IN 2007, SUSHIL MAROO, chief financial officer, Jindal Power, was part of a team his company sent to Bolivia. The team’s task: to sign an agreement with the government of the South American country for iron ore exports. Jindal had the money and was keen on the deal, but the Indian team stumbled from the beginning: Nobody knew Spanish and the Bolivian team knew no English, so both had to rely on interpreters. “It becomes tougher when there are translators,” says Maroo. “Whatever we said was not communicated at the same speed and in the same manner ... [So] it becomes more complex.”
Maroo, who was there to ensure that Jindal’s financial interests were not harmed, began to take an active role in the negotiations. He began paying close attention to the Bolivian team’s body language, behaviour, and expressions. Through this, he tried to gauge what leeway Jindal would have in the negotiations. “One has to understand how to take the negotiations to the breaking point and not break it,” he says. His negotiating skills paid off and the deal was signed.
Till Bolivia, Maroo’s job was more limited; one of his main functions was to deal with banks and assure them that his company had buyers. The Bolivia experience was instrumental in changing how he, and the company, viewed the role of a CFO.
Once sidelined as bean counters with no idea of business beyond numbers and balance sheets, CFOs are getting a makeover in India’s new economic climate. Like Maroo, CFOs are finding that their job has expanded from just handling finances, or, at best, managing treasuries for large companies, to becoming internal consultants for, or enablers of, businesses.
Indian companies are also going global, and not just with their acquisitions. Markets are expanding to other continents, and raw material often needs to be sourced from abroad. Companies also have increasingly global workforces that have diverse salary packages. Then they have to raise more money to feed a rapidly growing domestic economy (growing at close to 9% a year).
Maroo says the job of the CFO in the mid-2000s was still mostly about dealing with banks and financial institutions about securing finance. With Indian businesses growing larger, promoters need people with domain knowledge, who can analyse, innovate, convince, and execute.
A recent American Express Group study on CFOs shows that Indian CFOs, more than their global counterparts, are increasingly concerned about administration, market value, and growth plans. According to the study, 54% of the Indian CFOs who responded are very concerned about sticking to their profitability targets. Compare this with 31% globally.Also, 44% of Indian CFOs (compared with 27% worldwide) are concerned about sticking to growth plans.
The CFO’s job is more that of a chief financial strategist, and less the chief accountant. “If the CEO is the face of the company, the CFO is its voice,” says Balaji Swaminathan, vice chairman, investment and corporate banking, DSP Merrill Lynch. In effect, he says, the CFO now has to think like a professional entrepreneur.
Today, the CFO should be able to navigate legal issues, articulate and convince fellow employees of new financial strategies, and communicate with international investors, besides being able to deal with high finance. And, through all this, create value for the company. That requires going back to the basics, understanding the business of the company, and modifying strategy along the lines of the business.
MAROO SAYS THAT TRADITIONALLY conservative role now requires the CFO to face, not minimise, what is otherwise anathema to the treasurer: risk. C. Ramakrishnan, CFO and president, Tata Motors, sees risk as part of his job. On May 9 this year, Jaguar Land Rover (JLR), a Tata Motors subsidiary, issued bonds worth £1 billion (Rs 7,161 crore) to meet its working capital requirements. A week later, Ramakrishnan told Fortune India that JLR had strong growth plans and needed the money to retire debt.
Later that month, Ramakrishnan announced the Tata Motors results, and added that the company was confident that JLR’s balance sheet could handle the strain of the bond issue. However, it seems the market was not as certain. CLSA, the foreign brokerage, downgraded its recommendation on Tata Motors from ‘buy’ to ‘outperform’.The brokerage also cut its earnings per share estimates by 7% for fiscal 2012 and by 8% for 2013. “We are quite concerned about Tata’s quickly weakening India car franchise,” CLSA noted.
Ramakrishnan’s job was more than making sure that the balance sheets of parent and subsidiary were strong. It was also his job to reassure jittery investors and the market. Tata Motors has enough cash on its books, he says, adding with a laugh that the company won’t go bankrupt.
Maroo and Ramakrishnan are just two of the many Indian CFOs grappling with the diverse peaks and pitfalls of change today. They have an important role in formulating company strategy, in conjunction with other departments. P. Sridhar, CFO, Hindustan Unilever, adds that the CFO needs to do “internal marketing” to ensure that his financial ideas are communicated effectively to the board. “Today’s CFO is as much a marketing man as he is the finance professional,” agrees Ramgopal Rao, CEO, Agora Group, a Pune-based boutique firm, which hired C-suite executives for Fiat India when the Italian car maker moved to Ranjangaon, Maharashtra.
Ramakrishnan and his CFO peers are all comfortable talking with the media and with board members: They have been forced to become more articulate in selling ideas to their C-suite colleagues. “If you expect that as a CFO you can sit back and your systems and processes and checks and balances will take care of everything, that is not going to work,” adds Ramakrishnan.
The CFO’s marketing hat also helps when convincing investors and shareholders to put their money into the company. “The person best qualified to communicate with investors about the company is the CFO, because he has a relatively independent image,” says Merrill Lynch’s Swaminathan.
OF COURSE, THE CFO'S JOB is still primarily finance. It’s just become more complex. Even a CFO who does not want to expand the scope of his role has to keep an eye on the increasingly complicated financial products and currency management that come with raising capital of various kinds.
“Having a finance background really helps, because you know what the investor is looking for or the kind of returns they are expecting. In a capital-intensive business such as wind power, understanding what the capital provider is looking for is an important part of the CFO’s role,” says Sumant Sinha, chairman and CEO, ReNew Power.
The CFO now, more than ever before, needs to be clued in to the nuances of financing in a market not flush with cash. This was not seen as so important in 2007-08, when companies issued foreign currency convertible bonds to the tune of $4 billion (Rs 17,848 crore). These bonds will come up for redemption in the next two years.
Today, the shares of those companies are trading at values far lower than when they issued the bonds. So it makes sense for them to buy back their own bonds from investors.
The challenge is that the hedge fund that holds the bonds today is not the same one that bought it. Many of these bonds end up going to the retail market, making it tough for companies to trace the present owners. That job will most likely be the CFO’s.
Even as the CFO looks at currency hedging and complex treasury management, he has to take more mundane events into account. Manoj Adlakha, vice president and head of global commercial cards at American Express India, says something as small as travel and entertainment expenses could trip a large corporation. “Just by using a charge card, where every expense is accounted for and is available in the form of analysable data, companies can save up to 9% of their costs compared to [the past] when these facilities weren’t available,” he says.
There’s also the matter of deeper industry knowledge and keeping up with changes in technologies. In retail, for example, sourcing and rentals are important. However, in a wind energy unit, turbines and wind farms are fixed assets; the challenge is to ensure the price of power remains competitive. For a CFO, this means that strategies for fundraising will have to change depending on the industry, and that requires a thorough understanding of the business.
Of course, few CFOs have that kind of industry experience. That’s why it helps if they are good listeners. “He is very open to suggestions. If there are other views, he listens to them,” says R.V. Shahi, former secretary of power with the Government of India and member of the board on Jindal Steel and Power, about Maroo.
IN EFFECT, TODAY'S CFO IS a backroom CEO. And, like most backroom boys, his pay reflects his almost invisible status. According to HUL’s latest annual report, CEO Nitin Paranjpe took home Rs 3.2 crore in that—Rs 1.9 crore. It’s the same at other big companies. At Tata Motors, managing director Carl-Peter Forster’s annual compensation is Rs 4.2 crore, while Ramakrishnan gets Rs 2 crore. Yet, it is CFOs like Sridhar and Ramakrishnan who are in the thick of the action. In 2010, Tata Motors needed a £340 million loan from the European Investment Bank (EIB) for its JLR plant. The EIB does not give loans to risky ventures and, in its book, JLR was risky. The only condition under which the bank would lend was if the loan was guaranteed by the U.K. government, or by a bank with a minimum credit rating.
Considering the financial crisis it had been through, JLR could not get such a guarantee from the U.K. government. Tata Motors’ Indian banks could provide the guarantee to the EIB, but since India is rated BBB- (barely investment grade) by ratings agency Standard & Poor’s, no Indian bank would meet the EIB’s criteria.
That’s when Ramakrishnan and his team stepped in. Despite language not being a constraint, the CFO realized that there had been a communication breakdown with the U.K. government. He came up with a two-tier bank guarantee—an innovation born of desperation. Essentially, this meant that the Indian banks had to be credit enhanced by a foreign bank guarantee, similar to a bridge. It took a team of eight or nine banks and four lawyers from diverse backgrounds, besides the EIB, to work out the deal.
Ramakrishnan spent sleepless nights, flying to Europe almost every week. But, he says, “it was fun. You really need to like what you are doing. There is no other way.”