport minister, said the uncertainty felt by businesses today had led to the emergence of ERM as a top CFO priority. ‘One implication is that instead of saying no to proposals that carry high risks, CFOs are being challenged to find solutions that better balance risks with rewards,’ she said.

She urged CFOs to play an active part in helping their businesses succeed alongside the transition of the Singapore economy. Teo said that the city-state realised that it was not sustainable to rely on workforce growth to maintain economic expansion and needed to shift to a model where productivity and innovation were the key drivers of growth.

She pointed out that Singapore’s policy of tightening manpower growth was being accompanied by generous support for productivity and innovation by businesses and industries.

‘This is where I see CFOs playing a critical role, by understanding trends and challenges in the broader environment your businesses operate in, by encouraging strategic ways of dealing with these challenges, and by working out realistic roadmaps for uplifting your businesses,’ she said.

Teo said CFOs could help steer thinking about the business model for the company and its sustainability. ‘If the company needs to invest in new capabilities, you need to help design the plan of action. You can also advise the company how best to take advantage of government support.’

In the survey, more than half of the CFOs cited the ability to attract and retain talent as a potentially critical block to their effectiveness, yet only 12% considered talent management to be a key responsibility of the role. In this regard, Teo said CFOs were in a good position to help their human resource leaders to develop talent management metrics as they have the business acumen to help tie talent management to business goals.

‘For example, they can rely on their analytical and strategic capability to advise on the strength of succession planning in the organisation,’ she noted.

The survey also found that nearly all CFOs agree that being business partner to their CEO as well as heads of business units is a key role for them. However, one CFO respondent warned of the danger of the CFO wearing too many hats in what could sometimes be conflicting roles as a gatekeeper and a friendly business partner.

During a panel discussion at the symposium, Soh Gim Teik, council member of the Singapore Institute of Directors, neatly illustrated the CFO’s multiple roles: ‘Unfortunately, because of limited resources, most CEOs expect CFOs to be like a financial Swiss Army knife.’ That knife, he added, had become much thicker today than many years ago. ‘You can even find a USB drive there!’ 

Big value for SMEs

At the symposium, the Singapore CFO Institute also released a report from ACCA, entitled The Value of the Modern CFO – CEOs’ Perspective, with insights drawn from a roundtable of CEOs, mainly from small and medium-sized enterprises (SMEs).

The key conclusions from the roundtable include:

  • CFOs are much more valued when businesses are facing economic difficulties.
  • CFOs will need to have a close and cordial relationship with the CEO and other stakeholders and not be a ‘destabiliser’. He or she has to support the same vision as the CEO.
  • The term ‘CFO’ has often been applied casually to people who do not necessarily perform the CFO role. The term, particularly in the SME context, may need to be used more appropriately in practice.

Another key conclusion was that CFOs provide immense value to their CEOs, board of directors and the organisations they serve, Chiew Chun Wee, ACCA head of policy, Asia Pacific, told the symposium.

Discussing how a CFO needs to complement the CEO, Chiew said: ‘If the CEO is someone who is very strategic then the CFO would have to play a complementary operational role. On the other hand, if the CEO is someone who is big picture, likes to seek consensus, then the CFO will do the CEO a favour by bringing an element of decisiveness to the team. In other words, if the CEO is a tortoise, then you as the CFO cannot be a snail. Otherwise nothing would ever get done.’

The Building the CFO Function survey was undertaken to better understand the function in today’s business. An online questionnaire was sent in August and September 2012 to the group CFOs of over 700 companies listed on the Singapore Exchange and elicited 117 usable responses.

Key findings of ‘Building the CFO Function’

  • While financial and management reporting as well as budgeting remain key responsibilities of nearly all CFOs, a noteworthy trend is the increasing importance of functions such as analysis of business unit performance, financial risk management and cash management.
  • Enterprise risk management is the function that has grown the most in importance in the last three to five years but represents a key role for only two-thirds of the CFOs.
  • The ability to attract and retain talent is the biggest inhibitor of the CFO’s effectiveness, yet CFOs spend barely any time on talent management, nor is it widely considered as an expressed responsibility of most CFOs.
  • More than 95% of CFOs identify themselves as business partners supporting the strategic mission of the organisation.

Suki Lor, journalist

 

Last updated: 24 Sep 2014