Navigating volatile markets: The CFO Playbook

(Last of two parts)

The chief finance officer (CFO) of yesteryear mainly took care of back-office functions and number-crunching.

Today, the CFO maintains a far more pervasive role in the organization.

Whether in good or trying times, the CFO is deemed at the forefront of governance, assuming a compliance officer position and making sure his firm adheres to standards in risk and crisis management, as well as environmental stewardship.

For these ING FINEX CFO of the Year awardees, these practices go beyond being a mere corporate box-ticking exercise, but a playbook on survival and sustainability in business.

Here are some of their thoughts.

Know that you cannot do it alone.

As the Group CFO of Ayala Land, Inc. (ALI), one of the Philippines’ largest, most diversified, and fully integrated property developers, Jaime E. Ysmael oversees the financial and administrative affairs of over 100 local and international companies of ALI engaged in various sectors of the real estate industry, including two other publicly listed entities and around 30 major operating companies.

This means he has to gain the trust and confidence of hundreds of stakeholders—from the local communities where ALI operates, to its business partners, investors, and lenders, both here and abroad.

The way ALI deals with this matrix of stakeholder relationships is an art in itself.

 Minority rights

“For example, we have a lot of joint ventures. Even if we have majority rights or own at least 50 percent of the land, we always defer to our minority partners. We make sure that their opinions are heard, and we don’t railroad the decisions,” said the 2011 CFO of the Year awardee.

As a result, Ysmael said ALI had become a “business partner of choice” and these fruitful partnerships have also enabled the company to multiply and magnify its impact.

This is evident in ALI’s approach to the local communities affected by its real estate development, from observing environmental rules and zoning laws, balancing its profit interest with public rights, to replicating its sustainability development model in its various townships.

Guard your reputation

For Jose Jerome Pascual, the first CFO of the Year awardee from a global company, a firm’s reputation is everything.

“We strive to make value-based decisions, carefully assessing how different stakeholders will be affected and potentially benefit from them, while taking risk-based actions. We try to answer: Will our actions marginalize one stakeholder to the benefit of another? Will they cause reputational issues?” said Pascual, who recently moved to Pilipinas Shell Petroleum Corp., the Shell Group’s flagship business in the country, after his stint as finance director of Shell Philippines Exploration B.V. (SPEX).

Pilipinas Shell serves close to a third of the downstream fuels market through its integrated marketing, manufacturing and supply and distribution operations.

SPEX, meanwhile, is Shell’s upstream arm in charge of operating the Malampaya project, which supplies natural gas that powers a third of Luzon’s electricity requirements.

Brand, reputation

And Shell’s third business in the country: Shell Business Operations Manila, which is the largest of five shared services centers globally.

It has over 4,000 staff members and runs round-the-clock customer service, expenditure/accounts payable, tax, procurement, and HR processes.

With such a significant and wide-ranging business presence in the country, guarding the company’s brand and reputation poses a huge challenge.

A few years ago, Pascual won praises for embedding integrity practices at Shell, which became among the 12 Philippine companies that received the highest ratings in ethical business practices from the Integrity Initiative, a private sector-led campaign that aims to strengthen ethical standards in the country.

Shell is known for its strong anti-bribery and corruption (ABC) policy that penalizes both employees and suppliers for giving or accepting bribes to facilitate business transactions.

“Because we want to do things properly and we feel strongly about ABC, we will not pay bribes just to get things done quicker,” Pascual said.

“At the end of the day, it is about doing business the right way, not just right away,” he added.

Use IT well.

When he won the first ING FINEX CFO of the Year Award in 2007, Delfin Gonzalez Jr. was the CFO of Globe Telecom who helped the telco go through its growing pains—from building its subscriber base and grappling with a negative free cash flow, to funding its network rollout.

Currently the managing director of AG Holdings, Ltd., the Singapore-based investment company of the Ayala Group, Gonzalez said rules on corporate governance were much stricter now than during his Globe Telecom days.

However, for a highly diversified conglomerate like the Ayala Group, the terrain is no unfamiliar territory, “as it has always been ahead in making sure that it is in step with international governance trends,” he said.

But for those grappling with tighter regulations and heightened public awareness on governance practices, he said, “the use of information technology would play an important role” to ensure corporate vigilance against fraud and other illegal activities.

“After the Bangladesh (money laundering) issue, it has become more important for CFOs to strictly enforce and comply [with governance standards]. A P1-billion fine, after all, is no joke. It’s going to be a major initiative to prevent slippages from happening, especially when you have a nationwide operation. You need to have the systems and processes that would enable you to see these things, and the use of IT is going to play a major role,” he explained.

Nation-building

Help build your country.

Jeffrey C. Lim, incoming president and former CFO of SM Prime Holdings Inc., is the only CFO of the Year awardee who hails from southern Mindanao.

He believes that good corporate governance serves as a catalyst in achieving social, economic and sustainable development in the communities they serve.

“It’s not just about the results and the numbers; we have to think beyond that. A well-governed company benefits the national and local government units with the creation of economic opportunities, which can generate more jobs and increase tax revenues. As a catalyst, we make sure that our projects are anchored on corporate social responsibility activities and sustainability projects that impact our communities. As a supporter of advocacies and actions on climate change in the Philippines, we recognize the importance of disaster preparedness thus integrating disaster risk reduction initiatives in our projects,” the 2012 CFO of the Year awardee said.

Now that his role goes beyond the finance functions of the company, Lim said: “In the light of Asean economic integration, good governance should be the new norm to be truly competitive.”

SM Prime is also setting its sights on a higher target.

“We are in the Top 50 Publicly Listed Companies in the Asean Corporate Governance Scorecard in 2015. We are aiming to be part of the Top five. We want to do this, not just for the company, but also for the country,” he stressed.

Do the right thing, even if no one is looking.

For Ysmael V. Baysa, CFO and Compliance Officer at Jollibee Foods Corp. (JFC), customers will be able to discern that the Philippines’ well-loved fast food chain and Asia’s leading quick-service restaurant is a well-governed company just by the taste of its burger.

“Our ingredients are all of high quality and our customers across all countries are getting the same quality,” revealed Baysa.

 Honesty, Integrity

About 20 percent of JFC’s ingredients come from abroad: From the cheese and milk products it imports from New Zealand, select chocolate components from Belgium, french fries from the US The rest come from high-quality local sources, he added.

JFC’s customers may not be aware of this fact, but the 2010 CFO of the Year awardee said this was precisely what good governance should be.

“This is honesty and integrity. You do the right things even if your customers don’t know,” he said.

“We’ve had cases when we had to lower the price points of certain products just because they would benefit our customers. While our margins would be relatively thin, we compensate for that through loyalty: customers would keep coming back. What is more important for us is to offer value for money,” he stressed.

After all, he said JFC owes its phenomenal growth to its strict and committed adherence to its three standards of excellence: Food, service, and cleanliness, or FSC.

And this standard is observed in its over 2,300 restaurants nationwide, as well as in its numerous joint ventures here and abroad.

Mind your culture

Jose T. Sio may have won a string of “CFO of the Year” titles here (2009 ING FINEX CFO of the Year Award) and abroad, but to the employees of SM Investments Corporation, the charismatic CFO is more like a rock star.

The way he looks at the correlation between good governance and the company’s financial performance reflects his people-centered approach.

“Being a well governed company means you take care of your employees and other stakeholders. This way, you’ll shine, grow, and increase your profit and revenue. Those that don’t are bound to fail,” he said.

Simply put, a company that has a strong governance culture performs well, can drive profitability, make sound decisions, and even rally its employees to behave ethically.

When rocked by financial management scandals, corporate culture often gets the blame, as it embodies the company’s tone of communicating to the public, its operating style, and standard of behavior.

“The CFO must also widen his viewpoint and go beyond the glass walls of his office. He must be ready to know what’s going on, not only in his industry, but in the entire country, its regional neighbors, and whatever will affect the company two to three years from now,” Sio said, “If the CFO will not accept that this is part of his role, then he might as well become purely a bookkeeper.”

The CFO’s role may have vastly evolved over the years—from being a traditional number-cruncher, to taking on multihyphenate roles as the company’s operator, strategist, catalyst, and steward—but the CFOs agree the rules of good governance may largely be as old as the Ten Commandments.

This is why, on the 10th year of the search for the ING FINEX CFO of the Year, ING Bank and FINEX have chosen the theme, “A Decade of the CFO: Championing Good Governance.”

And in times of tumult and turbulence, making the choice between good and evil definitely matters.