CFO Leaders: Chief Future Officer?

Here is an edited transcript of the discussion.

The Expanding Role Of A CFO

Menaka Doshi: Chief Financial Officer or Chief Future Officer? How has the CFO’s role changed over the decades? The successes and failures that helped define this role for you.

VS Parthasarathy: One of the key things which you look at as CFO, essentially is, that you should come with A-C-E-S. This is how I looked at it. Because I come from an automobile company, I can say it means Autonomous, Connected, Electric and Shared. If you give it a twist, you can clearly see what a CFO has become today or should become. Autonomous, because it is CEO and CFO. It is not CFO only reporting to CEO. There is an independent autonomous reason, but also (involves) working very well with the group. If you look at being connected, it is not just being connected externally, but it is being connected internally. It is being connected as a business partner. But it is also being connected with governance. So, that it brings best of governance to everyone.

Empathetic and energetic is the other one. I always say that you look at a CFO and see how empathetic he is, you know what kind of organisation it is. And, if his shoulder slumps you can kind of know what is happening to the company. So, energetic is very important. Not just made up but, by nature, changing to be energetic and this is a good example of sharing. This is one part.

As for some quick 3-4 examples. One of the first defining examples is when I came in 2013 as CFO I realised that I am no more leading an organisation of experts. I am leading an organisation where all skills will change in time. So, the first thing I went and created was a finance academy. It meant - acumen for all and excellence for the function. This kind of helps create an organisation which partners with others, but also builds skills which are based on - learn, unlearn, not re-learn but again learn - because it involves new kind of skills.

The other one was that I should build a house of passion and excellence. I called it house of excellence where it means ‘mere ghar ka seedhasa itna pata hai, mere ghar ke age mohabbat likha hai’. When everyone sees that, they see excellence being inbuilt - not from the top but from the bottom. And these are the stories which we tell every year, of what each person has done in the organisation, to create this house of excellence.

The other big theme is to create a five-star CFO. I thought if ever I want to leave a legacy then it should be a five-star CFO. One star being bean counter, three star being a business partner or business support and five star is a value creating CFO. So, a future CFO, but not in the future in the present.

And the last point - All this happens only with people.

So, I have a saying because I started as a transformation agent in M&M, the saying is ‘strilling, pulling aur feeling ke siva life me hai kya’. Therefore, all these people in whatever set up, these are the big learnings, they can make magic happen. You take the bow, but you know who the real stalwarts are. They are the real ones so keep them happy. So, I will stop here and that’s my point.

Menaka Doshi: Share one quick example each of the most successful decision you have made and a decision that didn’t go quite as well as you anticipated it to.

VS Parthasarathy: So, the two examples that I gave of success is the finance academy and house of excellence. So, I count those among career successes which, I hope, will leave a legacy. Because even after I go, the finance academy will stand in the organisation and everyone would recognize it.

The failures are not as easy to define as successes are because I have always used failures to define the next level of success. Just to give you an example I came as a head of IT when I joined the organisation, I was head of transformation and IT. I hold that position still. But when I joined nobody believed that technology can do anything for them. I couldn’t convince anybody. I said I am a transformation agent, but I can’t convince anyone. Then I realised the whole thing is all about falling and getting up. First you have storming, and it carries on for a very long time, and then you have norming and then comes performing. So, that is the big learning of the fall which I have had.

Menaka Doshi: Mr Shankar Raman, the way you have seen the CFO role evolve and the defining moments in your career?

R Shankar Raman: I am a CFO by default. I never intended to start as a CFO. I am a qualified chartered accountant alright but got more fascinated by selling financial services. My initial 15 years went in selling financial services and then in setting up an organisation to sell financial services and that’s how I got inducted into L&T. So, it is a strange coincidence that the organisation thought it fit that I would serve them better by getting me in on the other side of the table - consuming financial services and creating need for financial services. In a way, my experience has been on-the-job. It is very strange that in last 15-18 years, we have been speaking about this theme of changing role of CFOs and it is still changing. I don’t know if I am yet qualified to have the last word as to what’s the role of the CFO.

Maybe it builds agility in you because you have to keep discovering new facets of the role and then keep changing along with it. And not only should you change, you need to carry people along. Few things which actually defined this change were not necessarily life changing experiences, but added dimensions to the role. I also started out thinking that as a CFO my job is to ensure resources are made available for businesses to do well, the resources should be cost efficient, the books should be kept reconciled, the reporting should be top class and we should get an unqualified audited report at the end of the day, and then the street is happy.

This is how I approached the job. But as I got into this job, the demands of this job kept pushing me to another corner and then the third corner and then fourth corner. Not to say that the first part of what I said was irrelevant. It is relevant if not more relevant today than it was when I started. But having said that a few things which hit me, and I was not prepared when they hit me, was the whole issue of our company. (I need to contextualise it to my company because my experiences as CFO are in this company). The company began to seek international affiliation, qualification for international jobs. It began to attract investors who are international funds. The way they approached and valuated the company meant that I needed to present the company in a completely different light.

For example, Environment, Safety, Governance (ESG) became a big anchor point for evaluating the company, not only from the point of view of investor acceptance or attracting premium, but also from point of view of gaining customer confidence, as in how do they pre-qualify you. You are out in the world trying to compete with the best and so it is important that there are differentiators. The easiest differentiator would be price. We can say I am quoting the lowest and hence I should get the job. But the more difficult differentiator and sustainable differentiator would be how are you differentiated on your environmental concerns, how do you execute projects taking care of socio-economic environment around you, how do you ensure safe operating conditions...that things shouldn’t blow up. Above all, how do you broadcast bad news first. That is an entire aspect of governance. How do you ensure bad news gets escalated first so that the spirit of disclosures is well addressed. And, you give yourself that much chance to find solutions.

ESG forced us to track things which we never used to track. For example, I never thought the number of safe man hours is a parameter that a CFO needs to track. Many times we are asked how many million hours on a particular project, geography or client have you been able to log in without an accident? First it was just reporting fatalities or near-fatal accidents. Then it started evolving into reportable incidents. We realised the entire organisation hated to report incidents because it sort of indicated that safety standards are low. So, we had to encourage the organisation to start reporting reportable incidents. We had to drop the threshold, so that people don’t feel insecure reporting reportable incidents.

Also, the fact that people’s lifestyle was changing. Let me give you an example which may not sound high tech. When people climb very tall heights to execute projects, they have the habit of carrying their mobile phone with them. And that blessed instrument rings when they are at a height, and it distracts. We have had several instances of a fall from a height, even though they are harnessed. Depending on the height the impacts are varied. You need not fall on the ground but can still hurt yourself even if the harness holds you, and the reasons are the mobile phone. So, we had to change the system and get mobiles deposited before they start traveling heights. We started broadcasting through an application that your family is waiting for you at the end of the day. So, we try to have some kind of story played out which they compulsorily listen to before they go up. The reason why I am dwelling on all these things is because safety has become such an important parameter when we talk about ESG.

As we moved forward, risk became a big demand, ask of CFOs. I was under the impression that CFOs at best have to flag the red flags and say that this is risky. But, the job doesn’t end there. So, what is the mitigation which you will suggest? You turn into a solution provider. The role of flagging the risk doesn’t stop. Not only should you deal with the risks which are thrown at you, but you also have to anticipate, access and price risk. It is the most difficult part – how do you price risk? You wouldn’t be even able to quantify some of these risks. So, that’s the challenging part - how do you build mathematical models to be able to price risk. We are involved in businesses which take 3-4 years to execute. It is not the risk of now and about but the risk ahead aspect.

Then there is whole issue around how do you translate risk into an appetite. How do you define in a balance sheet what’s a risk appetite? How much risk can you afford to take? The job became from accounting for risks to evaluating risks and then to assess and price risk. That is the big change which I found challenging. It continues to be challenging today because the world is getting more complex. Risks which were not there five years ago are risks on the table today. And how you deal with it is the challenge.

As our roles grow the business also expects us to be advocacy leaders. It is not from a narrow sense of getting competitive advantage by shaping policy, but it is a question of how you enable yourselves to perform to the expectation of the client or society depending on the type of projects you are doing. It is important that, be it monetary policy or government’s sectoral policy, it became the ask of CFOs to go out and speak. They were supposed to be, within the organisation context, less self-serving than somebody who is a head of a vertical and talking about that particular policy. The advocacy part became an ask for CFOs.

Finally, of late particularly, since technology has been pushing all of us very hard, we are enabled to define productivity. Today, we are living in such a competitive world, the advantage of getting price for past glory or performance of the company is non-existent. Clients are going to be very demanding. As competition heats up, this will be the scenario. So how do you gain the extra foot room to get ahead? Productivity becomes important. We deploy so much resource - man, machine, money - and how do you make sure that bang for buck is obtained. We didn’t have textbook productivity parameters to start with and so we had to define those. And it is trial and error as there is nothing which is perfectly defined anyway. People have to be measured very differently. You can to some extent relate it to monetary demands but largely it has to be a mindset issue.

Secondly, resources, thanks to the global banking system, we have a situation where resources are available, but they are also very selective. In April 2019, we are going to have Basel norms kicking in where the whole definition of resources available to a group or single borrower is going to change. The idea of government or policy makers is, it appears, to stretch the resources which are available in system to reach to as many corners as possible. To let the concentration risk go away. Companies which are already large, sufficiently diversified, this is going to be pulling the rug from under their feet on a given day. So, the preparatory path towards resource allocation and managing the transition has recently become a big task and it is still work in progress because we have not yet solved the problem completely.

We employ, in our business a lot of machinery. These machineries have their own parameters for productivity. The tendency would be to secure yourself by investing in the machineries, which is an easy decision. But given the facility of IoT today the intelligence in machines has increased. They are no more just hardware. How to use this intelligence to make sure that you are competitive, and you are able to get value out of that investment, has also become a big challenge. Every machinery has its own unique parameter. After complaining about lack of data, CFOs today have too much data. How do you manage to intelligently steer the organisation and function in this maze of data? They say, more than what to do, you should know what not to do. The data distraction actually becomes a challenge for data utilisation.

If you look at all of these as my personal experiences, I find we are still a distance to go before we say this is the path which CFOs will take - as long as businesses continue to be dynamic and the challenges continue to abound, our roles will keep forming and reforming. The task however is that the basics cannot be forgotten. You cannot be carried away by all of these and forget what you are basically hired in for in the organisation - which is to maintain financial hygiene, to make sure that the books are kept clean, to make sure that accounting policies are sustainable, the internal control systems and procedures work for you.

Menaka Doshi: What was the most successful decision you made and the one which didn’t work at all?

R Shankar Raman: In terms of most successful decision, it was to get out of my comfort zone. I could have been selling financial services till today and I hope I would have got employed. To get on the other side of table, I think, was the most rewarding decision which I took. I did that when I was 40 and it is not the easy age to take such a call and to switch.

Menaka Doshi: And the decision which you don’t want to remember ever?

R Shankar Raman: Some of the investments which I recommended for the organisation. For example, we got into thermal power at a time when it looked very promising. Every Tom, Dick and Harry had plans to put up thermal plants. So as an EPC contractor we thought that there is huge opportunity available. We didn’t realise the nuances around making a thermal plant work efficiently. We didn’t bargain for fuel shortage, disputes around the PPA (power purchase agreement) that promoters will have. We definitely didn’t bargain for the financial collapse around thermal power plant projects. So, today we are fully geared and invested in the thermal power plant business but we don’t see the environment supporting investment today. When we look back, I didn’t anticipate this environment.

Navigating Leadership Change

K Chandrasekar: This is to Shankar Raman. You also went through a leadership change. What did you do at this point of time to make it work for you and for the organisation?

R Shankar Raman: It is very important to connect in this transition. The biggest challenge would be to not be seen as belonging to camp A or camp B. If you are able to, get a common objective between two styles of leadership. Actually, this transition (AM Naik to SN Subrahmanyan), in our case was little easier because it was from within the organisation. So, it was happening between people with whom you have worked for long years. So, adjustments to respective temperaments have (already) been made.

It is very important that the space which you need to perform the role that you have to do is provided consistently. If the transition lead to shrinkage of that space or redefinition of that space, you have a problem. Fortunately, these announcements are made not the day prior but few months ahead and that gives you an opportunity to realign yourself and work through all means.

One of the tips which I used well was get to know the person beyond the official relationships. Begin to have a drink with him. Just get to know that person. Also, announce yourself. I am sure you will find common ground. There may not be many but even if they are a couple, hold on to them and build from there. Ultimately, it is like an arranged marriage. You work to its success.

VS Parthasarathy: There is a difference. In arranged marriage, at least you have some say in arrangement. But with boss you can never have.