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Q: Could you give us a sense of the communication that investment bankers have with the CFOs? What all does it entail? What is your equation like with the investment bankers?
Indrajit Banerjee: It has to be recognised that CFOs in modern times play a role far greater than managing accounts and finance. He is expected to play a role in the strategic aspects as may be required for the success of the organisation. He has to balance his time and attention between the basic role of accounting, treasury, tax with that of helping the top team in strategising its business objectives. For a company on a growth path, he has to facilitate in identifying acquisition targets, ensure that the company is well poised to expand its capital base in the right manner, oversee that the quality of profitability and cash generation internally is optimal etc. For a company in financial stress and fighting for survival, he has to facilitate capital allocation, drive cost optimisation projects and possibly identify disposal of parts of the organisation that can help in the survival process. These are just some common areas that CFOs need to spend a good amount of time on. The CFO is privileged to be in a position where he can oversee the entire organisation in all its aspects and be in a position to recommend a path also considering the risk aspects associated with each such path.As evident from the above strategic roles of the CFO, he needs to communicate constantly with the external world to explore developments relevant to the organisation in positioning itself in its strategic moves. The CFO needs to explore the opportunities that exist in the market for acquisitions, he needs to explore the developments in the financial markets that can offer opportunistic sourcing of capital, he needs to gather information on developments taking place in the industry that has relevance in the company’s moves in its market positioning, needs to look for avenues for building on partnerships in various ways to further its business objectives, etc.It is neither feasible nor efficient for a CFO to explore all such opportunities himself while at the same time performing his basic roles. Interaction with investment bankers helps to enable the CFO to extend its reach to a larger arena, thereby providing significant support to the organisation. This is where competent investment bankers, with good understanding of the markets, with extensive contacts in the industries can provide support. The job of the investment banker is to explore industry and cull out trends and signals that can be of relevance to their clients.
It is not appropriate to think that the communication between investment bankers and CFOs occurs only when there is a possibility of a deal. Investment bankers’ proximity to CFOs is built on trust, competency and confidentiality. This needs to be built over time. It is therefore unlikely that such trust will build across a number of investment bankers insofar as a CFO is concerned.
It is thus usual for a CFO to have a very few such trusted bankers on whom he would rely to seek strategic inputs. It may so happen that some of these evolve into a “deal” at some future time, but that may not be a certainty. Nevertheless the relationship ought to continue through the minor transactions that come up once in a while. In a way, the investment banker becomes a partner to the CFO in supporting the strategic moves that they together bring to the table.
Q: What traits work well for the CFOs when closing deals?
Indrajit Banerjee: When it comes to deals, either for M&A matters or for financing matters, the most critical aspect that the CFO needs to look at is whether the company is getting the right value for what it is transacting. This requires a deep understanding of the valuation aspects of the business considering its future potential and the competitive situation in the business. A business view of risks is also important. His understanding of all these aspects, both laterally and vertically, determines his effectiveness of playing the strategic part of the CFO’s role. This can only happen if the CFO has taken the pains to get a deep understanding of the business of the company both at the top level as well as at the grass roots.
Q: What specific challenges you think CFOs face in current times that make partnerships with I-bankers valuable? How do they tackle them?
Indrajit Banerjee: One major challenge is to meet the expectation of the investment banker in ensuring a deal is struck in order that the banker is assured of a significant compensation. Investment bankers belonging to the famed business houses do have high expectation of earnings and are often found to chase large deals with sizeable compensations. But at the same time the larger houses have the depth of support in providing the inputs needed.
That should not take away the capability of some very niche investment bankers, who despite being a part of a smaller organisation, can provide very focused support in its niche area. They can be very effective in certain situations.
Q: Who do you think makes for a good CFO? What are the ideal qualities in the CFO that makes him successful?
A business view of risks is also important. His understanding of all these aspects, both laterally and vertically, determines his effectiveness of playing the strategic part of the CFO’s role. This can only happen if the CFO has taken the pains to get a deep understanding of the business of the company both at the top level as well as at the grass rootsIndrajit Banerjee, Independent Financial Consultant & Former CFO, Ranbaxy
Indrajit Banerjee: Besides the qualities on the strategic aspects as described, the CFO needs to ensure a sense of balance through evaluation and mitigation of risks (both operational and financial) and in holding up the highest standard of corporate governance. He needs to be credible enough to be able to influence the organisation in making it take the right calls.
Q: Today, the role of the CFO is increasingly becoming vital, and we are seeing a lot of investment bankers taking up that position. What do you think attracts them towards that role?
Indrajit Banerjee: I reckon this phenomenon is rather situational. It is difficult to generalise this matter. In organisations, where external growth management especially through inorganic means is the chosen path, an investment banker can make a difference. Further, an investment banker can be very appropriate at times in performing the strategic role at a group level, where growth and reorganisation may be the most critical aspect of the role. In any case, if the investment banker has to play a significant operational role as the CFO, it needs to be ensured that he has the confidence of being able to manage all aspects of the role that is expected of him.
See also: The partnership between I-bankers and CFOs
One must remember however that the role of a CFO entails management of various internal as well as external matters, it involves motivating a large team of finance and other professionals to ensure the organisational matters are attended to efficiently and to ensure that the statutory/regulatory/governance aspects are managed competently. The investment banker chosen to lead finance must meet these fundamental requirements, and not be compromised.
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