The reputation of accountants as risk avoiders is laughably short of the truth, but it will be no laughing matter for the business if we can’t change that perception, says Peter Williams
This article was first published in the April 2017 UK edition of Accounting and Business magazine.
The Brexit vote caused huge falls in the value of sterling. For one CFO the slump in the pound cost him his job. Clearly no names here, but the business – a private specialist engineering company based in the north-west of England – imports a significant amount from China in dollars. While some exports bring in dollar sales, the main risk as sterling dives is that costs go up. And they did, shredding the company’s 2016 profit forecast. As nervous bankers talked of recalling overdrafts, the managing director lost patience.
The company had some hedging in place after a previous foreign exchange (FX) mess-up the year before. The policy of buying forward had left the company holding way more dollars than it needed, the forecast for purchases was woefully overoptimistic, and the exchange rate moved against them as they dumped the excess. The CFO was too busy on the day-job running everything else that a resource-limited finance boss has to do to notice the change in mood-music around his FX risk and costs. He may not have owned the purchasing forecast, but pricing was his business.
He had even produced a draft FX policy after the 2015 incident, but the board were not in the mood for extra fees to the bank and add-on specialist software. Yes, he should have been more insistent, and yes, he should have upped his skills and knowledge in an area that he wasn’t familiar with but that had landed on his desk. Post-Brexit, he decided to step aside. The company is now paying more attention to its FX strategy.
In a complex, interconnected and decidedly volatile world, lots of risk management issues are going to end up with the CFO. Some of them won’t even look like risks and certainly won’t line up nicely in order of importance. However, some of them could destroy large swathes of company value overnight.
While traditional risks such as FX and commodity can still do great harm, emerging risks such as reputational and cyber are equally potent (see also page 62). These new risks are difficult to calibrate and manage. Talk off the record to quoted CFOs and it is clear they are well aware that a cyber attack is a matter of when, not if. They worry that the company, especially the board, has neither the knowledge nor experience to respond adequately. The hope is that a limited attack would be a wake-up call.
In today’s high-risk business environment CFOs have to get risk experience on their CV. That will happen most naturally when the finance function works with the business – and with others – to map and then mitigate both the thinkable and the unthinkable ways in which shareholder value could be lost. That includes being Ubered or Amazoned – that is, having a technology-based upstart completely trash your hitherto successful business model.
CFOs alone can’t be expected to keep track of all linked and portfolio risks. But no one else is better placed to champion the work partnering required with others in the business, the supply chain, advisers, customers and competitors to help fill in the global risk map. Only that way will the business appreciate the broader risk landscape, and the new strategic risks coming over the horizon.
Accountants have a reputation for being risk-averse. It’s undeserved – they take calculated risks every day. But that reputation damages them and the business. Finance professionals need to rebrand as risk-savvy – aware of the universe of risk and leading on a thought-out, up-to-date plan of response.
Peter Williams is an accountant and journalist