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Defining the CFO's role

Defining the CFO's role

According to Cyrus Daruwala, managing director of research firm Financial Insights, Asia Pacific, the CFO's role, most times, tends more towards the back-office.

"The CEO dreams the business plan and the CIO implements it, but the CFO plays a more structural role, as head of the company's financials," says Daruwala. "As controversial as that may sound, no CFO would blatantly agree to that, they all want to believe they are instrumental at the board."

Daruwala's job scope includes advisory and consulting services for financial institutions in the Asia Pacific region. He has more than 16 years of experience in the financial services sector.

Function versus Board

"The CFO is the front runner in anything involved with adherence compliance and fiscal policy standards," says Daruwala. "He or she serves an accounting or finance function, as opposed to a business driving function."

"They (the CFOs), have a voice on the board, but are not in a position to take strategic decisions pertaining to the business or technology," says Daruwala. "They are, however, the people closest to the finance, and they may sound out the CEO or the CIO, saying 'we may not have the budget, are you sure you want to take such a big risk?'

Daruwala adds that this structural function of the CFO applies across many industries, but some sectors, including the government, are an exception to the rule.

"Of course, there are CFOs in large organizations that are involved in quotas and go-to-market strategies and access it from a financial feasibility point of view, but in the manufacturing, shipping and logistics industry, it's more or less the same as the financial industry. The CEO makes the decision while financial officers are reduced more to accounting, ledger keeping and portfolio balancing and even hedging, to a certain extent.," says Daruwala.

"Governments, however, are run differently."

Entering the Fray

Daruwala said that the CFO's role in the government sector differs from that of the financial services industry.

"It's a different functionality when you're talking about government entities," says Daruwala. "When the Prime Minister has a chat with the various government bodies, they would speak with the CFOs in tandem with the CEOs to come up with a financial plan. It's primarily the CFO's function to articulate to the government 'this is our position, this is our fiscal reserve, these are our total risks, this is how much leverage we have to go in'. He's the driver of those decisions, and of course, the CEO or CIO implements them."

Education

What about CFOs in private educational institutions?

"It's a question of survival," says Sim Teow Hong, vice president, finance and administration, Singapore Management University (SMU). "Because your company is a not-for-profit entity that's subsidized, you're dependant on sponsors to provide enough funding to sustain the company's mission to provide students with quality education."

SMU is Singapore's third-largest university, with about 5,400 students enrolled.

According to Eugene Chan, director, finance and administration, Singapore Institute of Management, wise allocation of funds is a CFO's priority. "A CFO should first ask how an IT investment is going to change the business, and not how much it's going to cost," says Chan. "However, as funds are limited in any organization, efficient allocation of funds amongst IT projects are most mission critical to the company."

As a portion of the educational institution's revenue comes from students fees, there also comes the challenge of balancing how much the company should increase school fees in order to keep up with growth targets.

Importance of IT

Both Sim and Chan contend that IT is highly important in their industry. Chan describes technology as being 'mission critical' for SIM, while Sim chairs SMU's IT steering committee, a group tasked with the institution's overall IT masterplan. Sim stands as an exception to Daruwala's claim that most CFOs are not involved in business or technology decisions.

Sim contends his as chairman of the IT steering committee role does not interfere with that of SMU's CIO. "Our portfolios do not clash," says Sim. "The CIO is the technology expert, while I'm in charge of strategic planning."

He stresses a partnership between the technical and strategy heads is crucial: "Both aspects are equally important, and I have to work closely with everybody."

On his expectations of the CIO, Chan has this to say: "Changes come fast and on a large scale, in today's competitive and fluid market; IT needs to play a larger role in enabling the company to keep pace, and that means IT needs to serve much more than a support function."

"This means the CIO must be able to see the business the way line managers do, and understand the performance dynamics of the business. From the governance perspective, an appreciation of the pertinent sections of the Sarbanes-Oxley Act would be useful," Chan says. The Sarbanes-Oxley Act refers to a set of accounting and financial reporting standards that are seen as best practices in the industry.

Highlighting how members of the C-suite should take IT's impact on the business into account, Chan says, "All CEOs should recognize the strategic importance of IT and take the lead to understand IT issues. IT investments require significant resources and the CEO should adopt a long term perspective, not a short-term outlook."

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