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Over the past few years, the CFOs role in organisations continues to become more strategic. They are increasingly called upon to support the CEOs in driving business growth. And as they work on this expanded agenda, they often draw support on some critical items from the investment bankers.
Many consider investment banking a sub-set of the broader area of corporate finance of which the CFOs are masters. However, the entrepreneurial nature of I-banking coupled with the strategic insights and a broad swathe of valuable relationships make I-bankers ideal partners for CFOs when contributing to major initiatives within their organisations.
The investment bankers are strategic ideating partners to the CFOs and offer solutions to them designed on their specific needs. According to I-bankers that ET CFO spoke to, their communication is fairly strategic in nature.
Nipun Goel, head of investment banking at IIFL says, the “strategic” interaction revolves around “discussing the growth opportunities or challenges that the companies face, whether the growth should be organic or inorganic and how to best finance that growth.”
While in small organisations, the role of the CFO may be limited to being a custodian of company’s finances, in medium and large ones, it actually requires him to extend his support to the CEO in future business strategy, a weighty challenge for the CFO.
Interpersonal skills and connect with the team members across businesses are important to keep a tab on the internal happenings and get acceptance with the team members within the organisation. CFO’s acumen in finance and ability to leverage talent of the team members are some of the ideal qualities that makes them successful.Ajay Saraf, executive director at ICICI Securities
IIFL’s Goel highlights the point. “CFOs have a fiduciary duty to come up with a decision which is right for all the stakeholders including the promoter; he has to balance the objectives of all categories of shareholders,” he says.Here a part of the challenge, Goel believes, is also to ensure that the decision should not to be affected by the short term consideration, and instead should have a lasting, long term value. This despite the fact that the CFOs are also responsible for the short-term quarter results.
Once the strategy is decided, the next challenge is to communicate the decision to various stakeholders – the promoters, the management, and the public market. Rakesh Singh, group head for investment banking, capital and commodity markets at HDFC Bank explains this case: “In an M&A situation the entire onus and responsibility of carrying the deal on its shoulder lies with both the CFO and the CEO, and in case of financing, with the CFO alone…the challenge for the CFO is to evaluate the various alternatives and then decide what would best suit his company. The CFO has to ensure that the fitment is right to the extent possible and then try to play a bridge between the market which is offering the opportunity and the Board. It gives a critical role in terms of communicating what is available and working out the best solution for the company.”
In addition to the challenges on the strategy front, the CFOs also face another set of hurdles, including ensuring compliance to regulatory and policy changes, maintaining timely accuracy of accounts, controlling costs, managing various business and liquidity risks.
When it comes to tackling these challenges, Ajay Saraf, executive director at ICICI securities shares that, the CFOs maintain a team of highly skilled professionals who have expertise not only in finance but also in the areas of risk management, IT management, legal and compliance etc, adding that “they rely heavily on IT as a tool for accuracy in management reporting, cost control, risk management, compliance and decision making.”
In this the I-banker comes up as a valued partner who provides access to investors and deals. “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 organization,” says Indrajit Banerjee, former CFO of Ranbaxy Laboratories.
The relationship between the two is a symbiotic relationship in so far as it helps the I-bankers too to widen their opportunities.
In an M&A situation the entire onus and responsibility of carrying the deal on its shoulder lies with both the CFO and the CEO, and in case of financing, with the CFO alone. The challenge for the CFO is to evaluate the various alternatives and then decide what would best suit his company.Rakesh Singh, Group Head for Investment Banking, HDFC Bank
ICICI’s Saraf explains that, “CFOs are critical links to the companies for the I-bankers. They share the growth strategy, capital requirement and other insights of the business that helps to identify various business opportunities for the investment bankers to work with the companies.”
The CFO-banker equation, IIFL’s Goel emphasises, is entirely built on trust and credibility. “It is very important that there is a trust quotient with the CFO for him to share his perspective with the banker, so that the latter can identify the key issues and then come up appropriate solutions.”
The investment bankers meet wide range of CFOs and the personality traits of each vary across the spectrum. For instance, ICICI’s Saraf draws from his experience that, “some of them are conservative while others are aggressive; some are traditional while others are progressive. Some carry a macro and strategic view on the business.”
However, Saraf believes some traits are more common among the more successful CFOs. “Good CFOs are those who are able to embrace the changing role and perform a more strategic role within the organisation which is not just limited to areas of finance.”
For Rakesh Singh of HDFC Bank, analytical mind, strategic thinking and risk management, in that order respectively, are the top three traits in a successful CFO. “He needs to have good analytical capability to understand the business in different cuts, be a strategic thinker for the future, and he has to be a good risk manager to highlight what all risks exist; not only the financial risks but also the business risks.”
IIFL’s Goel adds to the discussion and says the ability to analyse things dispassionately and to be able to allocate capital in the right manner is an important quality for the CFOs.
“CFOs should have sound understanding in terms of newer instruments available for them from the capital raising standpoint. They need to know how to structure their capital particularly if they are looking at the large capex or acquisition. If they have multiple businesses, they should able to have clinical view of the businesses and identify whether any of the businesses have been non-performers, and need to be divested,” he explains.
Lastly, what completes this perfect resume is the ability of the CFO to have soft skills.
The strategic interaction revolves around discussing the growth opportunities or challenges that the companies face, whether the growth should be organic or inorganic and how to best finance that growth.Nipun Goel, Head of Investment Banking, IIFL
“Interpersonal skills and connect with the team members across businesses are important to keep a tab on the internal happenings and get acceptance with the team members within the organisation. His acumen in finance and ability to leverage talent of the team members are some of the ideal qualities that make CFOs successful,” underlines ICICI’s Saraf.
Off late, especially in the large businesses, we have seen investment bankers switching to this prominent CFO position. One stark example is of Saurabh Agrawal, inducted at the helm of affairs of Tata Sons; an appointment that goes on to signify the importance of the skillset today CFOs definitely need, and also quite reflected in Saraf’’s concluding remarks: “CFOs need to be more holistic in approach and be ready to offer innovative solutions in the areas of raising finance, M&A and structured debts.”
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