Promoters of family-owned businesses do search for that special relationship with CFOs that is crucial for the growth of the business. And when that equation gets formed it often lasts, like a typical marriage.
Sidharath Kapur, CEO at solar power developer Acme Solar Holdings has reached the corner room via the finance department. A chartered accountant and a company secretary by training, Kapur has over 30 years of experience across financial services and infrastructure companies.
In his previous roles, he has been in senior management at GMR Airports for a decade and finance head at Transocean, Bahrain Financial Harbor and Petronet India. Prior to his current role, he was briefly CEO - Airports, Adani Group.
Here, in a chat with Shalini S. Dagar, he shares a few thoughts on the traits that make CFOs good leaders and the dynamics of the relationship between the promoter-managers and CFOs in Indian family-owned businesses.
Q: The demands placed on a CFO are increasing by the day. From being responsible just for keeping the finances in order, it now encompasses many other responsibilities like governance, risk and technology among other things. How do you see this evolution?A: The CFOs's role has certainly become more complex, especially due to very quick changes in market dynamics and in business disruption technologies. Every business will have its own challenges and risks. For a CEO to have a CFO who is able to look at these risks and manoeuvre (through them) is very important.
So, CFOs constantly need to reinvent themselves. It was always the case, but with the market dynamics becoming so complex, the reinvention has to be that much faster.Q: What are the few traits that are absolutely crucial for CFOs? Is there a checklist for a CFO?
A: The most critical thing is to be top on the potential disruptions in their sectors. They should be on top of technology. These are the missiles that can come from anywhere. Governance is another big item. With more and more complex laws, discerning investors and higher market expectations, governance can make a big difference in terms of valuations and the ability of the company to project integrity of numbers.
These are some very big ticket areas which CFOs need to be on top of. These are all potential minefields. If the business becomes large, managing governance itself becomes a very complex task. Managing complex legal, tax, IT, technology, market risk, external stakeholders' structures becomes a big ask.
Another big ask is M&A which squarely falls in the hands of the CFOs along with the CEO. With technology playing such an important role, many companies are reinventing themselves through acquisitions.
The financial strategy evolves from the business strategy. The CFO can play a very significant role in business strategy. Strategy is just about evaluating choices and making a call on which choice is correct for you. So whether fund raising through an IPO or fund raising through debt? To what extent can you raise debt or equity? Can you grow organically? Or build a new plant, expand existing business or acquire a new company? These are all choices and there is no ready or right answer. This is something on which both the CFO and the CEO will have to take a call.Q: Do CFOs make good CEOs?
A: Well, I think so. Though the CEO can come from any function, a CEO is someone who can take a broader view, has a vision, looks at growth and takes a holistics view of the entire business. If you need to have an eagle's eye view into the business, then a CFO knows exactly what is happening in every segment. A CFO touches every function.
Typically, a 'strategic' CFO will look at growth and strategy, look at how the business can grow and how the bottom line can be built. That, I think, is a very important starting point for a CEO. That gives a little advantage to a finance professional provided he has the right attitude and approach. Strategic CFOs are the ones who have the ability to morph themselves into CEOs.Q: What are the difficulties that CFOs face when they transition to CEO roles?
A: A CFO is a check and balance to a CEO. Yes, they are partners, but a CFO is almost like an alter ego. That role is very critical for a CEO. A CEO, let us say, has a grand plan of expansion, but a CFO has to keep the sanity so to speak. If the CFO gets on the other side (i.e. the CFO becomes the CEO), s/he has to drop that attitude. If s/he continues with that attitude, then I don't think that will make for a good CEO. The CEO has to have the drive and be the engine for growth, while the CFO has to provide the CEO the means to do so. For a CFO who is moving on to a CEO's job, I think it is a big attitude change.
The ease of that change depends on the person concerned. There are plenty of CEOs who have come from the finance function and plenty of them who come from other functions. It depends on the ability, attitude and the ability to slip into the role where they act as an engine rather than act as a brake for the business.Q: What has been your experience of audit committees and what role can they play in the CFO-CEO dynamics? Or the chair of the audit committee?
A: My experience has been good. Audit committees have a role to play. A CFO's experience with the audit committee will be good depending on the clarity they have on processes. After all, the audit committee is there to help you, guide you and knock on the doors of your conscience when needed.
If the choice of your independent board members is good, then the audit committee will be good, productive and effective. It will add value.
The chair of the audit committee must be truly independent, completely impartial and must have a good understanding of the business. They can play the role of a mentor.
However, I don't think that the chair of the audit committee should be the messenger. If there is a message that has to be given to the CEO, then an effective CFO will be one who will be giving it.
Sometimes, it happens that a CEO is a very overpowering influence and the CFO is not able to play a very effective and a balancing role. In such cases, sometimes... It may be relevant to the circumstances of that company and the (specific) dynamics between the CFO and the CEO.Q: Do you think that CFOs also walk out when they encounter issues that just are too difficult to reconcile? When they are not able to get their message across?
A: There have been examples. For a person to walk out, there needs to be something quite serious. There have been many examples of CFOs leaving companies because of concerns. The job of a CFO is very sensitive. Of course, the CFO must protect the key management personnel from governance guided missiles which may land up.
However, if the CFO is finding it difficult to do that (ensure propriety in governance), there have been instances where a CFO may need to take a call that if I can't change it, then I might as well leave. In such circumstances, if a CFO continues I don't think it is either healthy for the person or for the company.Q: In the Indian context, is it easy for CFOs to speak their mind?
A: To the company promoters? A good CFO should be doing that. First, of course, trust needs to be built. If it is a professionally run company, it is different. If it is a family-run company, a promoter-driven company, there is a need to build up faith and trust in the CFO. Once that happens, it is much easier. It takes time for a CFO to be in a position to speak his mind freely. Once that equation or chemistry is there ... (it is easier). That is the reason that in many or most family-driven businesses, the first thing that most promoters will look for in CFO recruitments, it will be that chemistry.Q: How easy is it to build these special relationships?
A: It may take time to build, but it means a lot. That is also the reason in many family-owned businesses, the CFOs almost never retire. They continue till ... they are always on hand, sitting on the Board. They may have handed over the reins to someone else, but they still continue because the promoter still relies on them. In promoter-driven companies, it takes time for a CFO to say, "call the shots."If the chemistry develops over a period of time, it continues. It is like a marriage. It flourishes over a period of time. Divorces also happen. I will go back to what I said, once that relationship is there, it stays.