Recognising the role of the CFO

by Michelle Quah, Nov 22 2005More than just finance : Dr Kan believes CFOs now face increased pressure while Prof Mak says they are critical in ensuring good governance. "A CFO's role has grown in stature and importance - and it's time to honour those who do their job well," says Michelle Quah.

As companies increasingly recognise the need to maintain the trust of investors, the role of a chief financial officer has grown in stature and importance. The CFO's duties have gone beyond merely managing the financial affairs of the company, and increasingly involves corporate governance concerns. "The CFO plays a critical role in ensuring good governance, disclosure and transparency and a well managed business," says associate professor Mak Yuen Teen, co-director of the Corporate Governance and Financial Reporting Centre at the Business School of the National University of Singapore. And to encourage CFOs to work towards adopting and implementing best practices in corporate governance in their companies, there is now an award recognising their skills and contribution.

The Chief Financial Officer of the Year Award will be presented to that outstanding individual, as part of the Singapore Corporate Awards organised by The Business Times in collaboration with UBS and supported by the Singapore Exchange. Other partners are: Institute of Certified Public Accountants of Singapore, Investment Management Association of Singapore, Securities Investors Association (Singapore), Singapore Institute of Directors and Citigate Dewe Rogerson i.MAGE. The awards will be given out at a dinner to be held in March next year. "The CFO Award hopes to honour an individual who has held the highest regard for upholding good corporate governance in his/her organisation," says Ernest Kan, vice-president of the Institute of Certified Public Accountants, one of the supporters of the awards. "Up to now, there has been no award in Singapore that recognises the CFO. But, with the increasing focus on good corporate governance, CFOs now face increased responsibilities and pressure. This award is therefore timely," says Prof Mak, who will be one of the judges for this award. "Codes of corporate governance are generally silent on the specific roles of CFOs. But the CFO is critical in supporting good internal controls, risk management, effective audits and audit committees, high quality financial reporting and disclosure, and ensuring effective communications with investors," Prof Mak points out.

The CFO of the Year Award will honour the individual who plays an important supporting and advocacy role in promoting good governance, disclosure and transparency - and who is an exemplary role model in such best practices. "With the increased emphasis on the need to have better corporate governance, particularly for public interest entities, there is therefore also a need to examine each element that makes up the overall corporate governance structure. One element concerns the CFO, and one cannot undermine the importance of the CFO role in the overall aspect of the whole corporate governance structure," Dr Kan says. "With the world moving towards increased regulation and compliance, a CFO award will serve to encourage good CFOs to do a better job. It will also bring about the awareness of roles of a good CFO, thereby educating a less educated CFO to improve his/her performance," he adds.

The winner must be someone who often goes beyond the mandatory regulatory requirements in quality of disclosure, corporate transparency and fairness in disclosure. And he/she must help to create long-term shareholder value. "This is a good initiative to showcase CFOs who help promote good corporate governance and who add value to the management of the business," Prof Mak says. Potential candidates will be judged as such: first, nominations will be invited from interested parties, comprising a cross-section representation from the media, accounting firms, audit committee chairmen, CEOs, research analysts and fund managers.

Then, a judging panel will review and evaluate the nominations and decide on the winners. The judges themselves come from a wide range of professions. Besides Prof Mak and Dr Kan, familiar names on the panel include: Temasek board member Sim Kee Boon, Stamford Law Corp managing partner Lee Suet Fern and Standard & Poor's managing director Surinder Kathpalia. "The judging panel consists of highly knowledgeable and independent-minded people bringing different perspectives. I am confident that the judging process will be able to identify truly deserving individuals," Prof Mak says.

The candidates will be judged in three categories: personal qualities, knowledge and experience, and track record and accomplishments. On a personal level, an ideal CFO must possess integrity of the highest standard. He or she must exhibit the best ethical behaviour and inculcate the same corporate culture top-down, across all levels. "The individual must hold high his/her integrity and should not succumb to undue pressure from CEOs. In essence, he/she should behave ethically and should not be fearful of standing up to unethical behaviour," says Dr Kan. The winner of the award will be someone who champions the need for greater accountability and transparency in corporate governance. He/she must have the skills to manage the politics of the business - the ability to address and manage the concerns of the various corporate constituents, the CEO, directors,unit managers, analysts, bankers, investors and the media, without being skewed one way or another. "He or she must be a person of moral fibre and high integrity, able to stand undue pressure from a CEO or controlling shareholder in matters of internal control, financial reporting and disclosure," Prof Mak adds.

A good CFO must also possess sound business acumen, astute foresight, and the ability to lead and inspire and has guided his or her organisation to a new level of growth, financial achievement and recognition. He/she should also have the ability to transform and shape the successful financial performance of his or her organisation while exercising sound business judgment and demonstrating excellence in his or her field. "He/she must be highly competent, understand the business, and work well as part of a strong senior management team."

"The CFO should also be proactive in helping put in place best practices in corporate governance - including internal controls, risk management systems, and so on," Prof Mak says.

In the area of knowledge and experience, the winner will have a sound understanding of all matters relating to the corporate regulatory compliance and reporting requirements of the company. And while age is not the sole criterion, the individual should ideally have spent at least five years performing the finance function. Possessing the necessary professional qualifications will be a plus. "A good CFO should possess both the hard (technical) and the soft (management) skills. He/she should be technically sound as well as being able to manage people at all levels," Dr Kan says. Finally, the CFO's track record and personal achievements: The judges will consider the corporate deals handled by the candidates during the year under review. The degree of difficulty of each corporate deal will also be taken into account. Full and fair disclosure, sound financial management, integrity and a commitment to ethical business conduct are also key to a CFO's performance and, consequently, to the corporation's financial performance. And, in addition to a commitment to integrity and a passion for the future of business, a CFO should use his/her influence, skill, and creativity to make a significant contribution to the profession, industry and to the community. "Evidence of certain competencies and character, of the CFO having helped a business to achieve good corporate governance, disclosure and transparency, and also helping the business deliver superior performance or to overcome challenges faced by the business - these would be some of the things that the judging panel would be looking for," Prof Mak says.

A successful CFO should also have demonstrated global initiative and regional drive that fosters potential new markets abroad, enhances operations, aids in the establishment of foreign ventures or the expansion of foreign corporate affairs on an international scale. The CFO Award will be presented for three categories of companies: firstly, mainboard-listed companies with a market capitalisation of $500 million and above; secondly, mainboard-listed companies with a market cap below $500 million; and finally, Sesdaq-listed companies. One winner will be selected for each category. "But the awards can only be successful if enough good candidates are put forward, so I urge the business community to come forward and support this by nominating deserving individuals," Prof Mak says. Companies interested in the award are encouraged to contact the relevant institutions and professional bodies for more details and the nomination/selection process.