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Vol. 1ISSUE 4
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Following trends
time & place
diFc rulebook
2015 economic influences
imperatives for the cfo
freezone fiduciaries
Finance calling Advice from A top 100 revenue cfo, etisAlAt’s Ahmed Al AwAdi
YOU WANT AHIGH FLYING CAREERThe Chartered Global Management Accountant (CGMA) designation is powered by two of the world’s leading accounting bodies, AICPA and CIMA. Having these globally recognised letters after your name tells employers that you are a successful professional with finance knowledge and business expertise.
CIMA Middle EastT. +971 (0)4 368 9432E. [email protected] “CIMA’ to +971 (0) 50 633 0799 for call back www.cimaglobal.com/middleeast
Ewan Cameron, Chief Financial Officer, Mannai Corporation, QSC
Fast track routes available for MBA, CA, BBA and
BCOM holders. Special pricing ends
31st December 2014.
mAnAGementDominic De Sousa
Chairman
Nadeem HoodGroup CEO
Georgina o’HaraGroup COO
editoriAlGroup Director of Editorial
Paul [email protected]
+971 4 440 9105
Assistant EditorSteven Pradia
[email protected]+971 4 440 9114
Editorial AssistantAdelle louise Geronimo
[email protected]+971 4 440 9160
AdvertisinGPublishing Director
Rajashree [email protected]
+971 4 440 9131
Commercial Director - Business DivisionChris Stevenson
[email protected] +971 4 440 9138
Media Sales ExecutiveEmma Hughes
emma.hughes@ cpimediagroup.com +971 4 440 9120
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head officepo Box 13700, dubai, uAe tel: +971 (0) 4 440 9100 fax: +971 (0) 4 447 2409
while much is made of the so-called ‘changing role of the cfo’, we hear all too little about another changing aspect of the cfo’s dimensionality in a business - namely, the changing relationship between the cfo and the ceo. As the strategic remit of the cfo has grown and there is an increasing expectation to be responsible for corporate growth, acquisition and the mathematics of market ownership, the cfo will now often stand alongside the ceo as a gatekeeper of the brand and its place in the world.
this is a point made admirably by michael Armstrong – surely one of the leading financial minds in the region – in his piece titled ‘time of critical change’, here in this issue of the cfo magazine. he says that now the two key roles are working more and more in a true partnership, the sum result is the ability to develop not only the operational deliverables and internal mechanisms of the business, but to ensure a powerful outward-facing profile in terms of effectively governing interaction with shareholders and stakeholders. in other words, the two c-suite executives working together enable a full 360-degree view of the business’ responsibilities and commercial networks.
he also mentions how we often forget that the role of cfo is intrinsically an exciting one. this is especially true given the new ‘partner’ aspect between cfo and ceo, whereby the former is increasingly seen as the arbiter and driver of growth initiatives, especially in terms of m&A activity - which while still far from common in the middle east, will for many people distill the true spirit of a strong cfo. perhaps the best example of this is a newspaper headline carried by the financial times more than 20 years ago, on the occasion of the late lord white, then cfo of hanson trust plc, visiting london from new York. the headline said: ‘the city’s greatest predator comes to town’ - and that arrival was no doubt destined to evoke fear in many a shaky industry player. it’s this sense of the power, financial understanding and commercial hunger of the cfo that surely is the best definition of the role itself. those who embrace it or aspire to it would do well to keep in mind the sheer excitement and awe that such a role entails: being cfo is truly being a catalyst for change, growth and financial success.
enjoy this issue of cfo magazine!
Paul Godfrey
Group director of editorial
& senior editor
TALK TO US:
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© copyright 2014 cpi. All rights reserved. while the publishers have made every effort to ensure the accuracy of all information in this magazine, they will not be held
responsible for any errors therein.
The quest for 360-degree business vision…
YOU WANT AHIGH FLYING CAREERThe Chartered Global Management Accountant (CGMA) designation is powered by two of the world’s leading accounting bodies, AICPA and CIMA. Having these globally recognised letters after your name tells employers that you are a successful professional with finance knowledge and business expertise.
CIMA Middle EastT. +971 (0)4 368 9432E. [email protected] “CIMA’ to +971 (0) 50 633 0799 for call back www.cimaglobal.com/middleeast
Ewan Cameron, Chief Financial Officer, Mannai Corporation, QSC
Fast track routes available for MBA, CA, BBA and
BCOM holders. Special pricing ends
31st December 2014.
The CFO Middle East’s Advisory Panel presents a dynamic group of experts and leaders in various aspects of the world of finance. As industry captains arriving from world-leading organisations and specialising in financial strategies, accounting and management these key personalities will play a vital role in ensuring the delivery of relevant and accurate analyses of the latest trends and issues in the business community.
Ahmad DarwishAhmad Darwish is a Board Member and Secretary General of the UAE’s Accountants and Auditors
Association (AAA), an organisation tasked with the promotion and development of the accounting profession in the country. He is also the Senior Manager for Financial Accounting at DP World UAE and oversees the management accounting, treasury and asset management divisions of the company. With his extensive financial expertise Darwish is also the first Emirati to chair the UAE Members Advisory Committee of the ACCA.
Hanady KhalifeHanady Khalife is the Director of operations, Middle East and Africa, of the Institute of Management Accountants
(IMA). She is responsible for training providers, business partners, universities, governmental entities, amongst others. Khalife is also an expert consultant specialising in assisting clients develop and implement strategic business plans and build partnerships with key industry stakeholders.
Michael ArmstrongMichael Armstrong, FCA is the Regional Director for the Middle East, Africa
and South Asia (MEASA) of ICAEW. He is responsible for the ICAEW’s work across the MEASA region, collaborating with key stakeholders, engaging with businesses across the region, supporting ICAEW members and working with both public and private sectors on raising awareness of the relevance of chartered accountancy catalysing economic growth. Armstrong has extensive experience advising financial institutions and energy and natural resources companies in addition to having held several leadership and advisory positions in business and government.
David ThomassonDavid Thomasson is the founder and Managing Director of Phoenix Financial
Training. David is a fellow of CIMA and worked in the accountancy industry for many years before moving into training in the 1990s. PHOENIX offers courses leading to Professional Finance Qualifications in ACCA, CIMA and ICAEW in Dubai and India. Offering a range of bespoke financial courses in Financial Awareness Building and Corporate Treasury Phoenix’s student body ranges from independent students to practitioners of private companies and sovereign wealth funds.
Lindsay Degouve de NuncquesLindsay Degouve de Nuncques is the UAE Head of the Association of
Charted Certified Accountants (ACCA).
Her role entails spearheading discussions with regulators, business leaders and important stakeholders to strengthen the ACCA’s network and profile in the region. Degouve de Nuncques has spent more than eight years with ACCA in various senior roles.
Geetu AjuhaGeetu Ahuja is the Head of GCC for the Chartered Institute of Management Accountants (CIMA).
Responsible for developing the growth of operations and positioning the global brand of CIMA across the GCC region, Ajuha establishes strategic partnerships with global and regional entities. She is also responsible for overseeing the launch of various region specific CIMA nationalisation programmes in the GCC.
Paul GylesPaul Gyles is the Regional CFO and Board member for all ISG Group companies – an international construction
services company delivering fit out, construction, engineering services and a range of specialist solutions. He is responsible for the finance, HR, IT, admin and legal functions for ISG’s Middle Eastern outfit. A key aspect of the role is project funding and raising external financing by working with both Arab and international banks. Gyles is also the Chairman of the Steering Committee of the MECA CFO Alliance, the largest CFO networking group in the Middle East.
Advisory Panelthe cfo middle eAst
CONTENTS
Infographic A day to remember Going Public8 10 12digitally speaking: cfos and the role of technology.
cfo magazine is proud to present this exclusive review of the landmark icAew event of the year.
national commercial Bank issued a wildly popular ipo in 2014 which was the year’s second largest in the world.
28Creating value, meeting national ambitionscfo, Ahmed Al Awadi, has worked tirelessly to help reinvent etisalat uAe, and in the process supported the delivery of the best results in the history of the company.
“The most challenging aspect of any CFO’s role is balancing the interests of all stakeholders in a manner that ensures sustainability and creates value.”
33The Evolving board
five practical tips for how the cfo can help the board make good
use of its limited time.
20Top 10 trends in 2015the cfo assesses what the experts are saying, collates key data, predictions and facts, and rounds up the ten top trends of 2015.
CONTENTS
58
56
The New Criterion for Conduct
Be the boss Opinion The Power of Alliance
A time of critical change36 44 4940what does it take
for today’s treasurer to become tomorrow’s cfo? sally percy reports.
repairing the budgeting process.
industry captains gathered in difc for the 3rd regional mecA cfo conference.
discussions abound about the cfo’s changing role, but what’s actually happening?
5552Hidden values, real merits
The big picture
A legal roadmap
helen Brand oBe, chief executive AccA, looks at the core values embedded in AccA certification.
regional banking relationships have many advantages, says christof nelischer.
understanding the cfo’s obligations in the dubai international financial centre.
recent misdemeanors have put corporate ethics on the agenda. the right incentives and senior management taking the lead will make all the difference.
36 44
72% 3 quarTErSof finance executives believe emerging technology will benefit their organisations
believe new technologies such as cloud, mobile technology and social media will change how finance is structured
38% 84% 24% cite lack of internal skills as a key barrier
find it difficult to manage the quality of their financial data
of CFOs believe that their team is up to the task of integrating enterprise-wide data
CFO InfographicproJections
8 www.thecfome.com
Technology is empowering finance
Top challenges
leveraging Technology
1/2 of all finance executives report that they now offer mobile access to applications
Nearly
53% finance executives provided web-based tools
85%of finance executives plan to increase the number of analysts in their organisations over the next two years
77% are prepared to explore big data and advanced analytics
DigiTally speaking:CFOs and the rOle OF teChnOlOgy
28%
2/3
34%
45%
use cloud to support budgeting, forecasting and planning
have adopted a cloud-based system in some part of their organisation for core financials
hope to move key finance functions into the cloud within the next year
plan to do the same
Source: Empowering Modern Finance: The CFO as Technology Evangelist by Oracle and Accenture; www.csc.com
Improved efficiencyLesser costs Quicker access to data and real-time information
CFO InfographicproJections
9www.thecfome.com
riDing The clouD
BenefiTs of inTegraTing Technology
masTering Big DaTa
50%
25%
think that Big Data could have as huge an impact on their organisation as the creation of the World Wide Web
of CIOs suggest that their CFO doesn’t know what Big Data is
3 iN 5CFOs believe that the quality of data and speed by which it is provided is adequate at its best
Traditions of Excellenceevent
www.thecfome.com10
a day TO rEmEmbEr
December 9 saw the region’s finest accountancy and finance professionals gather together for a unique and spectacular gathering at Dubai’s Jumeirah Beach Hotel. The occasion? The fourth annual Middle East Accountancy and Finance Excellency Awards, held by the Institute of Chartered Accountants in England and Wales (ICAEW). Heralded as the accountancy profession’s only awards ceremony in the region, the event drew the attendance of a wide range of senior professionals.
Awards were presented in eleven categories and included CFO of the Year, Business Leader of the Year, Young Finance Professional of the Year and Corporate Finance Deal of the Year.
“For us it’s the premier event of the year. The first two events were in Dubai, we then brought it to Abu Dhabi, and this year we were back in Dubai. It’s been very well attended, with about 450 CEOs and CFOs appearing,” said Michael Armstrong FCA, ICAEW Regional Director for the Middle
East, Africa and South Asia (MEASA).
“We’re happy that it gives the ICAEW the appropriate profile in the Middle East. One of the important parts is bringing people together. It’s nice to give people the opportunity to meet, swap stories and celebrate those who’ve won awards.”
While being the lone awards ceremony for the accountancy and finance profession, the awards have furthermore won the respect of the industry for their rigorous judging process.
Armstrong said, “One of the distinguishing features of the ICAEW awards is the rigour we exert in distributing our awards. We ask that nominations be sent to us. We have a panel of distinguished judges from various parts of the business community. The people making the nominations take it very seriously and this information goes to the judging panel. Each judge is allocated to one of the awards. They then present these findings to the panel at large. Various other
CFO magazine is proud to present this exclusive review of the landmark ICAEW event of the year.
people are consulted. Then there is a process where the outcome is discussed and we then have the judging panel vote on the remaining nominees.”
In addition to drawing the presence of firms as esteemed as Deloitte, Emaar and Ernst & Young, renowned British explorer Sir Ranulph Fiennes gave a stirring speech and presentation of his accomplishments. Stories directly relevant to a night which extends ICAEW’s tradition of excellence one year further.
“A solid accountancy profession is fundamental to the economic success of every nation,” says Michael Armstrong. “While talented finance professionals play a vital role in the success of businesses, their hard work can sometimes be overlooked. It gives us great pleasure to celebrate the region’s best talent in the accountancy and finance profession, who demonstrate the highest professional and ethical standards.”
“One of the distin-guishing features of the ICAEW awards is the rigour we exert in distributing our awards.”
GOING PUBLIC
Going PublicprivAte BAnKinG
www.thecfome.com12
Saudi arabia’S rEmaiNiNg privaTE baNk gOES publiC
Saudi Arabia’s National Commercial Bank (NCB) issued an IPO in November 2014 which, at $6 billion, was the Kingdom, and wider Arab world’s, largest ever. Oversubscribed 23 times over, the IPO was the 2nd largest in the world in 2014, ceding only to China’s much lauded Ali Baba public offering of $25 billion. 300 million shares were made available to the Saudi public at an offer price of 45 Saudi riyals ($11.97) per share.
At present, the Saudi market
is regionally the biggest in terms of liquidity and so the largest Middle East transactions tend to be found in the Kingdom. Despite plans to make investments available to foreign entities, only Saudi businesses are allowed to list currently. Whilst regulators have opened the market to foreign investment, they haven’t opened it to foreign issuers. Historically, listings have been comprised of businesses active in the construction industry and as such, there haven’t been
“the forecast is based on being able to anticipate extenuating circumstances such as another banking crisis for a two-year period.”
National Commercial Bank (NCB) issued a wildly popular IPO in November which was last year’s second largest in the world. NCB’s Chief Financial Officer, working in league with Latham & Watkins and PricewaterhouseCoopers, was instrumental to the deal.
NCBs IPO in 2014 was the Arab world’s largest ever.
Going PublicprivAte BAnKinG
www.thecfome.com 13
The forecast is based on being able to anticipate extenuating circumstances such as another banking crisis for a two-year period.”
While NCB enlisted the help of external investors, CFO Lama Ahmed Ghazzaoui led a team of internal staff members who were involved with the IPO from start to finish.
Drake said, “The CFO was involved, the senior member of strategy was involved, the chairman was involved and we met regularly to deal with any roadblocks which occurred. The CFO and the head of strategy were the two senior management team members who were ultimately responsible – on a daily basis – for making sure the project was on track in terms of clearing any roadblocks, reviewing documentation and challenging and sourcing ideas. They were very proactive which isn’t always the case, as in certain IPOs the management are okay with allowing the advisors to guide things. This wasn’t the case with NCB – and while this may have had something to do the size of the deal I think it speaks more to the nature of the individuals present and NCB’s way of doing business. I’m sure that in an even smaller transaction the bank would have acted just as professionally.”
The legal frameworks of a deal so large were additionally essential, and international law firm Latham & Watkins were hired to represent the bank throughout the IPO.
“We were the lawyers for NCB and also to the shareholders public investor firm. We pretty much did all of the legal work.
many financial institutions issuing IPOs, due largely to most having already gone public. Of the big Saudi banks, NCB was the remaining outlier and thus the last to list.
NCB enlisted the expertise of professional service network PricewaterhouseCoopers (PwC), to advise on the strong regulatory nature of the Saudi market.
“In terms of the work that gets performed, the Saudi market is quite regulated. A lot goes into it. It’s quite a detailed review. The process is quite similar to
the international market. Our role on this is to support the company making the offering to make sure things are sound,” says Steven Drake, Head of Capital Markets and Accounting Advisory Serves – ME, PwC.
“When you forecast what will come of an IPO of this size you’re looking at two things. One is the liquidity position of the bank. What’s its cash position – which in the banking industry is not always clear cut? You also look at their capital requirements.
www.thecfome.com14 www.thecfome.com14
“The major pressure is the amount of time needed for going into the figures and due diligence reporting. You can go down to the minutiae and it becomes a matter of sorting through what’s most important based on a given timetable. There’s a lot of pressure on the CFO to provide the most valuable information,” said Tarbuck.
“There may be accounts in Arabic, and certain information may not be available. Any figures were left to Lama to control and project manage. And CFOs are generally already busy with running the business. The cost of using management time weighs on this. Juniors can’t really crack the nut, and so it’s important to have someone of Lama’s status working on things whilst going through day to day operations. She managed to do two full time jobs.”
The banks on the deal brought in a law firm to get over the line at the end. We did every legal aspect of it. The due diligence report we prepare is critical as it needed to be approved by the Saudi Capital Market Authority (CMA). We had a Turkish council involved as well since NCB has a rather large subsidiary in Istanbul,” said Andrew Tarbuck, Partner at Latham & Watkins.
Similar to NCB’s involvement with PwC, senior management at the bank played a significant role in the performing of necessary legal due diligence. High performing CFOs are incredibly necessary during IPOs as the Chief Financial Officer is widely expected to perform in a dual role which includes maintaining the day to day financial activities of the firm whilst overseeing the offering.
“The major pressure is the amount of time needed for going into the figures and due diligence reporting.”
XXXXXXXX
STaT FaCTS
“the cfo and the head of strategy were the two senior management team members who were ultimately responsible on a daily basis for making sure the project was on track in terms of clearing any roadblocks.”
National Commercial Bank, Jeddah, Saudi Arabia.
Going PublicprivAte BAnKinG
DATA & TRENDS
16
CFO STraTEgiES iNdEx gCC 2014
CFO opinion on strategy and implementation are proving to be regionally valued and globally influential. Over the past years, surveys assessing CFO outlooks and strategic behaviours have become a respected indicator for a wider confidence in global markets, and also provide insights into the priorities of organisations around the world. To date, most of the available data has been generated from either US or European cases.
For the first time, the specific interests of the Middle East have been assessed, with naseba and ShiftIN Partners joining forces to produce the first CFO Strategies Index dedicated to this region.
Leading CFOs were surveyed and returned a range of interesting comments.
Commenting on the impact of the index, Sophie Le Ray, CEO of naseba notes: “The index provides some great indicators for financial management and lessons in financial innovation from the region’s true financial thought-leaders.”
The findings of the first CFO Strategies Index GCC 2014 indicate that the majority of CFOs are confident in the
region’s economic ability to sustain their growth, with 76% expressing confidence in Gulf regional market development over the next two years. Only 7% expressed a lack of confidence in the region’s economic outlook.
In addition, 36% of the participants confirmed that identifying business opportunities their primary
Business Planning -33%
Technology Availability - 12%
Investment Challenges - 19%
Liquidity Management - 27%
Personal Capabilities - 9%
GREATEST ChALLENGES FACEd By CFOS
33%
12%
19%
27%
9%
“Over the past years, surveys assessing CFO outlooks and strategic behaviours have become a respected indicator for a wider confidence in global markets.”
Advertorial
17
sadrul khanCFO
Microsoft Saudi Arabia
The GCC’s first CFo Strategies Index outlines the challenges
and opportunities for CFos in the region. It promotes a culture of
mutual learning that will have an impact on regional businesses.
ismal al-QablawiVP Finance & Development
Absal Group
With the finance department playing a key role in strategic decision
making, it is valuable to learn how other organisations are coping with current challenges. The CFo Index
provides data for just that.
adnan anwarCFO
National Bank of Fujairah
While the outlook for the GCC looks positive for 2015, adopting
innovative and smarter ways of optimising business while
mitigating risk remains the key challenge for businesses.
CONFIdENCE IN ThE REGIONAL MARkET OvER ThE NExT 2 yEARS
very confident Confident Indifferent Unconfident very unconfident
60
50
40
30
20
10
0
27%
49%
17%
7%
0%
Current Operations - 33%
Investments -11%
New Markets - regional
(Middle East) expansion - 20%
New markets - global expansion - 15%
New products / services - 21%
MAIN SOURCES OF GROwTh
33%
20%
15%
21%
11%
prOFilES
Advertorial
1818
activity, followed by cross functional coordination and international and external funding.
Respondents also indicated clear intentions to grow their organisations, with the primary source of growth, cited by 33% of participants, as current operations. However, 21% of CFOs believed new products or services will facilitate their growth plans, compared with just 11% who prioritised investments as their strategy for growth.
Also, rather telling, is that 77% of CFOs strongly believe that their role is to define and support the implementation of good corporate governance. Just 1% disagreed with this statement. Roberto Wyszkowski, founding Partner & CFO of ShiftIN Partners concludes: “Today’s CFOs are much more than money managers – they can be key catalysts for change in their company’s strategic journey forward.”
AREA OF ALIGNMENT wITh OThER ExECUTIvES
Stakeholder relationship - 9%
Investment management - 3%
Risk management - 12%
Revenue of growth - 28%
Performance management - 35%
Cost reduction - 13%
ThE CFO IS kEy TO dEFINING ANd SUPPORTING ThE IMPLEMENTATION OF GOOd CORPORATE PRACTICE
Strongly agree - 77%
Agree - 22%
disagree - 1%
77%
22%
1%
9%3%
12%
28%
35%
13%
“today’s cfos are much more than money managers – they can be key catalysts for change in their company’s strategic journey forward.”
MAIN RESPONSIBILITy OF A CFO TOdAy
Cross functional coordination- 24%
International and external funding - 17%
Identify business opportunities - 36%
Financial review - 15%
Management reporting - 8%
24%
17%
36%
15%
8%
Advertorial
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We stay committed to our vision to provide the best and most professional Accounting,
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Offices in UAE (Dubai, DAFZ, Abu Dhabi, JAFZ, RAK FZ, RAKIA, Sharjah), Oman, Qatar, India
1994 - 2014
2015dAtA & trends
www.thecfome.com20
TOp 10 TrENdS iN 2015
The ‘9am-5pm’ work days are definitely a thing of the past. With video conferencing, collaborative mobile software and cloud computing, employees have the flexibility to work from anywhere and at any time. Co-workers are able to seamlessly work together from different geographical locations, and this is just the beginning.
2015 will unveil further innovations that will completely change the way we work. A major development in the pipeline is
Every year brings in new opportunities for growth, but not without its fair share of peaks and troughs. While we can’t fully predict the future, we can definitely identify trends that will impact the business environment and endeavour to prepare ourselves to maximise their benefits. In the following feature, The CFO assesses what the experts are saying, collates key data, predictions and facts, and gives you a comprehensive listing of ten top trends that stand to leave a lasting impression in 2015…
“Job-seekers will increas-ingly seek to go ‘beyond the printed page’, using alterna-tive means to impress potential employers.”
‘Facebook at Work’ – the social giant’s new initiative geared at improving team collaboration and simplifying workflow (according to a report in Financial Times which cited anonymous sources).
Another emerging trend is that of the digital resume. Job-seekers will increasingly seek to go ‘beyond the printed page’, using alternative means to impress potential employers. Digital resumes will give instant access to real-time information, carry links to the candidate’s past or current work portfolios, allow for more visual representation (video, pictures) and weave a refreshing human element into traditional resumes.
what’s hot and what’s not?
Evolution of thE traditional workplacE1
2015 dAtA & trends
www.thecfome.com 21
“The real opportunity for IoT in 2015 will be in Smart Patient Rooms, Smart Cities, Aging in Place tech-nologies…”
There will be 26 billion devices on the Internet of Things (IoT) by the year 2020 according to the research firm Gartner. In an online article on Forbes.com, Prakash Nanduri, Cofounder and CEO, Paxata, explains, “The real opportunity for IoT in 2015 will be in Smart Patient Rooms, Smart Cities, Aging in Place technologies, innovations around supervisory control and data acquisition (SCADA), smart meter reading, and even the reinvention of traditional
intErnEt of things2
Source: www.idc.com
1. MEA ICT spending to cross $270 billion in 2015
2. IaaS and SaaS will begin to disrupt traditional software and services base
3. The need for agility will drive demand for converged systems
4. Open Data will begin to drive innovation in MEA Smart Cities
5. Telecommunication firms in MEA will transform to become IT and digital services players
6. Security investments will remain reactive due to 3rd platform uptake
7. The 3rd platform will fuel sector-wide technology innovation
8. Big Data will remain an opportunistic buy in MEA for 2015
9. Mobile will continue to drive innovation in 2015
10. Line of business will impact IT spending; the rise of the executive buyer
IdC’S TOP 10 ICT PREdICTIONS FOR MEA IN 2015
workflows. For instance, in the construction industry, workers can now get supplies brought to them instead needlessly going up and down ladders and risking injury. Imagine the insurance company who would offer discounts on premiums to the construction firm using an IoT ladder over an older model. Not so different than a utility offering discounts for purchasing “smart” appliances. An insurance company could correlate the data coming from the ladder against claim data and against risk data. Suddenly, the IoT data is ONLY contextual, and therefore valuable, if it can be viewed against other meaningful data coming from data warehouses.”
With such advanced technology, businesses will have the opportunity to simplify workflow processes, reduce costs and increase safety in the workplace.
Fitness bands, smartwatches, Google Glass and the likes will become increasingly popular in 2015. One sector that stands to be completely revolutionised by this emerging trend is the healthcare sector. Wearables will soon be used for health monitoring and reporting. For instance, doctors will be able to wear bands or Google Glass to get constant, hands-free access to patient records. This will also fuel the debate on privacy and the extent to which these devices are intrusive.
wEarablE tEchnology3
2014 has arguably been a landmark year for women across the globe. 2015 will see
womEn in thE workplacE4
www.thecfome.com22
further development in terms of women in the workplace. In fact, 65 per cent of GCC organisations reported that gender equality is on their strategic agenda. Another recent report, The Q3 Spark Business Barometer, also highlighted that “millennial and women business owners are seeing improved sales, and tend to be more optimistic about financial conditions and business prospects, as well as the economy, compared to other generations and male counterparts. Entrepreneurs should seek out diverse points of view from their millennial and female counterparts; a new perspective may help tackle a long-standing challenge or identify a new opportunity.”
Manufacturing will continue to strengthen and maintain its position as one of the most prolific sectors in the world. India’s recent ‘Made in India’ campaign has shifted the manufacturing spotlight from China to India and research suggests that India has the potential to capture approximately. $300 billion in manufacturing exports by 2015. In addition, the Asian giant stands to generate 25-30 million jobs by 2015 following such manufacturing transformation.
Comparing India’s manufacturing sector with China, the numbers paint an interesting picture.
india as thE nEw manufacturing powErhousE
5
world currEnciEs and fX markEts6
A detailed report by FOREX.com explains: “The greenback has outperformed all of the major currencies and all of the emerging market currencies bar the Indian rupee (INR) and the Hong Kong dollar (HKD). Due to the divergent monetary policy paths between the Fed and other major central banks, the dollar is in a good position to continue to outperform in 2015, at least for the first half of the year. While we expect the dollar to reign supreme in Q1 2015, its performance for the second half of the year could be tricky depending on the Fed’s tolerance of dollar strength. FX markets could face another year trying to parse Fed statements to see if Fed members are happy with the level of the buck.”
For over two decades, PPPs have been successful collaborative mechanisms, implemented across several countries over the world. PPPs drive efficiency, transparency, speed and economic impact in the delivery of services and vital infrastructure. In fact, development of infrastructure is one of the key areas that PPPs can particularly help with – the success of this model in countries such as Australia and Canada is a good example.
World Economic Forum’s Global Competitiveness Report 2014-2015 further explains this: “Public-private collaborations
public-privatE partnErships (ppps) 7
have been common in areas such as infrastructure development because the potential gains that these specific governance structures could bring are significant for both the public and private sectors in terms of both the speed and scope of implementing projects and the particular strengths that each party can bring to bear. The private sector can contribute its management expertise and resources, and the public sector can contribute its understanding of public needs and resources. Besides the traditional public-private partnerships found in infrastructure, public-private collaborations are becoming more common in initiatives related to other drivers of competitiveness, such as in innovation and education.”
Speaking to the World Economic Forum, Dr. Shirley Ann Jackson, President, Rensselaer Polytechnic Institute, and a Global Agenda Council alumnus, rightly remarks, “Data is the new natural resource of the 21st century.” By 2015, Gartner predicts that 4.4 million jobs will be created around big data.
thE powEr of data 8
of Fortune 500 organisations will be unable to exploit big data for competitive advantage through
2015.
85%
Employment in manufac-turing, 2013
India
China
China
9.4%
14.5%
Industrial Revolution
Average manufacturing labour cost per
hour, 2014
Average salary globally in legal sector, US$ 510
per hour.
India$0.92
$3.52Data: World Bank, Euromonitor, The conference board, economist intelligence unit, Bureau of labor statistics and boston consulting group, CIA world factbook
Source: Bloomberg
2015dAtA & trends
www.thecfome.com 23
EasE of doing businEss9For entrepreneurs, start-ups and small business owners, 2015 brings further ease to operating their own businesses. “If you wanted to start a software company in 1990, you needed $20 million. In 1997, you needed $3 million. Today, you could do it for $25,000. By the end of the decade, more than 100 Fortune 500 companies will no longer be on the list, replaced by companies that don’t exist yet,” says Vivek Wadhwa, Research fellow at Stanford Law School. In fact, this is very much aligned Dubai’s Strategic Vision 2021, which highlights Dubai’s ambition to achieve the top ranking for ease of doing business. The report defines ease of doing business as “an indicator that evaluates government procedures around business activity. It is based on ten sub-indicators: starting a business, obtaining construction permits, registering property, obtaining credit facilities, protection of investors, payment of taxes, cross-border trading, enforcing contracts, resolving insolvency, and obtaining electricity.”
Driven by technology, access to education is no longer confined by physical and cultural boundaries. You could be a seven-year old child in Peru enrolled in a ‘Security & Networking’ course on an e-learning platform or a 56-year old housewife in Chicago getting a degree in ‘Advanced Design’ through a customised distance-learning programme. The possibilities are endless.
This changing landscape is also marked by the emergence of ‘Massive open online courses (MOOCs)’ across the world. MOOCs are educational programmes conducted on the Web giving open access to anyone that is interested. These courses are usually characterised by their
Education – a nEw world of opportunity10
highly user-interactive platforms, flexible structures, low barriers to student entry and multi-lingual study options. A large proportion of adult and working learners are attracted by this market.
2015 will see the continuing rise of MOOCs with employees increasingly reaching out to e-learning to gain professional qualifications and get vocational and skills training.
Good luck in 2015!
Jan. 12
1,000
1,250
Num
ber o
f Cou
rses
GROwTh OF MOOCs
Does not include courses announced but without a start date
750
500
250
0Jan. 13
Total Courses started
Jan. 14Jul. 12 Jul. 13
Source: https://www.edsurge.com/n/2013-12-22-moo 1
QUICk FACTS ABOUT MOOCs
TOP RISkS IN 2015
• 40% of MOOC users come from developing countries.
• The length of a typical course is 8-10 weeks.
• The geopolitical situation is something that will largely impact the world’s economy.
• Reducing oil prices.
Did you know?
The Global Leadership Forecast 2014-2015 by DDI reported that in companies that came within the top 20% financial performance bracket, 37% of all leaders were women and 12% of all leaders were high-potential women.
2015 dAtA & trends
www.thecfome.com24
According to the International Energy Agency,
America will become the world’s largest
producer of oil with its shale-gas
revolution
US-baSed trade magazine Crn foreCaStS that by 2015, Smaller bUSineSSeS will inveSt nearly $100 billion in CloUd CompUting
47% of Smartphone ownerS woUld like to be able to pay eleCtroniCally withoUt an aUtomatiC tranSfer of perSonal information
global mobile SUbSCriptionS will exCeed the world popUlation with people holding mUltiple aCCoUntS
line of bUSineSS will impaCt it Spending; the riSe of the exeCUtive bUyer
idC haS prediCted that 1.3 billion people will work remotely USing mobile teChnology in 2015, eqUivalent to 37.2% of the entire global workforCe.
The 3rd platform
will fuel sector-wide technology innovation
2015dAtA & trends
www.thecfome.com 25
Open Data will begin to drive
innovation in MEA Smart Cities
MEA ICTspending to cross USD 270 billion in
2015
the nUmber of people aCtive on faCebook will SUrpaSS China’S total popUlation
mobile will ContinUe to drive innovation in 2015
iaaS and SaaS will begin to diSrUpt traditional Software and ServiCeS baSe
the need for agility will drive demand for Converged SyStemS
gartner prediCtS that the overall it inveStment dUring the year 2015 iS antiCipated to grow by 3.7% globally. the it ServiCeS indUStry iS likely to witneSS a remarkable growth of nearly foUr %. in abSolUte termS, it Can hit the trillion dollar mark
ConSUmerS will watCh Streamed video more often than broadCaSt tv
2015 will mark the halfway journey to Abu Dhabi’s 2030 Economic vision.
Telecommunication firms in MEA will
transform to become IT and digital services
players
Big Data will remain an opportunistic buy
in MEA for 2015
india haS the potential to CaptUre approx. $300 billion in manUfaCtUring exportS by 2015
2015 2015 dAtA & trends
CONNECTIVITY
28
Etisalat
www.thecfome.com
How has your career progressed with Etisalat since joining the company? I joined Etisalat right after I graduated in 1999 and served in the Dubai office’s Finance department. In 2004, I was entrusted with the responsibility to help set up Mobily’s (Saudi Arabia) accounts section in the finance department. I moved back to the UAE in 2006 to take on a new role in the financing section of the treasury department. After a year, I transferred to the mergers & acquisitions department where I served as a Project Manager for various acquisition projects. Finally, in 2012, I assumed the position of the CFO of Etisalat UAE.
What is the scope of your current role as CFO?My scope of responsibilities covers all aspects of financial reporting, accounting operations, treasury, budgeting & cost control, revenue assurance & fraud management, and decision support.
Can you elaborate more on the decision support function?As you know, the finance function has evolved over the years from a traditional book keeping and reporting function, which is retrospective in
nature, to a forward looking business enabling function. Furthermore, whereas Finance is accountable for safeguarding a company’s resources and assets, it is now expected to help manage the efficient allocation of corporate resources. Accordingly, the decision support function at Etisalat UAE was created to assess and validate commercial concepts and investments proposals in order to ensure alignment between decision making and value creation and preservation.
How do you apply your M&A experience to your current role as CFO?I was very fortunate to serve in the Mergers & Acquisitions department for several years prior to assuming the CFO post in Etisalat UAE. Having the opportunity to assess and value various acquisition opportunities across the world, as part of my role in the M&A department, has exposed me to various operating models in varying environments. This has equipped me with a deep understanding of the industry’s drivers, best practices, benchmarks, and above all the importance of value creation and preservation. I draw upon these experiences in making my decisions.
Since Saleh Al Abdooli took the helm at Etisalat UAE, he has worked tirelessly to put together a leadership team that is comprised of the best professionals in the industry. This effort has not gone unnoticed as the team worked harmoniously to reinvent Etisalat UAE, and in the process deliver the best results in the history of the company. CFO Magazine had the privilege to sit with a member of the team, Etisalat UAE’s CFO, Ahmed Al Awadi.
CrEaTiNg valuE, mEETiNg NaTiONal ambiTiONS
connectivitY
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Etisalat
www.thecfome.com
What would you say is the most challenging aspect of your role?In my view, the most challenging aspect of any CFO’s role is balancing the interests of all stakeholders in a manner that ensures sustainability and creates value, all within the framework of good corporate governance.
You talk a lot about value. How do you define value?Value within the context of my role as the CFO of Etisalat UAE pertains to ensuring that all corporate resources are allocated and utilised efficiently. Furthermore, it pertains to ensuring that all proposals related to investments, commercial products and promotions are value accretive for the company.
Some might say that the UAE telecom market is not a very competitive market, that both Etisalat and du enjoy a cozy duopoly. Does financial management in such an environment lack basic challenges? I cannot disagree more with this premise. The UAE telecom market is very competitive. This is evidenced by the intense competitive activity undertaken by the operators. You cannot move in any direction, anywhere in the
“The most challenging aspect of any CFO’s role is balancing the interests of all stake-holders in a manner that ensures sus-tainability and creates value.”
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Etisalat UAE’s CFO, Ahmed Al Awadi.
connectivitY
country, for more than two minutes and not be targeted by various media outlets with some offer for a mobile or fixed service. Pricing levels have been decreasing, our marketing budgets are quite substantial, and acquisition costs are on the rise. This would not be the case if stiff competition did not exist. Take a look at what has been achieved in the UAE – fiber penetration of the home is the highest in the world, mobile penetration is over 170%, smart phone penetration is over 70% – which is also the highest in the world – and 4G coverage is now available in most of the country. This is a highly competitive market.
Some complain that the price of telecom services in the UAE are relatively high. Doesn’t this contradict any notion of competition?No, it does not. We strive to deliver value to our customers. Good, reliable service at a fair price. Price is only one element of the equation. Reliability and rolling out advanced technologies are other critical components of our value proposition, which is why Etisalat has been investing heavily in upgrading networks and improving customer service. This value orientation enables us to serve our customers well, provide attractive and stable employment, and deliver strong returns to our shareholders. This is a balance that we are very proud of.
How would you characterise the regulatory framework in the UAE? How important is the regulator’s support?The regulator’s support is critical in creating the conditions for a thriving ICT sector. There are generally two regulatory models or frameworks that I have observed firsthand during my service in the M&A department. The first is the aggressive model, in which the regulator seeks to maximise remittances from the sector and to drive down prices via liberal licensing of new entrants and the imposition of various hefty fees. This model, while it may lead to some short lived benefits for consumers – in the form of low prices as a result of intense price competition – is not sustainable as it undermines operators’ capacity for reinvestment, which eventually leads to poor service and customer satisfaction. This model is not suitable for the UAE given the government’s aspirations for the country, as outlined in the ICT Agenda, to be one of the top five countries globally in the ICT field. The second model is the balanced model, which is employed in the UAE. This model balances between the needs of all stakeholders. It drives healthy competition, where price is only part of the overall value proposition instead of being the sole value proposition, while underscoring operators needs to generate sufficient returns in order to facilitate reinvestment
$681metisalat’s investment in fibre optic and 4G technologyin 2014
STaT FaCTS“pricing levels have been decreasing, our marketing budgets are quite substantial, and acquisition costs are on the rise. this is a highly competitive market.”
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in a fast moving industry where the life cycle of new technologies is constantly being compressed due to the aggressive ongoing rate of innovation.
What is your outlook for the industry in general, the region, and UAE in particular?In general, the telecom industry is not what it was 8 or 10 years ago. The growth model in the region has changed. MENA penetration has gone from 40% in 2006 to 106% at the end of 2013. A larger portion of Free Cash Flow is increasingly going
towards dividend payouts, which is a reflection of the slowing pace of M&A activity in the region. Globally, telecom revenue growth and ROIC has been declining, and operators are trying to spur growth via consolidations, and expansions into new service areas by leveraging customer data and relationships.
The outlook for the UAE economy in general is very positive. Both real GDP and the population are forecasted to grow at CAGRs of 4.1% and 1.9% respectively. But as I mentioned earlier, the market is highly penetrated and in order
to sustain growth and deliver on the government’s ambitious ICT agenda, the following two facts need to be taken into consideration: firstly, this is a converging industry. Secondly, only telecom operators have the clout and the scale in terms of resources and customer relationships to deliver on the progressive vision the government has for the sector. Accordingly, the taxation regime needs to move in tandem with this vision. It has to evolve so it fosters reinvestment in the industry and does not cause any competitive distortions.
What role has Etisalat played in nurturing Emirati talent and preparing a dynamic local workforce in the country?Since its inception, Etisalat, has strongly believed in the importance of recruiting and developing national talent. In return for their hard work and commitment, Etisalat gives young nationals the opportunity to learn and grow by exposing them to world class talent, practices and concepts. Furthermore, Etisalat works hard to retain national talent by providing competitive compensation, training, and advancement opportunities. UAE nationals are fully capable of taking on any challenge and Etisalat is a prime example of that. I am confident of many more UAE nationals making inroads in other institutions and industries in the UAE.
“The outlook for the UAE economy in general is very positive. Both real GDP and the popu-lation are forecasted to grow at CA-GRs of 4.1% and 1.9% respectively.”
EtisalatconnectivitY
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FEATURES
CIMAfeAture
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ThE EvOlviNg bOard
This briefing is based on the discussion at a recent CIMA event, ‘The role of the CFO on the modern board’. It considers the role
of the CFO in the context of the evolving board agenda and offers five practical tips for how the CFO can help the board to
ensure that it makes good use of its limited time.
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Evolving RolesfeAture
FIvE TIPS FOR MAkING GOOd USE OF BOARd TIME
plan carefully, even aggressively, in securing the time required to focus on the most important issues, for example, by giving priority and quality time to strategic discussions and fitting the routine issues around them rather than the other way round.
manage expectations, for example, it may not be possible or wise to complete a major strategic discussion in one day. It may need to be supported by site visits, specialised briefings and/or in depth work on historic and future performance before all these strands can be brought together to make strategic decisions.
use opportunities for free-flowing conversation, for example, at dinners the night before the Board meeting. These can also be valuable for leveraging the diverse talents of the non-executive directors by getting them to talk about their skills and experience.
think carefully about what the board needs to hear and don’t assume that the 40-slide presentation is always the best approach. Instead, make strategic use of pre-reads and concentrate on facilitating a meaningful discussion.
use technology effectively as an enabler to bring people together and keep communications flowing. Telephone and video conferences make it possible to organise meetings without expecting everybody to be in the same place.
The New Board AgendaThe role of the modern board is very challenging. Not only have boards come under greater scrutiny following the 2008/9 global financial crisis but they are faced with greater complexity and uncertainty. One such example is the disruptive impacts of the digital world and new technologies, which seem to be creating just as much turbulence as economic conditions. No wonder this has been described as ‘orchestrated chaos’. Investors and other stakeholders are expecting more from organisations and the boards that oversee them. They want greater transparency about the overall performance of the business and its operations. And with social media, there is no hiding place. Those who govern companies need to work hard to achieve and retain trust – ‘transparency with conviction’.
It is no longer good enough for boards to ‘tick the boxes’ to demonstrate compliance with corporate governance codes. They need to provide effective oversight of the company’s strategy, performance and risk to ensure the long-term sustainable success of the organisation. To do this, they need a thorough understanding of the business so that they can engage effectively with the management and offer constructive challenges. The board conversation needs to focus on the resilience of the business – understanding the trade-offs between risk and reward.
Alongside this, boards need to set the right ‘tone from the top’
and demonstrate the right ethical behaviours. They need to be ferocious guardians of reputation.
The Role of the CFO‘Guidance on board effectiveness’ issued by the UK Financial Reporting Council says that ‘the CFO has a particular responsibility to deliver high-quality information to the board on the financial position of the company’. We believe that there’s much more to it than that.
The CFO is the guardian of the integrity and rigour of all management information, both financial and non-financial, from inside and outside the organisation, across different time frames. The CFO needs to ensure the provision of quality metrics.
Furthermore, the CFO connects the dots by providing an understanding of how the different parts of the organisation come together to create value and where the tradeoffs are. No amount of information and analysis is useful unless it can be communicated with impact. Most boards are usually drowning in information, so the CFO needs to influence better decisions by communicating insight that meets the board’s needs and is simple and transparent. These responsibilities form the basis of the CGMA® Global Management Accounting Principles, which were launched in October 2014, following a period of extensive consultation.
The discussion group agreed with this view and saw the role of the CFO in terms of two key perspectives – tasks
in which their organisation operates. Dexterity and the ability to be agile are critical, so a key criterion for CFO performance is the ability to act and react in a speedy manner.
Building capabilityThe CFO must lead the finance community within the organisation as a whole and build capability for the future. This forms the basis of the four core relationships that the CFO must foster and manage.
Each member of the discussion group emphasised the importance for the CFO to demonstrate strong business acumen, in particular the need to understand and integrate what is happening in the business as a whole, often having to rely on imperfect and fast-changing information. They agreed that this was more important than ever, given that they were encountering unprecedented levels of volatility in their businesses.
Also emphasised was the need to embed the right values and behaviours. While problems will happen and things will go wrong, the key is to be transparent and act immediately and decisively. The discussion group emphasised the need to set the right tone from the top so that everybody in the organisation is clear about what is and what is not acceptable.
The four key relationships of the CFOHead of HR for financeLeadership, tone from the top and people selection is fundamental. As Jean-Marc
“CFOs need to spend significant amounts of time reflecting on external developments and under-standing the wider context in which their organisation operates.”
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and relationships. These are explained on the next page.
The four key tasks of the CFOFinancial securityFirst and foremost is for the CFO to ensure that the organisation is financially secure. However conservatively financed the business, market turmoil can be such that there may be a real prospect that the bills can’t be paid. Financial stability in the short-term can therefore not be ignored. But it’s also important to work through the longer-term financing issues, such as the management of the most significant liabilities such as pension contributions. To be truly on top of the numbers, the CFO needs to understand what is driving the business.
Compliance and controlBuilding on this, the second key responsibility goes beyond financial control to the wider business controls and to ensure that these remain fit for purpose as the organisation grows, evolves and becomes more complex.
Strategic directionThe CFO needs to help the business navigate the shifts in the way the business is changing and advise on strategic direction. This comes down to understanding the business model within the context of the external environment. What are the moving parts in the business and what are the implications for the organisation? CFOs need to spend significant amounts of time reflecting on external developments and understanding the wider context
Huët emphasised, ‘People are my primary responsibility’. This underpins all four of the key tasks as there is no chance, for example, that controls and compliance checks are going to hold the business together. They must be reinforced by the right behaviours, training, coaching, development and the tone from the top. The CFO must strive to provide objectivity and integrity for the entirety of the organisation.
The CEO/CFO relationshipThe very nature of the role means that CEOs will usually be self-confident, persuasive individuals and the CFO plays an important role in providing checks and balances. A key competency is to choose the right ‘battles’ on where to have most impact in a challenging but constructive way.
Management team memberThe CFO works with peers, helping and supporting the CEO to drive the agenda. In some cases, this is a filtering role of determining which issues and challenges can be sorted within the peer group and which need to be escalated to the CEO for resolution.
Executive director of the companyKey aspects of this role involve informing the agendas for the audit committee and providing the second view on how the organisation is doing, in addition to the CEO. The CFO should also recognise the importance of the role of the chairman of the organisation to good governance and therefore work on building a constructive relationship.
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bE ThE bOSS
bonus that once they’ve had enough of it, they can look forward to supplementing their retirement with a string of lucrative non-executive positions.
All of this could be yours provided you are willing to accept the long hours, pressure, stress, reputational risk and team management headaches that come with being CFO. And it’s a move that many treasurers have successfully made over the years. A recent high-profile example in the UK is Adrian Marsh, previously treasury director of supermarket giant Tesco, who was appointed FD of packaging company DS Smith in June. (For an interview with Marsh, see The Treasurer.
Meanwhile, Stora Enso’s
What does it take for today’s treasurer to become tomorrow’s CFO? Sally Percy reports.
“Treasurers are reaping the ben-efits of their greater vis-ibility within their organi-sations.”
group treasurer, Jyrki Tammivuori, has been acting CFO of the Finnish paper producer since July.
The opportunity It is widely accepted that treasury has enjoyed greater prominence in the wake of the financial crisis, due to organisations’ increased focus on cash, liquidity management and risk. So has this translated into more treasurers being appointed CFO? Karen Young, a director with recruiter Hays, believes that there may have been a “very marginal” uplift in the number of treasurers making it to CFO since the crisis, but she expects this to increase further over the next 12-36 months. Treasurers are reaping the
The CFO’s job might not be one that every treasurer hankers after, but it’s hard to deny the fact that a seat at the board table does have a certain allure. For starters, it comes with the thrill of helping to decide the organisation’s strategy and involvement in incredibly important decisions.
Then there is the prestige of heading a large finance function, the chance to liaise with investors and analysts, potentially eye-watering financial rewards and last, but maybe not least, being ensconced in a very comfortable corner office in the executive suite. And while making CFO would undoubtedly be many treasurers’ career highlight, it even comes with the added
Becoming CFO feAture
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benefits of their greater visibility within their organisations, she says. “It’s enabling them to work more closely with the CFO and because of their increased visibility, they are able to build a personal brand.” Meanwhile, employers seem to increasingly prize CFOs with treasury skills, especially if they are smaller companies that do not have their own dedicated treasurer.
Stephen Pugh FCT, an ACT council member and the FD of brewer Adnams, says that while it’s still relatively rare for treasurers to make CFO, there is much they can bring to the role. “Treasury is a forward-looking activity,” he says. “Treasurers are looking into the future to manage risks. That’s an extremely important aspect of their job and the CFO’s job.”
“Treasurers are good at meeting deadlines and managing conflicting priorities,” observes Dominic Jaques, a former FD and now MD of treasury services provider Tresauris. “They have a good depth of knowledge of the financial markets and risk management. They understand the essentials of how to run the business – the basics of cash management, and paying staff and suppliers. And they have lots of expertise in terms of IT, reporting and systems knowledge, which can be a key part of a CFO’s role in terms of managing the business.”
Meanwhile, Keith Nichols, the CFO of Dutch paint maker AkzoNobel, believes that the appointment of treasurers to the top finance job may be more widespread than we realise. “I don’t think it’s as unusual as some people think,” he says, pointing out that CFOs in multinationals will normally
have experienced group financial controllers or group treasurers to support them in areas that they are not specialised in.
If you do have your sights set on making CFO, then Young recommends writing down your career plan at an early date and listing the skills and experience you will need to reach your end goal. She advises “looking two jobs ahead” and studying job descriptions on recruiters’ websites. “Say to yourself: they’re the skill sets I need. What do I have of them now and how do I get to a point where I have 80% of them?”
The obstaclesIt would, however, be disingenuous to suggest that the jump from group treasurer to CFO is easy to make. “When the chairman or CEO recruits, they inevitably want someone who can hit the ground running,” explains Young. “It’s tough to move from a treasurer role to CFO.”
“If treasury alone is your background in finance, then there are some major parts of a CFO’s role that you haven’t got experience of,” concurs Pugh, citing audit, business support, financial control and management accounting as examples. “A lot of treasurers will have some of that from their previous background. But if you have only done treasury, then you have to broaden that out. Otherwise you won’t be seen as the person with the breadth of experience to take on the CFO role.”
Although female CFOs of listed companies remain few in number, meaning female treasurers have few role models to aspire to, there are
some promising figures in the up-and-coming generation, including GlaxoSmithKline group treasurer Sarah-Jane Chilver- Stainer and Centrica group treasurer Katherine Horrell, both of whom have been profiled by The Treasurer over the past year (see page 26 of the September 2012 issue, and page 24 of the June 2013 issue).
The industry you work in can also make a difference to your prospects of becoming CFO. For example, treasurers who work in the financial services sector may seem well suited to their boss’s job since management of assets and liabilities is an essential part of what financial companies do. But consumer-focused businesses tend to seek CFOs with general management competencies, including the ability to influence salespeople and run cost-reduction programmes. On the other hand, these sorts of companies often run good internal rotation schemes – they exist at Ford, PepsiCo and Tesco, for example – so treasurers can use them to broaden their management experience. Arguably, internal promotion presents the best opportunity for ambitious treasurers to land the top finance job since they will have an established track record within their own organisation. Young advises treasurers to broaden their knowledge base as much as they can by gaining experience of different functions through company rotation programmes. “If that’s not possible, put your hand up and ask to lead treasury or finance in cross-functional projects,” she recommends. “And try to spot an opportunity where you can get experience of managing external relationships,
“Treasurers are look-ing into the future to manage risks. That’s an extremely important aspect of their job and the CFO’s job.”
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Indeed, as the career of AkzoNobel’s Nichols proves, it is entirely possible to become the CFO of a Fortune 500 company without having an accountancy qualification. Nichols started out in banking, then moved into corporate treasury, carving out a career at retailer Storehouse, services conglomerate BET, TNT Post Group, steel manufacturer Corus and then finally AkzoNobel.
Although he did not start out with a clear ambition of becoming CFO – “that happened along the way” – he consciously chose to gain broad mainstream finance experience and keep close to the operational side of the businesses that he worked in. “As a treasurer, you’re only effective in terms of the cash, liquidity and risk that you’re managing if you really understand the business,” he says. “I always insisted on being close to the business, which then pulls you close to the accounting because that’s what you’re reporting externally.”
Unhappy surprises OK, so you’ve done it. You’ve landed that seat at the board table. Your bank relationship manager has invited you to Wimbledon to celebrate. The kids’ photos are adorning your large walnut desk in the plush corner office. And your spouse has booked a skiing holiday to Klosters for Christmas. It all seems too good to be true. So, what now?
Firstly, you’re going to have to become comfortable with making major decisions. “The buck stops with you,” says Nichols. “You’ve got a big responsibility to continue driving the organisation forward in a successful way – engaging people, motivating people, but still making the right returns.”
Meanwhile, Jaques highlights the pressure of dealing with ‘unknowns’ as a challenge for treasurers who make it to the board table. “Treasurers often deal with uncertainty, but usually there are a number of
for example, with auditors, analysts, bankers, customers, investors, regulators, suppliers and even the media.”
So, now for the million-dollar question: is a treasury qualification enough or do you also need an accountancy qualification to land the top finance job? Many treasurers will have previously qualified as accountants, but are those who didn’t at a disadvantage? “A lot of CFOs trained and qualified in public practice before they moved into industry,” notes Young. “Like it or not, CEOs still put a lot of weight on that background. They have peace of mind that someone is a qualified chartered accountant and they see them as a trusted adviser. That can be quite hard to replicate for a treasurer, but post- 2008, businesses wants and needs are changing and the door is just a little more open than it was before the crisis.”
The AMCT qualification is “very rigorous”, according to Pugh, and tests plenty of finance skills.
Nevertheless, he acknowledges: “Many boards will say: ‘This is the senior finance person and we think it’s right that they have an accounting qualification’.”
Jaques – who is an accountant himself – disagrees with this stance. “An accountancy qualification makes life easier, but it’s not essential,” he says. “You just need to understand the broader finance remit. People are chosen for the top job on a whole range of different criteria and I’m not sure that treasury is any better or worse than any other. You need to have all-round skills.”
feAture
“Many treasurers will have previously qualified as accountants, but are those who didn’t at a disad-vantage?”
Becoming CFO
tools with which to manage it,” he explains. Adding, “At board level, there are more unknowns than uncertainties. When you’re dealing with unknowns, there are far fewer tools to manage them.”
Nevertheless, he acknowledges: “Many boards will say: ‘This is the senior finance person and we think it’s right that they have an accounting qualification’.”
Leading a large team –Potentially of several hundred people – could also come as a shock if you’re used to heading a niche treasury function. Then there are the issues of keeping investors happy, negotiating interdepartmental politics and engaging with the full gamut of
stakeholders from customers through to the board.
And, of course, the role and responsibilities of the CFO can vary widely from organisation to organisation, so you may find unfamiliar functions, such as IT, fall within your remit.
Something else that treasurers have to get used to if they make it to board level is speaking up on topics that they may not feel knowledgeable about, such as marketing or sales. “Having the confidence and ability to speak your mind and stick to your principles when you are under pressure from a team of senior people sitting round the table is not easy to start with,” observes Jaques.
Making CEOOf course, if treasurers can make capable CFOs, there is no reason why they can’t also go on to become good CEOs. Keith Williams, the CEO of British Airways, was the airline’s group treasurer and head of tax before he was promoted to CFO and, ultimately, the top job.
In 2012, research by recruiter Robert Half found that more than 50% of FTSE 100 CEOs came from a finance background. “It comes down to the ambition to want to do something,” says Pugh. “It’s about personality and drive, and being interested to expand into other areas.”
Jaques, who founded his own business, is particularly well placed to comment. “Talented treasurers are just as suitable to run a business as anyone else. But what it does require is confidence and self-belief, and the willingness to learn new skills. If you’d asked me 10 years ago where I would be today, I would have underestimated what it is possible to achieve.”
Many treasurers admit that they fell into their career by accident – perhaps through a placement on a graduate finance scheme. But after finding treasury, they often don’t want to leave it and return to the dry world of debits and credits. So could becoming CFO, or even CEO, be something of a let-down after all the excitement of treasury? Nichols, for one, has no regrets. “I don’t miss it,” he says. “I enjoy what I do. It has huge breadth.” Nevertheless, he’s clear that his qualifications and experience have stood him in very good stead in his career to date.“It’s invaluable to have a really good understanding of treasury.”
SIx wAyS TO REACh ThE C -SUITE
Have a plan - Write down your career plan at an early date and identify the skills and experience that you will need to reach your end goal.
build up your management experience - get broader line management experience by participating in an internal rotation programme or volunteering to lead a cross- departmental project team.
build up your management experience - get broader line management experience by participating in an internal rotation programme or volunteering to lead a cross- departmental project team.
get an accountancy qualification - if you don’t already have an accountancy qualification, think about studying for one in addition to your treasury qualification.It’s another string to your bow.
brush up on your tax - you don’t have to be a tax guru; you just need to know the right questions to ask.
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feAture
“So could be-coming CFO, or even CEO, be something of a let-down after all the excitement of treasury?”
Becoming CFO
CFO’s Changing RolefeAture
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a TimE OF CriTiCal ChaNgEThere is much discussion about the changing role of the CFO, but what is actually happening in practice and what are the new responsibilities, activities and imperatives? CFO magazine asked one of the region’s foremost financial experts, Michael Armstrong, FCA, Regional Director for the Middle East, Africa and South Asia, ICAEW.
CFO’s Changing RolefeAture
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“If a com-pany is up and run-ning with transparent informa-tion, it is not just nice to have but can actually give an organisa-tion certain essential advantages.”
When we look at the role of the CFO – particularly in this part of world – it’s fair to say that it continues to evolve. Despite the role’s transformation in recent years, it still tends generally to cover four key aspects, namely:• The typical role of
stewardship over an organisation’s assets
• Acting as an operator to make sure that the entity is efficient
• The role of strategist, which is increasingly important and which varies across organisations
• Acting as a catalyst to drive an organisation by working closely with the CEO.
A lot is put into the development of strategy but not as much in execution. And this is something that becomes more important with time.
These four categories are not new ideas. But the amount of time devoted to these ideas has changed. As the sector evolves and there are more mergers and acquisitions, CFOs are drawn closer to this aspect and are expected to bring more to the table. The role of the CFO by definition is an exciting role and this is something that is often underestimated. My view is that the position of CFO continues to be more and more challenging - and it’s up to the modern CFO to step up and make sure they’re equipped.
For example what’s come out of the recent past, with the global financial crisis - where companies have had difficulty with their borrowing - has resulted in drastic changes. Underpinning success in that
area is the reality that the CFO now needs to take the time to create meaningful relationships with the company’s bankers. And it’s not just at a superficial level that bankers and the company need to have a mutual trust and understanding. Long gone are the days where people can afford to leave the bankers in the dark. Now things have moved to the stage where it’s imperative that the bank trusts the entity and vice versa. And this has only come to be from the forging of better relationships.
Often, in today’s business landscape, people have to move quickly and there isn’t time when a particular opportunity arises to form new relationships. These bonds must already exist. And if they don’t others will act and it’s important that CFOs preempt this. It’s necessary to have regular meetings to anticipate events before they arise.
Need for stewardship I think all four elements are important but stewardship and operations must take the lead here. Any good CFO will have a team in place which treats all of this as a given. Indeed, any good CFO strategy will constantly consider the bankers. As a part of the building of relationships, CFOs must take the initiative. There’s a growing interest in integrated reporting. This seeks to combine conventional financial information with
sustainability and corporate governance to make sure a meaningful story is portrayed. CFOs who can do this and provide information which is transparent and reflective of the spirit of an organisation as opposed to just the financial information can be very beneficial. If a company is up and running with transparent information, it is not just nice to have but can actually give an organisation certain essential advantages.
Additionally, these days it is increasingly important that the relationship between the CEO and CFO be sound. When I’ve seen effective partnerships at that level, it tends to be in companies that are successful in meeting their business needs and satisfying the wider shareholder group. It’s more a question of personalities. Internally, it’s very important that a strong CFO reflects on the potential within the organisation and is allowed to speak up and aid the firm.
There’s been more assertion in recent years, which shows promise – because I believe CFOs have a good deal more to offer. That particular journey is still evolving: it’s not the case that the role of the CFO is becoming more akin to that of the CEO, but rather that together they will achieve a better grasp of the 360-degree realities and their interaction will have a catalytic effect –raising the bar to previously unachieveable levels.
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OPINION
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rEpairiNg ThE budgETiNg prOCESS
Organizations cannot succeed by standing still. If a company is not improving, then its competitors will soon catch up. This is one reason why Professor Michael E. Porter, author of the seminal 1970 book on competitive-edge strategies, Competitive Strategy: Techniques for Analysing Industries and Competitors, asserted that an important approach option is to continuously differentiate products and services to enable premium pricing.
Yet, strategy execution is considered one of the major failures of executive teams. Dr. David Norton, co-author of The Balanced Scorecard: Translating Strategy into Action, says that executives can formulate good strategies, but a formal process should be in place to manage them.
One of the obstacles preventing successful strategy achievement is the annual budgeting process. In the worst situations, accountants administer the budgeting process as a fiscal exercise that’s typically disconnected from the executive team’s strategic intentions.
A better scenario, but still not a complete solution, is one in which the accountants consider the executive team’s strategic objectives, but the initiative
required to achieve the strategy are usually not adequately funded in the budget.
In addition, the budgeting process tends to be insensitive to changes in future volumes and mixes of forecasted products and services. The next year’s budgeted spending for each cost center is typically incremented or decremented by a few percentage points from the prior year’s spending. Many managers are wise to this practice. As they approach the last quarter of the fiscal year, they say: “Use it or lose it.” This is both sad and laughable.
Imagine a primitive budgeting method using spreadsheet software where the first line item of actual expense, typically wages, is multiplied by a percent increment. Next, copy-and-paste that formula into a budget column for every line item of spending below it. Look familiar?
Two components of the performance-management framework, strategy maps and activity-based costing principles, can be drawn on to resolve these limitations. Ideally, the correct and valid amount of future spending for capacity and consumed expenses should be derived from two broad streams of workload that cause the need for spending: demand driven and project driven.
Demand-driven expenses are operational and recurring from day to day. In contrast, project-driven spending is strategic and nonrecurring, and the projects’ time duration can be from days to years.
Create Value from Projects A popular solution for failed strategy execution is the evolving methodology of a strategy map with its companion, the balanced scorecard. Their combined purpose is to link operations to strategy.
By using this methodology, alignment of the work and priorities of employees can be attained without any disruption from restructuring the organizational chart. The balanced scorecard directly connects the executive team’s strategy to individuals, regardless of the departmental or matrix-management arrangements.
The strategy map is arguably many orders of magnitude more important than its companion,
By Gary cokins
“One of the obstacles preventing successful strategy achievement is the annual budgeting process.”
Budgetingopinion
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capacity and dedicated skills are adjusted, an organization will have too much unnecessary capacity and not enough capacity that is needed. These are dual problems. The former results in unused capacity expenses and the latter results in missed sales opportunities, or customer-infuriating delays due to capacity shortages. Both drag down the organization’s profits.
Advances in applying activity- based costing (ABC) minimize this planning problem. ABC principles solve operational budgeting by lever- aging historical consumption rates to be used for calculating future-period levels of capacity and spending.
As an oversimplification, future spending is derived by calculating the ABC cost assignment network backwards; ABC practitioners refer to this as activity-based planning and budgeting (ABP/B). That is, the organization starts by forecasting its activity-driver quantities (those were the actual driver quantities for past- period costing).
Then, it uses the calibrated activity driver unit-level consumption rates from its historical costing to compute the required work activities in the operational processes. Next, it equates these work loads into the number and types of employees and the needed non-labor-related spending. It also adjusts for economic relationships of fixed, semi-fixed and variable expenses.
This technique provides the correct, valid capacity and spending requirements. With this knowledge, management can intelligently intervene and approve adjustments by adding or removing capacity.
“Value crea-tion does not directly come from defining mission, vision and strategy maps.”
executives for those initiatives? Presuming that key performance indicators with targets were established for those projects, these managers will score poorly and unfavorably.
But worse yet, the strategic objectives that the projects are intended to achieve will not be accomplished — resulting in strategy execution failures.
By isolating this spending as strategy expenses, the organization protects this mission-critical spending; otherwise, it is like destroying the seeds for future success and growth. On the other hand, capital budgeting is a more mature practice and does not have the same issues as strategic project and initiatives budgeting.
Value creation does not directly come from defining mission, vision and strategy maps. It is the alignment of the employees’ priorities, work, projects and initiatives — with the executive team’s strategic objectives — that directly realizes the planned value creation. Strategy is executed from the bottom to the top.
Norton uses a fishermen analogy to explain this: Strategy maps tell you where the fish are, but it is the projects, initiatives and core business processes that catch the fish.
Driver-Based Capacity PlanningFor daily operations where the normal recurring work within business processes occurs, a future period’s amount of product and service-line volume and mix will never be identical to the past.
In future periods, some customer demand quantities will rise and others decline. This means that unless the existing
the balanced scorecard. The scorecard is just a feedback mechanism to inform users how they are performing compared with their targets on pre-selected measures; the direction setting is in the strategy map.
In an ideal scenario, executives should delegate budgeting tasks to lower-level managers. As such, managers would first propose the projects and initiatives based on the strategy map’s various theme objectives, and subsequently derive the key performance indicators (KPIs) with their target measures.This approach assures that managers will understand the executives’ strategy, which is key to executing it. Plus, it will create more conviction and buy-in as the managers are increasingly being held accountable — with consequences — for attaining their performance measure targets.
What if the managers and employee teams that identified the projects are not granted spending approval by the
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Putting Money Where Strategy IsMost executive teams request frequent updates and revisions to the financial budget. These are referred to as “rolling financial forecasts” because the projection’s planning horizon may be as much as 18 months to two years beyond the fiscal year-end date.
Imagine if you are a CFO or financial controller required to reprocess the budget as a rolling forecast quarterly (or even monthly). There are not enough spreadsheets to do it!
Only computer automation that integrates several of the methodologies of the performance management framework, including good predictive analytics, allows an organization to produce valid, derived rolling financial forecasts.
Organizations that do not adjust budgets for future operational volume changes on all workloads, including indirect and shared expenses, will not adequately determine the correct required capacity.
In addition, organizations with a formal strategy-execution process dramatically outperform organizations without formal processes. Building a core competency in strategy execution creates a competitive advantage for organizations.
Financial executives can learn to manage strategy. It is important to include and protect planned spending for strategic projects and initiatives in budgets and rolling financial forecasts. Those projects lead to long-term, sustainable value creation.
Budgets are models that should reflect the non-financial behavior of the organization in financial terms.
“Organiza-tions with a formal strategy execution process dramatically outperform organiza-tions without formal processes.”
forecast, are multiplied by planned consumption rates that are calibrated from past time periods (ideally with reduced rates reflecting planned productivity gains).
This demand-driven method contrasts with the too-often-primitive budgeting method of simply incrementing the prior year’s spending level by a few percentage points to allow for inflation. The operational budget spending level is a dependent variable based on demand, so it should be calculated that way.
Organizations should define their strategic initiatives based on their executives’ strategic intent. Subsequently, it is important to develop the strategy spending budget in a manner similar to how the capital expenditures budget is developed.
Too often, the strategy funding is not cleanly segregated anywhere in the budget or rolling financial fore- casts. It is typically buried in an accounting ledger expense account. As a result, when financial performance inevitably falls short of expectations, it is the strategy projects’ “seed money” that unfortunately gets deferred or eliminated.
Organizations must protect strategy spending and allow it to go forward because it’s a key to competitive differentiation and successfully accomplishing the strategy. Once the strategy spending is protected, the only other lever is to plan for productivity improvements in the consumption rates. It is in this way that focused cost reductions (or future cost avoidance) become part of the overall performance management framework.
It is a logical way of matching supply with demand. Once the capacity interventions (e.g., employee headcount) and planned spending are approved, then a true and valid driver-based budget can be derived — not an incremental or decremental percent change from last year’s spending level — for each cost center.
Types of SpendingThere are two techniques for demand-driven and project-driven budgets that draw on components of the performance management framework:• Operational budget: ABP/B
using calibrated consumption rates and activity-driver forecasts.
• Strategic and capital budget: strategy maps for identifying one-time projects and initiatives.
Some budgets and rolling financial forecasts may distinguish the capital budget spending from operational budget spending; but rarely do organizations segregate the important strategic budget spending.
Ideally, strategy creation leverages meaningful managerial accounting information, such as understanding which products, channels and customers are more or less profitable today, and are potentially more valuable in the future. With this additional knowledge, executives can determine which strategic objectives to focus on.
In the operational budget, the expenses required to continue with day-to-day, repeatable processes are calculated based on forecasted volume and the mix of process drivers. These drivers, such as the sales
Budgetingopinion
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PROFESSIONAL ALLIANCES
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ThE pOwEr OF alliaNCE
CFO NetworkingprofessionAl AlliAnces
Senior finance leaders, top speakers and industry captains from diverse industries in the region gathered at the Ritz Carlton Hotel, DIFC for the 3rd Regional MECA CFO Conference.
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Furthermore, he also urged CFOs to place equal emphasis on management accounting and financial accounting, ensuring leaders can make decisions that are not only better, faster and cheaper, but that are also smarter and safer.
The MECA CFO AcademyAnother major highlight of the conference was the introduction and launch of the MECA CFO Academy by MECA Founder Saleem Sufi. Aside from providing a platform for continuing leadership development, the CFO Academy will also support senior finance professionals in their career management through the CFO Mentorship Programme and a Talent Pool.The 3rd MECA CFO Conference also featured networking sessions and other thought-provoking presentations delivered by noteworthy finance professionals on subjects such as, Driving Strategic Change through the Balanced Scorecard, Successful Performance Management, Impact of Economic Factors and Competitive Environment on Corporate Performance, and a very perceptive panel discussion on the topic Can the traditional finance be relied on for enterprise performance management?
The richness of the agenda paralleled a real sense of enthusiasm on the part of those present to raise the bar across operational and strategic remits and ensure the CFO is well-placed to implement the theme of corporate performance management.
“Managers today are drowning in data but are starved of information.”
“Managers today”, he commented, “are drowning in data but are starved of information. Too many companies are doing the right things, such as profitability analysis, strategy maps and business analytics, but they are doing them in isolation. CPM is about bringing it all together. With many companies in the Gulf now competing on the global stage, getting this right has become a strategic imperative,” said Cokins.
He also noted the recent shift towards predictive accounting, with accountants making significant strides in improving the utility and accuracy of the costs they calculate and report. He said the trend is a result of a shift in managers’ need for knowing what things cost and the need for detailed information about what their future costs will be and why.
Organised by the MECA CFO Alliance, the largest CFO networking group in the region, and supported by the Association of Chartered Certified Accountants (ACCA) and the Institute of Management Accountants, the conference brought together over 200 CFOs and senior finance executives representing prominent organisations in the UAE, Saudi Arabia and other Gulf Countries.
Held under the theme of ‘Corporate Performance Management’ (CPM), the event featured an impressive speaker lineup of leading experts from around the world who shared their respective finance and business acumen and tested strategies and solutions on the latest trends and issues surrounding corporate performance management.
The occasion kicked-off with a warm welcome address by Paul Gyles, Chairman of the MECA Steering Committee. During his speech, he expressed his deep appreciation for all the support that the organisation is receiving from the senior finance community not only in the region but also from the global scene. According to Gyles, MECA has reached yet another milestone with its sixth conference successfully hosted within a record period of less than two years.
Gary Cokins, IMA’s Executive-in-Residence, also took the stage, offering a very insightful keynote address during which he emphasised the importance of CPM due to factors such as increased accountability, executive frustrations with strategic failures and the need to make more speedy decisions.
CFO NetworkingprofessionAl AlliAnces
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Cash ManagementcorporAte BAnKinG
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ThE big piCTurE
Cash management is often seen as a tactical matter within a corporation. It is about bank accounts and how funds flow. We want to save on bank charges and optimise the use of cash. Cash management is about oiling the wheels of banking operations.
I would argue that such a myopic approach to cash management reduces the discussion to its visible, day-to-day, transactional aspect. Very often what is needed is not visibly obvious. However, the bigger picture presents itself once we ask the following questions:• Who do we rely on as our
banking partner, and in whom do we entrust our cash?
• How can we best control access to bank accounts, especially by electronic means?
• Are we using corporate leverage to negotiate the best documentation position possible?
• Have we included all relevant stakeholders at a local, regional and corporate level in choosing our banking partners?
• Do we achieve IT synergies
by using individual banks in various jurisdictions?
• How much visibility of our cash do we really have across the organisation?
• Is our cash management structure highly streamlined, and hence truly scalable?
• To what extent is our cash management model scalable, and able to absorb newly acquired businesses.
In summary, there is more to consider when judging cash management holistically than the movement of cash. What is highly visible is not necessarily what really matters.
At times, cash management projects are too focused on payment and pooling mechanics, and direct cost. Such an approach leads to an auction of one’s banking business, with the deal being awarded to the lowest bidder. The true economic cost, however, is made up of several components, including some indirect factors that will nevertheless lead to very direct cost. Consider the IT impact
Regional banking relationships have many advantages, says Christof Nelischer.
– connecting the corporate to a bank is costly, driven by complexity as much as volume. With the transaction volume taken as a given, the treasurer wants to focus on reducing complexity by reducing the total number of banks, bank accounts and electronic banking platforms that need to be supported.
Fewer banks and accounts lead to fewer internal funds transfers, fewer errors and less float. Consider the cost of managing exceptions – every operational issue requires a disproportionate amount of time and effort, and sometimes cost, to rectify, so reducing the frequency of errors through simple and streamlined operations saves money in the long term.
So far, there is an argument for using close relationship banks for cash management in general, and for consolidating banking transactions into fewer banks. The question now is, how global, local or regional our cash management organisation should be. Where do we strike the balance between the synergies
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this approach are worth more than any small, potential savings on bank charges. Our – and our clients’ – money is held within banks that we consider financially and operationally robust. Electronic banking platforms are being set up within corporate guidelines. The bank account documentation that has been put in place was centrally negotiated and is coherently implemented. Links to our treasury management system have been built, creating high visibility of cash. Local businesses can rely on support from treasury in dealing with our regional partner banks. Our SWIFT connectivity, which is live in the US, could be rolled out to the regions where we use the same banks.
We completed a regional banking project in Asia-Pacific with JPMorgan in 2011/12 that has stood the test of time and continues to deliver benefits. Today, it offers a ready-made structure for Willis to on-board a newly acquired company. We recently tapped Citibank to be our Latin America partner. Its global footprint allows each local market to roll seamlessly into client-defined regional structures.
ConclusionCash management is not a technical service provided by the cheapest bidder. It is an element of the finance supply chain, to be considered as such, with additional risk and relationship considerations. Willis’s experience shows that regional banking platforms combine the synergies from centralisation and consolidation with local banking to suit our individual businesses’ needs.
to be gained from the one-stop shop of a global banking partner, and the flexibility and domestic competitiveness of a local bank?
At Willis, we have found that regional banking relationships offer the best solution all round. • Regional banking arrangements
mirror a business organisation that fits around regions. Regional management centres serve as a natural point of contact for a banking project, where our colleagues in finance already support the businesses involved, and know them well.
• Time zones add a practical argument for dealing with one region at a time.
• No bank is equally strong around the world. We want the best fit we can find for each region.
• Like all projects, banking projects work best when they are broken down into manageable sizes. Treasury and the business can jointly focus on a few businesses in the same part of the world, with their country specific needs and domestic regulation and currencies.
• Having a few banks around the world to serve the regions leads to a diversification of counterparty risk, yet avoids the fragmentation and marginalisation from local banking.
Making it happenWillis’s approach is more consultative than scientific, and it takes time to arrive at the right conclusion. It starts by building support within the organisation to undertake a regional banking project, and communicate our philosophy.
With leadership from treasury, support from management
and genuine buy- in from the business, we kick off the project.
We turn to our core relationship banks first. We identify those that have the right capabilities in the respective region and start a dialogue with them, possibly adding a challenger from outside our core banks. The project starts with an initial overview of our business and its needs in the region, typically through a combination of meetings and phone or videoconferences.
Working groups are formed, and people connect. In building the request for proposal (RFP we take a broad view of what we expect to gain from the project, focusing on service and innovation, and allowing the banks to make suggestions on how our operations could improve. The RFP itself is more concise than scientific, and we look for personal dialogue more than detail.
Our banks are our partners, with whom we embark on a journey known as a regional banking project. To conclude, we develop a decision matrix where every stakeholder in the business rates each bidding bank on a variety of aspects, in addition to a cost analysis. The decision is made through a vote from the business, not including treasury. That practice sometimes comes as a surprise, but is important to me as it demonstrates treasury’s role as a business partner and adviser. The ultimate decision remains with the business. Our experience shows that the business is genuinely committed and supportive where its own choice is being adopted.
In my view, the qualitative benefits obtained through taking
“Regional manage-ment centres serve as a natural point of contact for a banking project.”
ACCREDITATION & COMPETENCY
hiddEN valuES, rEal mEriTSHelen Brand OBE, Chief Executive ACCA, looks at the core values embedded in ACCA certification, which can prove valuable compass points in potentially difficult times and territories...
There are some unique characteristics in the Gulf, certainly the number of expatriate members and students we have living and working here. In parallel to supporting this community we have in the UAE – and across the Gulf – important nationalization projects. It’s about bringing the value of the global characteristics of ACCA in tune with the relevance of national ambitions. We see public value as having three dimensions at ACCA: acting in the public interest, supporting ethical business practices and developing sustainable economies. If we can achieve these things, then it’s very powerful and is genuinely bringing public value to the work that accountants do.
Of course there are the technical skills which accountants bring. Having that level of financial management within an organisation, accountants are equipped and increasingly being called upon by CEOs to make the right business decisions. More and more we’re seeing the
finance professional being called upon as the ethical guardian. All our members sign up for a code of ethics which requires them to act in the public interest. I think post-financial crisis, the continuing volatility has made doing the right thing the ‘ask’ of the finance industry.
Getting off to the right startThere are three pillars to the training – examinations, experience and ethics. We challenge young people, our students, to exercise their judgment in situations which are difficult for them. We have numerous calls from our members around the world, describing difficult situations which we then guide them through. Professional accounts are globally embedded with ethics and the difference between our profession and others can prove stark.
Professional accountants are by nature required to continue their professional development. ACCA members must annually
update their skill set and we actively monitor this. Each year 200 or so ACCA members are excluded because they haven’t met these requirements. This is a specific nod to acting in the public interest. If you bear these letters behind your name then you must comply with certain competencies. The code of ethics is a specific deliverable.
We have an entire programme dedicated to CFOs called “Research and Insights”. We’ve worked in collaboration with the IMA, to make sure that we get the US perspective. We’re seeing the increased importance of the finance function as an increased driver.
The Banking dimensionThe relationship between the CFO and the bank is very important because the banks, to a great extent, rely on the information the Chief Financial Officer controls. When the banks start lending money they want to understand a given company’s profitability. Around the world, the entire banking industry is under tremendous strain. When you see this common problem of banks not getting their debt payments on time, it’s based on bad lending. This can be stemmed by CFOs who present the correct picture and projections. A lot of the time, the information which comes from the company may not be accurate. At the end of the day, the banks’ intention is to lend funds, but it talks too. In this respect, another hallmark of the ACCA certification is that it provides the right catalyst for both parties to benefit – giving credibility to the business’ needs and expectations and confidence on the part of the bank.
“Accountants are increas-ingly being called upon by CEOs to make the right busi-ness deci-sions.”
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ACCA CertificationsAccreditAtion & competencY
CORPORATE LAW
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a lEgal rOadmap
The largest offshore financial centre in the world, DIFC, is increasingly home to some of the region’s most successful and aspirational businesses. Yet many CFOs may not appreciate the unique legal and commercial framework that are working in – and understanding those parameters is vital given the ever-expanding wealth of responsibilities facing the CFO. Here, lawyers Nazanin Aleyaseen and Jennifer Garn from K&L Gates LLP advise on the raft of challenges and concerns…
First things first – the Dubai International Financial Centre (DIFC) is a federal financial free-zone located in Dubai. The DIFC has its own legal system and courts modelled on English common law, distinct from the civil law system used in the wider UAE. A Chief Financial Officer of a privately held company located in DIFC ought to be aware of the different statutory and legal obligations imposed by DIFC law and the personal liabilities arising from such obligations.
In addition to a CFO’s usual duties to manage the financial affairs of the company, including responsibility for the company’s financial planning and record-keeping, as well as reporting to the company’s board of directors
understanding the CFo’s obligations in the dubai international FinanCial Centre
on all accounting and financial matters, a CFO of a DIFC company has a number of statutory obligations. We deal with a number of those obligations here, specifically, those arising from the DIFC Companies Law (DIFC Law No. 2 of 2009) and the DIFC Law of Obligations (DIFC Law No. 5 of 2005). It should be noted that, in addition to these and other applicable statutory obligations, the Dubai Financial Services Authority (DFSA) also imposes separate obligations upon an authorised Finance Officer in a DFSA-regulated entity to ensure the company’s compliance with certain DFSA regulations which this article does not explore.
Being a fiduciary – what it meansA CFO of a DIFC company is deemed by law to be a ‘fiduciary’ of the company. A fiduciary is a person who has undertaken to act on behalf of another in circumstances which give rise to a relationship of trust and confidence. As a fiduciary, a CFO is under an obligation of loyalty to his/her employer, the company. This duty of loyalty encompasses a number of separate and distinct obligations.
Firstly, a CFO must act at all times in good faith in what he/she considers to be the interests of the company without regard to his/her own interests. Although the duty to act in
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law court located within the DIFC. The DIFC Courts have jurisdiction over any claims asserted by a DIFC company against a CFO or former CFO arising out of alleged breaches of his/her duties to the company. Such proceedings would be separate and distinct from any disciplinary action which the company may be entitled to take against the CFO and the proceedings would continue even if the CFO’s employment is terminated by the company in accordance with the provisions of the DIFC Employment Law (Law No. 4 of 2005 as amended by DIFC Law No. 3 of 2012).
Unless the CFO has insurance that covers the costs of defending legal proceedings, the individual will be responsible for his/her own legal costs, although some of these costs may be recoverable from the company if he/she ultimately prevails. Proceedings in the DIFC Courts are open to the public to attend and judgments are published on the DIFC Courts website; accordingly, any unfavourable judgment may potentially adversely impact upon the CFO’s future employment prospects.
Given the potential consequences which may result from a breach of a CFO’s obligations to the company, CFOs of DIFC companies are advised to ensure that they fully understand and comply with all of their legal obligations (the total extent of which is not intended to be covered in this article). In the event that a CFO is unclear of his/her legal obligations, comprehensive legal advice should be sought at the earliest opportunity.
good faith is not defined in DIFC law and its precise scope will depend on the context, it encompasses a duty to act honestly, openly, and without hidden or ulterior motives.
In addition to acting in the best interests of the company, a CFO is prohibited from placing themselves in a position where their own interests conflict with those of the company. If, in any transaction, there is a conflict between an interest or duty of a CFO and the interest of the company, the CFO must account to the company for any benefit they receive from such a transaction, unless the duty or interest has been disclosed to and approved by the company.
A CFO is under a further duty to ensure that information obtained in confidence from the company is only used for the benefit of the company. A CFO is expressly prohibited from using information obtained in confidence from the company, or any of the company’s property, information or opportunities for his/her own or any one else’s benefit.
Finally, when exercising powers and discharging their duties, a CFO is required to exercise the care, skill and diligence which would be exercised, in the same circumstances, by a reasonable individual having both the knowledge and experience that the CFO has and the knowledge and experience that a CFO in their position may reasonably be expected to have. Accordingly, any actions of a CFO that fall short of the required standards may give rise to liability under DIFC law.
A CFO who breaches his/her fiduciary duties to the company or otherwise acts unlawfully is liable to pay damages to the company in respect of any loss suffered. A CFO is also liable to account to the company for any benefit they acquired as a consequence of the breach.
Compensation for lossIn order to enforce its right to compensation for loss suffered by the company as a result of the CFO’s breaches, the company may bring a civil claim for damages against the CFO in the DIFC Courts. The DIFC Courts are a two-tiered, English-language common
“The DIFC Courts have jurisdiction over any claims as-serted by a DIFC com-pany against a CFO or former CFO.”
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ThE NEw CriTEriON FOr CONduCT
by geetu ahuja, head of gCC at CiMa
In recent months, six of the world’s biggest banks have been accused of rigging foreign exchange rates, while the UK’s dominant retailer has admitted misstating profits by a quarter of a billion pounds.
It’s easy to be cynical about corporations’ ability to do good. Most companies exist to make money, and under pressure from the boss, shareholders or their own bank balance, it’s easy to imagine how some people might lose focus and do the wrong thing.
The good news is that this happens infrequently. While scandals will always occur, most firms act in a generally ethical and principled manner – it’s simply good business practice to do so.
The Chartered Institute of Management Accountants (CIMA) recently polled its Chartered Global Management Accountant (CGMA) members about their employers’ ethical principles. Three-quarters reported that their organisations valued their professional standing and code of ethics. When asked why, 80% of respondents said that acting
ethically would improve their reputation with their customers, investors and other stakeholders. 75% said it meant they would comply with laws and regulations. Half felt that being good helped their brand image. In other words, there are many forces – not just moral ones – which compel a firm to do the right thing.
Unfortunately, relying on goodwill is not enough. Ethical behaviour must be embedded in a company. This is where businesses have work to do. In addition to compliance and instilling best practice, developing a culture of ethics has to be recognised as a communication job, with the right measures and incentives in place. And the tone has to come from the top, with senior management taking the lead.
This is an issue for the Gulf to take heed to as well. To be an ethical firm, you need to do more than write a policy – you must communicate it consistently and regularly, keep on top of performance and ensure the right behaviours are being encouraged. An employee is more likely to step over the line if they haven’t
been told where it is. These issues can be accentuated when managing an “open workforce” of freelancers, contractors and external partners, who are less likely to be fully immersed in their employer’s culture.
The lesson to be learned is that ethics shouldn’t be a tick-box exercise to be undertaken once then ignored – nor should an ethical policy be viewed as a “nice-to-have” event, like an annual company away day. It’s in a firm’s self-interest to design policies and processes – which means training, putting the right measures in place, and having regular communication – to ensure that their employees do the right thing, and are incentivised to do so.
Management accountants are well-placed to offer constructive view of the business processes and challenge any obsolete practices that hinder growth and profitability. They are essentially the ethical conscience of their organisation and will continue to play a key role as senior management rely on their expertise to develop a locally relevant business ethics and code of conduct in the Middle East.
Recent misdemeanors have put corporate ethics on the agenda. The right incentives and senior management taking the lead will make all the difference.
“An employee is more likely to step over the line if they haven’t been told where it is.”
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