It is the CFOs time to shine.
While lesser mortals might quake at the volatile equity markets, the daily ups and downs of news from Europe and America, and the Federal Government’s feeble grasp on power, CFOs take a longer-term view.
And conditions are lifting CFOs are reassuring their leaders.
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The CFOs’ financial acumen has become more critical to leaders managing unprecedented uncertainty. Increasingly, leader are turning to CFOs for advice, reassurance and even mentoring, Deloitte partner, Keith Skinner, told LeadingCompany today.
The political uncertainty in Canberra has triggered a paralysis among leaders of medium-sized and large companies about spending on assets, buying rivals and releasing new products.
But the best are taking the advice of CFOs, and quietly putting the strategies in place so that their companies are first out of the box when conditions lift.
A quarterly survey of CFOs by the accounting firm, Deloitte, found 38% of CFOs are more optimistic about their company’s prospects than they were three month ago. And the decision by the Reserve Bank of Australia to cut interest rates by 50 basis points cheered them further, Skinner says.
The survey, conducted in April, involved 80 CFOs representing businesses with a combined market value of $346 billion or 25% of the Australian quoted equity market.
It is the GFC and the tough ensuing times that created a stronger role for CFOs in the leadership team, Skinner says. “When profits are tight, and resources are not there, you really rely on running a business efficiently,” Skinner notes.
CFOs in leading companies are feeling more optimistic in part because leaders have followed their advice.
During the global financial crisis, CFOs advised their leaders to bolster balance sheets with capital raisings and reduce debt. Since then, they have recommended ways to cut costs, build cashflow and grow organically.
Leading company CEOs are now involving their CFOs in implementing the decisions they help to make, Skinner says, causing the lines between C-Suite roles to intersect in new ways.
“I am the chief operating officer at Deloitte, and I run the business day-to-day. But financial aspects are a big part of what I do. And our CFO does a lot of operational things. So irrespective of the title, the CFO role is just becoming more important.”
When Deloitte’s survey started in the third quarter of 2009, CFO optimism was running high – Australia appeared to have emerged from the GFC in good shape. That sentiment tanked as everyone realised it was a longer, slower haul out of those conditions, compounded by the financial problems in Europe and the US.
“This is the first time we have seen a material step back up in optimism,” Skinner says. The money put into the system in Europe and the positive signs out of the US make it more likely that China is going to keep growing.”
Unfortunately, that is offset by the political uncertainty. “Clearly we would love the political scene to be stable,” Skinner notes.
So, CFOs are not breaking out the Champagne: 69% of them rank financial and economic uncertainty at above normal levels (compared to 79% last quarter).
Hedging has become a broader strategy than just managing currency risk. Skinner says CFOs are increasingly delivering hedges to leaders on operational risks.
“In this sense, hedging is deciding what you are going to do if things don’t go to plan. We have a national business. If we have a lot of resources focused on manufacturing, what are the hedges for where we put the people from that division while the work is down?”
Although still focused on cashflow, here is what CFOs foresee in the times ahead:
- 40% of CFOs are looking to increase staff numbers and spend more on IT.
- 72% expect their operational cashflow to increase over the coming year.
- 71% expect to see an increase in merger and acquisition activity, the highest level in the past three quarters.
- 67% of CFOS said credit was somewhat or very available.
- 69% believe the equity of their business was undervalued.
- 46% of CFOs believe now is a good time to take on risk.