While the business environment in the coming months will be extremely challenging, the CFO’s tool box has enough for a good fight.
Yogesh B Mathur
There is no doubt that choppy situation that COVID-19 presents us with has many of the volatile, uncertain, complex and ambiguous (VUCA) world ‘realities’. The immediate, or foreseeable, conditions are driven more by ‘fear’ rather than ‘economic aspiration’ or greed. ‘Survival’ is the key objective as opposed to ‘growth with profits’ and ‘conflict’ is a bigger challenge than ‘collaboration for growth’.
In close to two decades of dealing with such challenges in multiple economic environments, I believe there are some fundamentals that are key to the CFO’s challenge. And to the possible solutions too.
The CFO is uniquely positioned to win and retain the confidence of the operational teams given that he/she is their partner in business. Also, the CFO role comes familiarity with business issues as well as opportunities. Externally, stakeholders invariably lean on him to provide a real view of the state of the business and assessment of the present and the immediate future.
It is imperative at this stage to show a path and a future, yet pull no shots in describing the circumstances, uncertainty and risks (a demand sometimes referred to as the Stockdale Paradox i.e. transparency, but accompanied by authenticity as well as hope for the future). At the core of this is that the same reality confronts all, equally starkly and hence only those who confront it fully may be considered credible.
The focus must be on the middle line i.e. managing fixed costs in the short term – deferring where reducing temporarily is not feasible – and incurring variable costs only where clearly unavoidable. And as far as possible, these must be recoverable over the product sale cycle.
While going through the shutdown, doing what it takes to survive is crucial. Even as revival develops, back-to-back and transparent discussions with all key financial stakeholders are a must. It is but human to start ‘hiding the bad news’ but that will fool no one.
Again, what external stakeholders can contribute if they will, must be brought out, in a plausible (read practical) manner. Also, for a leveraged company, say what you may, but the secured lenders priorities will be critical drivers, until the business is back on a growth path. This puts the CFO at loggerheads with the shareholders, but that is only when the CFO really plays his/her role as an independent professional.
Moreover, especially for companies in the essential commodity space, transparency and apparent bona fide action will improve the potential to draw support, such as may be warranted, courtesy the multiple liquidity actions taken by the Reserve Bank of India (RBI).
As is expected in such times, cash is king. Or more specifically, moving the business to a cash cycle as rapidly as possible and maintaining it across the value chain is the only alternative.
At the same time, those with a ‘war chest’ of liquid resources will be able to support the entire value chain to ensure rapid alignment as revival begins. Also, for rapid revival, adequate liquidity and robust processes will be key.
The new normal post COVID-19 will be driven by an increasingly online world, with added emphasis on wellbeing and healthcare, with regulations and challenges around cyber security, restructuring and employee wellbeing and will rewrite the business models of business such as entertainment, hospitality, tourism and travel.
Rapid action in mitigating risks as well as continuous feedback and buy-in from external and internal stakeholders, investors and regulators alike by the CFO, will be key to the transition.
As it is said, fight steel with steel. Or VUCA....with VUCA. Now standing for Vision, Understanding, Clarity and Adaptability. In an increasingly integrated yet complex world, the ability to inspire confidence, effectively channelize energy and capability, inculcate focus and simplicity and promote a driven yet flexible culture, are qualities that come to the forefront at a time like this.The author is a senior advisor with Grant Thornton, India. Mathur is a chartered accountant with over 35 years of experience as a senior finance professional with over 20 years in the CFO or equivalent roles. This is the second article by him on COVID-19 and the CFO. The earlier one was ‘Case for the CFO as a leader in the post COVID-19 world’