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Many finance staff find they're too caught up with commonplace chores to think about the bigger picture, at least for the moment.
Justin Wood, CFO Asia
October 6, 2005
When Peter Barker was appointed Asia Pacific CFO for Cisco Systems back in January this year, he knew his first year was going to be a grind. Thanks to the rigors of complying with America's tough new Sarbanes-Oxley (Sarbox) corporate governance laws, Barker's first nine months in office have largely been a marathon effort of documenting internal controls and standardizing company processes.
Like many other CFOs, Barker acknowledges that Sarbox is "well-intentioned" and "should help raise investor confidence," but he also has gripes. For one, the effort of compliance has been expensive. For another, it has failed to show up a single material controls weakness at the $24.8 billion-a-year telecom equipment maker. Equally, he feels that Sarbox rules make it harder for large companies to act quickly and entrepreneurially because every process must be followed to the letter in every instance.
Just as important, Barker believes that the time he's spent on Sarbox compliance has taken away from the time he and his team could have spent doing other things. In particular, he's had to sacrifice time spent working on more strategic issues. "Anybody who works for a company impacted by [Sarbanes-Oxley] regulations and claims that their finance team is acting more strategically than in the past has found a cure for the common cold," he sighs.
Since taking on his current role, for example, Barker has visited just two of the company's customers. "That's unacceptable," he says.
Barker isn't alone. It's long been the holy grail of CFOs to cast off their traditional role as back-office bean-counters and financial policemen, and instead to become front-office strategists and business partners. And yet, making that transformation is proving harder than many imagined. The growing burden of ever stiffer corporate governance laws around the world has been a big inhibitor, but so too have other factors, such as the ongoing restructuring of many finance departments. Of course, at some companies, finance chiefs and their teams are contributing to strategy and business development in ever more innovative ways. However, for the moment, such cases remain in the minority.
To help shed light on the situation, CFO Asia carried out a survey in July, asking readers how they spend their time. A total of 522 CFOs, controllers, treasurers, and other finance executives completed the survey. (for a breakdown of participants, see "Accounted For") The results reveal a handful of insights into the working habits of finance staff. For example, on average they work 53 hours a week and spend 16 percent of their time on the road (see "Doing Time").
More important, the survey shows that finance teams still spend a substantial amount of time handling traditional tasks such as accounting and reporting, risk management, and tax. Conversely, finance staff spend just 4.6 percent of their time on planning and setting company strategy, only 3 percent talking to customers, and a meager 2.9 percent analyzing potential M&A targets and executing deals. When the results are split out by job title, it's clear that the CFO's role is more strategic than, say, that of a controller or head of internal audit, but not by as much as might be expected (see "Time Sheet").
So what's holding back finance executives from becoming higher-level strategists and business partners? The slew of corporate governance regulations that followed on the heels of scandals at WorldCom, Enron, Parmalat, and others has forced many companies to devote considerable time and energy to beefing up internal controls. That burden has naturally fallen on finance staff.
Sarbanes-Oxley in the United States is the most far-reaching of the new governance regimes, but the impact isn't limited to companies in the United States. Requirements around the world, including in Asia, are also being tightened. And where they aren't, many companies are voluntarily choosing to improve their corporate governance and risk management because they find that investors are demanding it.
In its survey, CFO Asia asked its readers to identify two items from a list of 27 finance tasks which were taking more time today compared to three years ago and which two were taking less time. Interestingly, the clear winner in terms of taking more time was the category "Implementing and improving controls" (see "Time Warp").
Gautam Banerjee, chairman of PricewaterhouseCoopers in Singapore, believes that during the bull run of the 1990s many companies — along with their finance teams — began to ignore governance issues as they became swept up in the euphoria of growth, deal-making, and soaring stock prices. The period since, he says, has been a welcome time of "deferred maintenance" of internal controls and risk management.
At Cisco, Barker agrees. "During the 1990s, the pendulum between the extremes of being a financial policeman on the one hand and a business partner on the other had swung to one extreme," he says. "In the years since, it has swung to the other extreme. Ultimately, I think it will settle somewhere in the middle."
This shifting role of the CFO is illustrated clearly by the changing qualities that companies are looking for when hiring a new finance chief. Guy Day, managing director in Hong Kong for Ambition, a recruitment firm specializing in finance jobs, notes that the qualification of choice when hiring CFOs is no longer an MBA, but has reverted to being a CPA.
"There's a certain irony," observes Day, "that while corporate governance pressures are raising the profile of many CFOs within their firms, those pressures are also keeping them boxed into their traditional roles. It can be very frustrating."
Time-savers in the Long Run
A second trend limiting the strategy ambitions of finance staff is the ongoing restructuring efforts of many companies. Enterprise resource planning (ERP) systems and shared service centers are hardly new, but lots of companies are still only in the early stages of rolling out these ideas, says Matthew Podrebarac, a Shanghai-based partner in consultancy Accenture. Asia, he adds, is a region characterized by "hyper-growth", so the need to streamline back-office processes in order to provide "a standardized platform for managing growth in a controlled way" is greater than ever.
Needless to say, the effort of installing an ERP system or of setting up a shared service center takes time away from more strategic work. For at least the next few years, many finance teams will have little spare time over and above the management of these sorts of projects. In the long run, though, the resulting automation will serve to free up finance staff time rather than constrain it, and so increase their ability to partner more closely with their business units.
"Different companies are at different stages on the evolution of becoming more 'value-added'," says Podrebarac. "Some are still locked down in basic transaction processing, while others have embraced concepts like shared service centers and outsourcing and are moving to the next level."
Arjun Sarker, Asia Pacific CFO for New Zealand-based Fonterra Brands, a $3 billion-a-year producer of milk, cheese, and other foods, concedes that his organization is only just starting out on the path. Sarker joined the company earlier this year and says that what he found was "largely a controllership organization." His job, he says, is to change that outlook. "I'm trying to move away from a philosophy of transaction processing towards one of business partnering."
To that end, Sarker is now documenting and re-tooling all of his department's processes, cutting out unnecessary ones and improving the others. For example, by shortening his month-end reporting cycle from three days after-close to two, Sarker has already freed up time for other tasks.
He's also spending a lot of time talking to managers across the business to find out what sort of "products" they're interested in receiving from his finance team. "At the moment, we're producing a lot of reports that people don't use, and yet we're not providing information that would be really useful, like analysis of working capital efficiency and average selling price," Sarker notes. "We're changing that now."
Equally, Sarker is reorganizing the people in his team by rewriting everyone's job description, goals, and objectives, and by re-setting the metrics used to measure their performance. In the past, notes Sarker, job descriptions were woolly, there was no clear accountability for individual processes, and the setting of objectives boiled down to nothing more than half-hearted "form-filling."
"The whole finance framework needs tightening," he says. "I'm trying to push responsibility down to more junior staff and make them more accountable." So, for example, the person in charge of demand forecasting now manages the process without needing approval and input from senior managers. He or she is also rewarded based on the accuracy of those forecasts.
"We have a long way to go until we've fully embraced the mindset of being business partners," says Sarker. "At the moment, I'm really only concentrating on building out the basic finance framework: the processes, the controls, the people. Once that's done, we'll be able to spend more time on strategic things like talking to customers, really understanding how an FMCG business works, and looking at areas like branding and M&A analysis."
A third pressure holding CFOs back in their quest to be strategists is what David Yeung, a Beijing-based partner at executive search firm Heidrick & Struggles, calls "time crunch." He notes that the scope of many CFOs' jobs has increased in recent years to include the supervision of functions such as IT, real estate, and purchasing.
"Possibly it's because companies are trying to cut costs, or possibly it's because they feel finance will bring better discipline and control," he speculates. "Either way the role of the CFO is being expanded and that gives them less time to spend working as advisors to the firm's front-line managers."
Behold the Bigger Picture
Still, the picture isn't all doom and gloom. In many cases, CFOs are managing quite successfully to embrace a more strategic position. Take Seck Wai Kwong, the CFO of Singapore Exchange. As well as running the finance department of the S$275 million-a-year ($167 million) stock and derivatives market, Seck is also in charge of the company's strategy and business development.
"Increasingly, the finance function takes care of itself," says Seck. "It has a set of processes, like the monthly close, that is designed to run like clockwork and it does. I encourage the team to continually improve their processes, but that doesn't really take much of my time."
Instead, Seck sees the role of the CFO as being much more a "chief focus officer". The former fund manager and investment banker — who has an economics degree in place of an accounting background — believes it's his job to help his company define its strategic objectives and then show them how to focus on achieving those objectives.
"There are always so many things going on in any organization that it's sometimes difficult to see what's important, to see what are the drivers of revenue, of cost, the drivers of creating value," Seck stresses. "I believe it's the job of the CFO to bring that clarity, to bring focus."
Another CFO who has risen above his traditional role is Colin Sampson, Asia Pacific CFO of SAP, the €7.5 billion-a-year ($9.3 billion) German software giant. Sampson took on the regional finance role back in 1998 and spent much of his time building SAP's first shared services center, a model now being rolled out by SAP in Europe and Latin America following the successful launch in Asia.
In January 2005 Sampson's role was expanded and he was made the company's regional chief operating officer as well as its CFO. Now, on top of managing the firm's finances and corporate governance, he looks after its sales operations, facilities management, legal team, and human resources too. From this position of power, Sampson has ensured that his finance staff are able to play a much more strategic role than in the past.
For example, when it comes to business planning, Sampson has brought together the company's business development team, its sales team, and its finance team and integrated all three into one operation. Together, these multi-disciplinary units come up with "go-to-market" strategies for SAP's various products in different countries and for different segments within those markets.
"The arrangement has brought huge benefits," says Sampson. "There's a lot of knowledge-sharing. Everyone gets a better understanding of the business and how different strategies feed through into financial performance. This is the way I want our finance team evolving, towards adding value and having more input into strategy."
Like many other CFOs, Sampson concedes that governance and regulatory issues are a bigger burden these days than in the past. Nonetheless, he notes, by building a regional shared services center, that extra burden has been shouldered relatively easily. "The greatest benefit of our shared service center isn't cost, it's standardization," he stresses. "Processes take less time to manage and you get better governance."
The Right Medicine
A third example of a CFO successfully playing a strategic role can be found at Hong Kong's Quality HealthCare Medical Services (QHMS), a HK$780 million-a-year ($100.4 million) chain of clinics and medical centers. Dennis Tam, the firm's finance director, joined QHMS in 2000 shortly after it had formed from the merger of three different companies. As Tam recalls, QHMS was in poor shape. "We were losing about HK$2million-a-month, 60 percent of our debts had gone bad, and the finance department was still operating as three different teams."
For the next three-and-a-half years, Tam concentrated on fixing his immediate problems. He streamlined his team, consolidated financial reporting onto one accounting system, cleared up the firm's accounts receivable — now only 4 percent of debts are bad — and introduced strict controls over pricing. Automation was important too. He has replaced much of the manual slog of managing accounts payable by introducing a computerized banking system to issue checks and handle wire transfers. Results have been impressive: today the firm is making a profit of around HK$4million a month.
Now that Tam is confident his finance team is operating smoothly, he has turned his attention to what he feels are more "value-adding" tasks. Indeed, Tam estimates that only 25 percent of his time is currently spent on routine finance work. A further 25 percent is spent on "managing, supervision, and administration". As for the remaining 50 percent, it's devoted to formulating strategy and growing the business. Much of Tam's time is spent "communicating," by which Tam means talking to doctors, hospitals, suppliers, medical insurance companies, corporate clients, and the like. "Networking is vital," Tam suggests. "By building relationships I'm building opportunities for the company." For example, Tam recently used his contacts to create a new maternity package for expatriate workers living in Hong Kong. The package combines the pre- and post-natal services of his chain of clinics with the delivery services of several local hospitals.
On a bigger scale, Tam is attempting to restructure Hong Kong's medical laboratory landscape. The market currently has eight large players and several hundred small family outfits providing laboratory services. By combining some of the big players and creating economies of scale, Tam reckons he can build a single company offering round-the-clock services at cheaper prices than are now available. Dubbed "super lab union," Tam is exploiting his relationships with these laboratories to try to forge a profitable new venture for QHMS.
"The most important job of a CFO is to handle the regular tasks properly," explains Tam. "But once you have your financial infrastructure in place, the CFO then needs to be creative and innovative and to be intimate with the industry so that he can see where his company can create value."
For Barker at Cisco Systems, and many others like him, that day can't come soon enough.