Vital link to stakeholders
by Mark Eggleton
Who would have thought it but compliance has (in many ways) become the new competitive advantage for organisations. Moreover with the still relatively new International Financial Reporting Standards (IFRS) washing across the global economy and more regulations popping up locally, the CFO’s role has become more onerous.
It means CFOs now have some real skin in the game. They have a personal requirement to ensure their organisation is completely transparent on a regulatory and compliance level.
Moreover, to make sure no more regulations are placed upon their organisation the CFO needs to act. The best starting point for this is to help the company become more transparent. It’s about ensuring the best business processes are in place to ensure they’re always on the front foot when it comes to regulation and (importantly) when it comes to speaking with investors.
Earlier this year, Financial Reporting Council Chairman, Lynn Wood, said the CFO is the “single source of truth” in an organisation.
Speaking at the CFO Summit, Wood said organisations and stakeholders need relevant, reliable, comparable and understandable information and CFOs are in the best position to get it.
She pointed out that a very important trend for CFOs is the increasing emphasis on transparency.
“In general, organisations that lack transparency in their operations, that is those with overly complex financials and structures, are riskier investments. The reason is simple: less information on relevant issues means less certainty for investors. When financial statements are not transparent, investors can never be sure about an organisation's real fundamentals and true risk,” she said.
She cited the famous story of Enron where its managers employed opaque financials and complex business structures to hide unpleasant news. When they were found out, the energy company’s collapse became one of the most infamous in corporate history.
Put simply: transparency pays.
According to Robert Eccles, author of "The Value Reporting Revolution" companies with fuller disclosure win more trust from investors. Relevant and reliable information means less risk to investors and thus a lower cost of capital.
For AGL Retail Energy boss and the company’s former CFO Stephen Mikkelsen, the CFO should be a strong voice in an organisation and a good internal regulator who speaks across and on behalf of the business.
“Transparency is key,” he told The Australian Financial Review.
CFOs cannot be wholly effective without transparency, independence and the confidence that their voice will be heard – and carries weight.
This is vitally important as increasingly, the CFO acts as contact point with the financial markets - playing the lead role in keeping the investors and other stakeholders well informed about the company.
In this role, the CFO increasingly adds strategic value to the business, and forms a critical plank of the planning, development and execution of the organisation’s goals.