Guest Opinion: When does the CFO know they have taken on too much?

THE life of the average CFO continues to get more demanding. The blizzard of regulatory developments continues to add complexity, and the board expectations of the role continue to rise. CEOs want their business partner at their side. Some CFOs want to demonstrate they have the leadership skills to become the next CEO. At what point do CFOs take on too much?

Let us look at the current drivers of change, some of which affect both private and PE-backed entities as well as plcs. Businesses with international activities will be grappling with taxation issues due to BEPS, possibly requiring restructuring of internal trading arrangements. How the legislation will evolve is unclear but the risk of increasing cash tax payments is evident.

Many are affected by pronouncements from the Financial Reporting Council, and much of the work is landing on the CFO’s plate. (Accepted standards for strategic reports continue to evolve, the viability statement needs to be addressed, and the alignment of these with the management of risks needs to be considered.) Getting the balance right between concise reporting and meeting disclosure requirements remains a challenge.

Some private companies may be scrambling to convert to FRS 101 or FRS 102, and this could lead to taxation implications and cash costs, particularly for sound economic hedging activities. Different investors may have their own policies regarding corporate governance practices which may require direct dialogue.

Some of the more mundane preoccupations of a CFO may be coming to the fore. The economic outlook is looking cloudy in some areas, with the stock market volatility during August and a slowdown in some emerging market economies evident. Those businesses directly involved in the commodities and oil sectors have already had to take action in respect of a changed environment.

Interest rates must start to rise at some stage. As I write, the debt markets appear to be frothy, but the pendulum will swing back towards a more cautious appetite for lending (and conservative financial covenant packages) at some stage – and do so rapidly if there are major failures.

So it may be a good time for CFOs to undertake their own personal MOT to ensure they are not unduly exposed. All organisations are different, and so there is no universal checklist to consider, so I offer the following thoughts as a starter:
Team: is your team sound and is their reporting transparent? Do they know when to flag urgent issues for your attention and are they comfortable in doing so? Are there any weak links? As CFOs’ range of responsibilities expands, they are unlikely to be experts in every facet of the role, and so staff management and selection becomes more important. The wider the range of responsibilities, the greater CFOs’ reliance on their team.

Internal controls and processes: are there any weaknesses bubbling away which could spiral out of control with disastrous effects?

Cash and funding: are your forecasting systems up to scratch, as trading problems can sometimes hit cash before the performance reporting systems catch up? When is your refinancing timetable and could you to live with tougher financial covenants if the market hardened?

Time: is sufficient time being spent on monitoring and evolving strategy, competitor activity and early analysis of evolving trends as well as the implications of these, or are you fire-fighting and handling corporate governance updates?

Colleagues: is the CEO happy with your current performance? If you do not know, please use this article as a reason to ask.

Other: are there any other major risks that you are worried about, such as reputational risks? Risk impacts can be like buses – none to be seen for ages and then three arrive at once.

The concluding question is a simple one for CFOs. Given your responsibilities and resources, have you set yourself up to succeed or fail? ?

David Tilston is the former FD of Innovia Group