As the world continues to reel from one economic crisis after another, the role of the Chief Finance Officer (CFO) has evolved from strategic number crunching to the more unpredictable field of risk management, says three award-winning CFOs at a recent conference.
“The world is much riskier,” says Ysmael Baysa, CFO of Jollibee Foods Corporation at the Marcus Evans 5th Annual CFO Forum. “In many instances in recent history, the methods of modern finance didn’t work, resulting to some catastrophic consequences.”
The CFO Forum served as a prelude to the highly prestigious ING Finex CFO of the Year Award. Jointly organized by ING Bank Manila and the Financial Executives Institute of the Philippines (Finex), the award honors the country’s most outstanding finance professional.
Baysa, who won the ING Finex CFO of the Year Award for 2010, says crises are nothing new, but they now happen at increasing frequency so CFOs have to look far into the radar to be able to act early and decisively in addressing business dangers and risks.
As Asia promises to continue being the global engine for growth and the Philippines likely to be upgraded to investment grade by credit rating agencies soon, Baysa says the expectations for Philippine companies remain upbeat.
Safety nets, alternatives, and exit strategies are thus important in this regard, he adds.
He cites the food conglomerate’s experience with Typhoon Ondoy in 2009 when some of its warehouses and stores had to be closed. The company did not lose any money, he says, as profit loss by force majeure is covered by business interruption insurance.
“Risks are much higher than conventionally quantified,” he explains.
In this light, he advises CFOs to stress-test their investment and financial performance, building in worst-case scenarios. They must be sensitive to possible overstatement of asset prices by the market and be wary of over-optimism in business projections, such as aggressive sales forecasts, he adds.
From defense to offense
Jaime Ysmael, CFO of Ayala Land Inc. and ING-Finex CFO of the Year for 2011, says timing is crucial in outlining business strategies—from adopting a defensive position during rough times and subsequently assuming an offensive stance when things get better. In both instances, however, a flexible balance sheet is key.
“While proper timing is crucial, a strong and liquid financial position will always be an advantage,” he says. “A flexible corporate strategy will also enable companies to manage risk and take advantage of opportunities through different business cycles.”
During the global economic downturn in 2008, for instance, Ayala Land shored up its liquidity and tempered its projects to strengthen its financial standing.
When things improved during the second half of 2009, the company shifted to an expansion mode, making use of the strong financial position to jump start the increase in projects.
“A flexible corporate strategy will enable companies to manage risk and take advantage of opportunities through different business cycles. Long-term value creation amid different cycles is at the heart of building a sustainable business model,” he adds.
Orchestrating a turnaround
For Sherisa Nuesa, former CFO of Ayala-controlled Manila Water and recipient of the ING-Finex CFO of the Year Award in 2008, the modern-day CFO is also a risk officer and crisis manager, in addition to helping with strategy and corporate governance.
She cites how her team managed to orchestrate a turnaround in the water utility infrastructure business after the Metropolitan Waterworks and Sewerage System was privatized in 1997 and Manila Water Company was granted concession for the eastern part of Metro Manila.
In steering the company towards profitability, she tackled challenges such as the 63 percent non-revenue water, adding 1,000 employees into the workforce, and the tall order of convincing creditors that the enterprise was bankable.
Manila Water’s “people strategy” proved to be its most successful gamble, says Nuesa, in addition to ethical governance, a business continuity plan, and a more innovative investment relationship.
“Our people, who were seen before as liabilities, became our assets,” she says. “We had decentralization and empowerment at all levels. By trusting them, we turned unmotivated government employees into customer-centered staff. They delivered.”
Nuesa says Manila Water absorbed engineers who mentally knew where the pipes were and equipped them with GIS maps. By using a “territory management” approach, operating units were given the responsibility to make important decisions.
The turnaround started in 2003 and culminated when it went public in 2005. From a high of 63 percent, non-revenue water was reduced to 11 percent—a rate comparable to the most advanced cities in the world. Net worth also increased from $67 million in 1997 to $1 billion today.
“Let us rise to the challenge,” Jollibee’s Baysa enjoins the CFOs attending the forum. “Since traditional theories are being questioned, it gives CFOs opportunities to be creative. The most important thing for finance people is courage, intellectual and emotional courage, to be able to offer solutions.”
Now on its sixth year, the ING Finex CFO of the Year Award is open to the CFOs of all companies, local or foreign owned, privately held or publicly listed, operating in the Philippines and registered under the laws of the Philippines. Companies may be Philippine-owned or the local subsidiary of multinational corporations operating in the Philippines. The deadline for submission of entries is on Sept. 27, 2012. For more information about the ING Finex CFO of the Year Award, contact the Finex secretariat at 8114052 or visit www.finex.org.ph.