CONFERENCE THEME: Sustaining Excellence, Shifting Gears
FSA TOPIC: Once a Finance Leader, next the Leader of the Enterprise – Skills and Steps
First of all, I am grateful to the President of ICAP Mr Yacoob Sattar, and to Mr Khalilullah Shaikh, his Council Member & Chairman PAIB Committee, for their kind invitation to deliver this morning’s Keynote Address to you.
You have a long session ahead of you today. Therefore, I will make my remarks brief and to the point.
The topic ICAP and I have chosen for this Keynote Address is: Once a Finance Leader, next the Leader of the Enterprise – Skills and Steps.
The choice was deliberate. The title presupposes upward mobility, a vertical movement rather than horizontal perceptions.
Our profession has been accused of looking backwards more often than it looks forwards, or upwards. Perhaps that is inherent in the nature of our work. We feel more comfortable playing with the past. In that sense, we are more akin to coroners than to surgeons. We love conducting post-mortems, rather than taking the risk of performing live operations.
And yet, because every organisation or business enterprise is a living, functioning organism, we as finance professionals have to be vitally concerned with its corporate health and sustainable well-being.
Professionally, I would describe as being ambidextrous. We do accounting and auditing. We are advisors and we are also executants. We are both doctors and patients.
I draw this distinction deliberately, for if I was to analyse our profession’s demographic composition, it is clear that we fall into two major streams of speciality:
Those who practice their profession as auditors or as management and tax consultants;
And those who use their professional qualification to make their careers in business enterprises or working for themselves.
Just as a matter of interest, how many of you here today work within the profession - in accounting or auditing firms?
And how many of you work outside the profession?
Interesting. This does / does not bear out the statistics we have of ICAP members.
Membership of our profession, as you know, has grown dramatically.
I joined ICAP in 1966, almost fifty years ago. When I rang up the Institute recently to confirm that I would be speaking here today, I gave my registration number. It is R 327.
“But you can’t be!” the voice on the other end exclaimed.
“I promise you I am. You can check your records.”
“But you can’t be R 327,’ he insisted. “You sound so young!” Thank you, whoever and wherever you are in ICAP.
Well, since 1966 when I was admitted as an ACA, more than 6,300 members younger than me have joined our profession. I find it interesting that within the first forty years since I joined, i.e. between 1966 and 2006, our membership grew by 3,500. In the past 9 years alone, since 2006, it has swollen by another 3,200 members. That means ICAP has admitted almost as many CAs in the past nine years as it did during the previous forty.
Hopefully, that is a reflection on the popularity of our profession, rather than on the leniency of our examiners.
Out of a total of 6,728 current members of ICAP, 1,879 are in practice or employed in practice, here and abroad. That represents 28% of our member body.
The other 72% work outside the profession - 2,071 in Commerce and Industry, another 1,705 employed abroad (primarily in Commerce & Industry and Banking).
Banks and Financial Institutions within Pakistan employ a further 353, Education 111, and the Government 47.
This last figure is perhaps the most damning of all. It is a sad indication of the Government’s respect for our profession. It is a sobering reflection of the Public Sector Enterprises’ perception of our utility to them. And it is a telling indictment of the Dickensian pay scales that make public service indistinguishable from penal servitude.
I was in the Ghandhara Group when it was nationalised in 1972. Ten years later, I happened to meet Mr Habeeb Husain, then Additional Secretary Ministry of Production. He told me proudly that the Public sector corporations and state enterprises had 12 Chartered Accountants.
I asked him: ‘Do you mean that you wish you had more than 12, or regret that you have twelve too many?’
We can however be justifiably proud that many of our members who have made it to the top. Mr Feroz Qaiser, once Special Assistant to prime minister Zulfikar Ali Bhutto; Mr Rahim Jan our first Chairman, Corporate Law Authority; Mr Irtiza Husain who drafted the Companies Ordinance 1974; Mr Abdullah Yousuf, Chairman, SEC; and Mr Zafar ul Haq Hijazi, the current Chairman SEC; and of course our present Finance Minister Mr Ishaq Dar, who joined our Institute in 1975, forty years ago.
As I mentioned earlier, 28% of our members work within the profession and 72% outside it. I will segregate our members therefore into two distinct product streams – the professional CA, and the CA professional.
Let me explain why. I regard the professional CA as one who remains in the profession, in practice. The CA professional is one who works outside the profession.
Following that bifurcation, I will deal with each of them separately and see if the title I have chosen for this talk - Once a Finance Leader, next the Leader of the Enterprise – Skills and Steps – fits them, and if so how?
The professional CA’s career path is linear. It is ordained from the moment he signs articles until he retires as a senior partner of the firm, or if he heads a family firm, then when he retires from life.
You may not remember them but Mr Yusuf Bhaimia and Mr Patel of A.F. Fergusons, Mr N. Bokhari and Mr Aspy Fatakia of Ford, Rhodes, Robson, Morrow, and Mr Hameed Chaudhry are just some examples of this lifetime commitment to our profession.
Therefore, if one has decided to pursue a career in a professional firm, what skills should one possess and over time, sharpen?
What are the steps one needs to take to reach the pinnacle of leadership in the firm? To become the senior partner.
First, which skills? Obviously competence, currency of knowledge, professional excellence, and experience.
A Chinese proverb says that experience is the comb that nature gives us – when we are bald. You will notice that I have nothing left but experience.
Longevity also helps. But be patient. The good may die young; senior partners often last for decades.
There was a time when the relationship between a client and his auditor was akin to a doctor/patient one. Recent legislation, though, has begun to discourage such uninterrupted relationships between auditing firms and their clients. They can no longer look forward to remaining married to each other until parted by death - or by liquidation.
You know the advice often given to professionals at the outset of their careers: Fire your employer once every five years. Well, today, clients are being made to fire their auditors every five years.
Let me turn now to those CA professionals who have chosen to pass through the other door available to us, the 4,800+ of our colleagues working in Commerce & Industry, and in Business enterprises here and abroad.
What skills do they need? And what steps should they anticipate in the climb up the corporate ladder?
To succeed, you must earn the trust of your peers. Trust cannot be commanded. It has to be earned. And that takes time.
Likewise, promotion upwards is not hereditary, unless you are the boss’s son. Like trust, promotion has to be earned.
I offer you the examples of three previous Keynote Speakers at earlier CFO Conferences. They retired as CEOs of their companies. Kamran Mirza (2014) served Abbott Laboratories for 29 years before retiring as its CEO. Waqar Malik worked in ICI Pakistan for 27 years. And Asad Umar (2013), although not a CA – alas, he is only an MBA - worked in ENGRO for 19 years before he became its CEO.
A recent study of Fortune 100 companies has revealed that 70 % of their CFOs were promoted internally; the remaining 30% were hired externally. And another study by Ernst Young of 669 companies showed that 51% of the CFOs came from within.
Once you are in, what should you expect?
There are as many definitions of the role of the CFO as there are CFOs. Here are some by professional firms you know.
Deloitte’s, for example, regards a CFO as having four faces: as a Steward, an Operator, a Strategist, and as a Catalyst.
Another study talks of CFOs needing to move away ‘from operational tasks...towards business-oriented objectives.’
KPMG conducted a survey five years ago of over 400 CFOs. It concluded that CFOs viewed their role as ‘enhancing business performance, extending decision support, and planning strategy.’ KPMG noticed that after two to three years in their expanded role, most of these CFOs spent less than one third of their time on traditional responsibilities.
‘The key differentiating role of the CFO,’ a more recent report by KPMG has revealed, ‘is driving the connection between operational and financial performance [.] That’s why the CFO is well-positioned to see the bigger picture, make truer forecasts, and pave a clearer path to value – by partnering with the business units to improve strategy, operations, IT, supply chain, sales, and marketing, while deploying capital more intelligently.’
What is expected of a CFO?
The expectation CEOs have of their CFOs is high. According to a poll conducted by Forbes magazine, CEOs want ‘more big-picture, strategic thinking from their CFOs.’
That is what the CEOs want. What they get is often less. The same report disclosed that ‘one third of the CEOs felt that their CFOs were not up to the challenge.’
Canadian companies expect future CFOs to ‘demonstrate Leadership and Business Acumen, to have Broad and Diverse Experience, and Stakeholder engagement.’
The ACCA believes that the responsibility of Tomorrow’s CFO is ‘to ensure finance is a catalyst for change across the business, driving outcomes that affect long-term business performance, not just short-term finance or one-off cost reductions.’
In effect, to shift from ‘Accounts Payable’ to ‘Accounts Predictable’.
Legislators are predictably slower than business enterprises in recognising the enhanced role that CFOs can and should play.
Our Companies Ordinance 1984, for example, is embarrassingly silent on the definition or the function of a CFO.
The SECP’s Code of Corporate Governance talks about the role of a CFO, but applies it only to listed companies. Section xii requires every CFO of a listed company to be either a member of a recognised body of professional accountants, or qualified with a post-graduate degree in finance from a recognised university or equivalent. He or she should also have at least 3 years of experience in a listed company or financial institution. But what are his or her responsibilities?
The recent Indian Companies Act of 2013, however, is more forthcoming. In Section 2(51), the Indian Act includes the term CFO in the category of ‘key managerial personnel’. It describes in Sections 128-137 the responsibilities of the CFO. They are to ensure proper books of accounts are being maintained, that the financial statements give ‘a true and fair view’ of the company’s state of affairs, and that he has signed the financial statements and submitted them to the Registrar.
Hold on. What happened to ‘the big-picture’, to ‘Economic Strategy and Forecasting’?
The law, like a good submissive Eastern wife, seems still feels more comfortable walking many paces behind Business practices.
Now that I have referred to the Indian Companies Act of 2013, let me mention an innovation included in this particular legislation. To reduce the gender disparity, the Act requires all Indian companies with a capital of Rs 100 crores or more to have a woman on its Board.
I am not sure what nexus there is between the size of a company’s capital and representation by women on its Board, but I can understand the mentality of those who thought by inserting this condition, they would quietly retard or minimise gender involvement at the corporate level.
Many years ago, soon after I had qualified, I met a friend of mine – Samina Khan. We had qualified at the same time. On my way home, I mentioned to my Pathan driver Noor Samad that Samina possessed the same qualification that I had.
He looked at me quizzically, and then asked: “Sahib, you went all the way to England to learn women’s work?”
Today, financial management (Noor Samad’s prejudices and the provisions of the Indian Companies Act 2013, notwithstanding) is neither man’s work nor woman’s work. Ten per cent of the CFOs of Fortune 100 companies are women. Prominent amongst these companies are Chevron, Hewlett-Packard, JP MorganChase, Microsoft, Coco-Cola, and Morgan Stanley. And 20% of all these CFO appointments have been made in the past three years.
Regardless of whether you are a woman or a man, never assume that you are the best qualified for the CEO-ship.
You may be a Finance Leader, you may run your department brilliantly, you may be closer to the CEO than his very pulse, but I must disabuse you of one notion. As a corporate CFO, you do not sit on the right hand of God.
You may find the Chief Operating Officer or COO already ensconced there.
One popular definition of a COO describes his functions as day-to-day running of the critical departments of an organisation – departments such production, marketing & sales, and distribution. He is responsible for establishing procedures and processes to ensure their smooth functioning. And he is charged with providing operational information and assistance to the CEO. That is as broad as it can get.
The bad news is that the COO, being responsible for overseeing the day-to-day operations of a business, may be regarded by the Board as better qualified than you to be the CEO.
The good news is that, according to recent research on Fortune 500 and Standard & Poor 500 companies, promotions from COO to CEO went down from 48% in 2000, to 35% in 2013. This decline I suspect is not because the COOs were not adequately qualified. The reason may be that Boards look for a well-rounded CEO, rather than a specialist in a single silo discipline.
We therefore have to equip and train our CFOs to offer that radial competence.
By the way, how many of you know a foreign language - other than Urdu?
One of my former pupils from Aitchison College is now studying medicine in the Aga Khan Medical University. He told me that in his first term, he learned very little medicine. He was required though to learn a foreign language – French, German or Italian. The Faculty regarded exposure of their future doctors to Humanities as important as Medicine.
Your first competitor, as I said a few minutes ago, is the COO.
Your second source of competition will be from like-disciplined professionals – ACCA, ACMA and even MBAs. They have the advantage of hands-on experience within businesses, rather than serving time on the treadmill of an article-ship.
Your true competitor though is not the COO or the ACCA or the MBA. It is YOU yourself.
Only you can decide whether you are ready and prepared to shift the gears of your professional life, to improve its traction, to develop the speed you will need to take you to the top.
The inevitable questions must be:
Should we in ICAP now focus on re-engineering our product line?
Is the training we are giving to our CFOs what they need for their new roles as financial and corporate strategists?
Is this grooming enough for them to become potential CEOs?
Conferences like these undoubtedly expose our professional colleagues to the areas that should agitate their minds. Interaction through such forums broadens their awareness of the socio-corporate environment in which they live and work.
Since I am now too old to take advice, I might as well give it. To become a successful CFO, you should:
Be prepared to make mistakes and to learn from them;
Learn to make friends, especially with those in high places – such as Board members;
Ensure that you make your mark with your peers and colleagues;
Master the sinews of your organisation, especially the workings of other departments;
And make sure that your organisation makes money. You will be dead if you don’t, unless you work for the Edhi Foundation.
Remember that as a CFO, you may be occupying a front seat, but it is still a passenger seat. If you want to be in the driving seat, in the CEO’s chair, you will need to re-educate and re-invent yourself – every minute of every day.
When I qualified fifty years ago, someone named Clarence Randall wrote a definition of a Leader. I wish I had read it then: ‘The leader must know, must know that he knows, and must be able to make it abundantly clear to those about him that he knows.’
I cannot improve upon that contour of a Leader.
Remember that, apart from knowing that you know, endurance and survival and longevity are not enough. Follow Adlai Stevenson’s advice: ‘It is not the years in your life, but the life in those years that counts!’
The greatest satisfaction you can look forward to as a Leader – whether as a Finance Leader or as a Leader of a Business Enterprise – is when a CFO trained by you succeeds you as CFO.
Better still: When you see him or her mature from being a Finance Leader to being the Leader of the Enterprise you yourself once headed.
F. S. AIJAZUDDIN
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