Would it not be nice, if you had a toolbox or methodology to help the CFO and the finance function perform optimally and measure the CFO's performance? Well we thought so too and have, over the past few years, put together the CFO Toolbox.
The CFO of today and of tomorrow
The South African Institute of Chartered Accountants tasked Professor Thea Voogt of the University of Johannesburg's Accounting Department in 2010 to determine the effect of the Global Financial Crisis on South African companies and their CFOs. SAICA developed a model for the key focus areas of CFOs in 2008, which identified the four key roles and responsibilities:
Planner and strategist |
Providing financial leadership through financial planning and strategies aligned with business strategies |
Compliance and transaction officer |
Taking responsibility for transactional and financial reporting, compliance and strategy implementation |
Growth and innovation catalyst |
Continuously finding new ways of creating shareholder value by looking outside of the organisation |
Corporate governance, citizenship and people manager |
Helping to build corporate governance structures, taking up responsibilities of the organisation as a good corporate citizen and nurturing relationships inside and outside the organisation. |
From the updated 2010 SAICA research, it is evident that these senior CFO's see planning and strategy as their most important current and future role, while the growth and innovation catalyst replaces compliance and transaction officer as the second most important role. The full research document can be found at http://www.saicacfo.co.za/ .
We believe that the growth and innovation catalyst will eventually be the most important role, especially in the large industrial, construction and mining sector. To make the CFO's life a little easier, we developed a toolbox or methodology to help the CFO, which not only identifies what needs to be done, but also sets out the CFO's roles and responsibilities, provides a way of tracking progress and measures the CFO's performance. Given the rule of 5 plus or minus 1 when dealing with complexity, we have based their model on the four SAICA identified roles.
The Compass Financial Optimisation Toolbox - the CFO providing direction to the business as an active business partner
We have developed the SAICA roles into the Compass Financial Optimisation Toolbox (methodology), where the CFO is a key central component of the enterprise or compass in the business and supports and facilitates the Company's future growth in value. The CFO provides direction to the Company on business and financial matters, hence the idea of a compass. This direction is critical in today's "stormy seas".
The play on abbreviations is deliberate as we are of the opinion that the CFO is the kingpin in achieving the strategy of any Company. He, or she, is the man or woman who can match the brilliant ideas, products or projects with money, and controls the financial execution processes necessary to make it a reality and realising the organisation's commitment to its shareholders and other stakeholders. The CFO also acts as a co-ordinator of the information flow within the 360? process, providing feedback and accepting information in a holistic fashion to ensure alignment and cohesion in the organisation.
While there are still boards that see the CFO as merely a compliance and accounting transaction officer, most companies realise the value add the CFO brings to the Company. Unfortunately, the CFO is often ignored or their views dismissed by their peers in the technical, marketing, sales and people disciplines and not seen as the Chief Executive Officer's key right hand man. In an ideal world, a CEO should not make any move without consulting with, and getting, the CFO's full support.
In the junior mining sector, and in most small companies, CFOs are generally highly competent operational financial managers or technically competent financial controllers. However, they are thrust into the complex, strategically focused and demanding role of CFO in a Company dominated by technically orientated people. In mining for example, these can, and often are, demanding, tough mining operators used to having things their own way.
Over the years the CFO has transitioned from a compliance and transaction officer with planning strategy growing in importance as annual financial statements were complemented by management accounts to manage the business.
Governance has started to dominate following Enron and other serious breaches by listed entities, and in the aftermath, the CFO's job has become more onerous in ensuring good governance. In the mining sector, the Bre-X saga has also made the reporting of geological information more transparent and most mining jurisdictions continue to improve on these.
In today's world, sustainability has become increasingly important as industries are transitioning into the Low Carbon Economy, and as social and political pressures become more prevalent. These soft issues cost money, involve effort and can have a significant impact on market value.
Of particular importance to mining and other companies in the developing world is the scarcity of local skills especially professional accountants. Added to this are difficulties in attracting professionals to fill expatriate positions, where operations are often located in remote, inhospitable areas - although the same may be said of parts of the Australia's outback or Northern Canada.
The Compass Explained
The compass represents all of the areas in which a CFO must perform and provide direction to achieve success for the business. Each point on the compass is important and must be managed continuously to ensure a sound holistic financial framework for any business. In business one must continuously change course to avoid obstacles and navigate one's way through "troubled waters".
The northern point of the compass represents the future of any Company and here is where CFO can and should make the greatest contribution to the growth in the market value of the Company.
The western point of the compass covers the management accounting orientated functions of planning and strategy; where budgeting and forecasting play a crucial role in managing the business operationally and turns strategy and plans into reality.
The eastern point represents the environment in which the business operates and covers governance, sustainability and people and often poses the greatest challenges in meeting the Company's growth objectives.
The southern point is where CFO's have traditionally been focused, namely compliance and transaction and is still the foundation of any sound business.
The centre of the compass provides the "pin" that holds it all together. In the end without the right systems and processes, it will be difficult to perform optimally. Projects are the key to making things happen quickly and effectively by focusing on disparate parts of the Company to achieve the financial goals. The compass is a management tool and by linking the compass to the Company's information systems, it becomes a Business Information System to track and measure performance in the Company and that of the CFO.
In closing
We will in the forthcoming articles show how the CFO, of especially junior miners and smaller companies, can develop and hone his or her skills further to become the CFO of the future. We acknowledge that every Company has its own challenges, people and dynamics, so there can and never will be a "one perfect panacea". These articles will endeavour to provide a framework and methodology that can be adapted to each Company.
The CFO Toolbox will be used as the basis of these articles and each compass point will be expanded upon with practical proven methods of optimising performance being explained and demonstrated.
About the authors:
Mark Rosslee CA (SA)
Mark is a Chartered Accountant and holds a Graduate Diploma in Engineering from the University of the Witwatersrand. He spent 6 years at Deloitte followed by 4 years at South Africa's Department of Finance. He then spent twelve years at De Beers, holding a number of senior financial positions. Mark has a total of 18 years' experience in the mining industry including holding CFO positions at Bauba Platinum, Absolute Holdings, Braemore Resources, Central African Gold PLC and Southern Platinum Corporation. He is Currently a Director of Instream Management and Corporate Advisors.
email: [email protected]
Gary Vermaak ACIS ACMA
Gary is a Chartered Management Accountant and Chartered Secretary. He holds a BCom in Banking and Economics from the University of the Free State. He has extensive experience in finance, IT, projects and supply chain management. Gary has 20 years' experience in the energy and mining sector and has held senior roles in large companies, including Eskom, De Beers, Anglo Platinum and First Uranium. He was previously Chief Financial Officer of Minerva Resources PLC (now Nyota Minerals) in London. He is currently a Director of SD e'Africa Consulting.
email: [email protected]
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