Never have the times been so mixed with everything a-changing so fast. And never has so much been asked of CFOs. After all, they are in the most strategic position to balance the interests of management, shareholders, clients and investors. So the saying goes. We canvass the views of CFOs and management experts to assess how they can continue making a difference at a time of rising expectations.
The role of the Chief Financial Officer (CFO) is not getting any easier as their brief continues to expand against the backdrop of tighter regulations, a low yield environment and uncertain global recovery. Aside from the core finance functions, there is greater demand on their time to drive and/or support operational improvements, innovation and business growth.
Asia is an enticing market for insurers given the relatively strong economic growth in the region, a prominent middle class bulge and significant portions of an ageing society in need of retirement solutions.
Nonetheless, it also presents specific challenges for CFOs operating in this region, says Mr Anupam Sahay, Partner and Head of Insurance Practice, Asia-Pacific, Oliver Wyman.
“Some of the many challenges facing CFOs in Asia include a rapidly changing regulatory environment; shallow capital markets; local market competition that forces tough trade-offs between volume over profitability; and the limited availability of actuarial talent in Asia.”
Mastering the regulatory puzzle
For many CFOs, the evolving regulatory environment poses the largest questions which CFOs have to get right, with impact on things such as capital management, investment/divestment decisions and operating cost amongst others.
Mr Herve Marguin, CFO General Insurance Asia Pacific, Zurich Insurance Group says that CFOs are best placed to anticipate and interpret rule changes; and are thus able to provide a unique perspective to strategic discussions impacted by regulations.
“A lot of new regulation is about better understanding and managing risks, and CFOs are at the frontier as they understand the spirit of the regulation and they also observe what is really happening operationally.
“Working together with their C-suite colleagues, they have a duty in ensuring alignment between intent and execution,” he says.
Managing controls and processes
As regulations increase, a key challenge for CFOs is to then manage controls and processes in order to best handle the cost of compliance for an insurer.
“CFOs do not only need to keep pace with the regulatory changes but also need a good in-house network in order to avoid duplication of efforts,” says Mr Rainer Pohl, Regional CFO Greater China, Korea & SEA at Munich Re.
This becomes ever more important as he bemoans the lack of a coordinated regional approach amongst regulators.
“It is challenging and time consuming to serve the local regulators as well as the regulator of the parent company for the same purpose in different formats and variations. This increases the risk of being distracted from the truly relevant task - sound risk management.”
Ms Angela Tan, CFO Asia, Allianz Global Corporate & Specialty, says that CFOs are increasingly required to look innovatively for cost efficiencies amid rising business costs.
“The goal today is to streamline the workflow to the point where productivity and profits rise from achieving economies of scale. We look at each business process and the associated transactional cost and find ways to reduce those costs.”
Be forward-looking and anticipate
She adds that while improved internal procedures can help firms reduce a lot of uncertainties, CFOs still need to anticipate changes on the horizon.
“CFOs who learn to scan the horizon for signs of future complexity can more easily identify disruptions and take advantage of them, rather than scrambling after the fact to keep up.”
Mr James Creedon, Director, Life Practice Development Leader, Asia Pacific, Towers Watson, reiterates the importance for CFOs to look beyond current developments and foresee potential impact for the company.
“In terms of the significant changes in regulatory and financial reporting, such as IFRS for insurance and solvency regulation, the key challenge for the CFO is to understand the implications for the company and lobby effectively for change where needed.
“However, the CFO needs to be able to look through these changes and maintain a clear view on the financial objectives of the company rather than reacting to changes as they occur.”
Supporting expansion and growth
While managing costs is crucial for insurers today, Mr François-Valéry Lecomte, Regional Chief Financial Officer at AXA Asia, feels that CFOs add even greater value by being an enabler for growth.
“Given the current economic climate, there can sometimes be a perception that CFOs deliver value primarily by cutting costs. This negative view is very limited – in reality, CFOs deliver the most value when they take a positive view on supporting strategic objectives for the company as a whole.”
“When a company has an ambition to succeed, you must look at how you can enable that through innovative measures,” he says.
Mr Lecomte envisions CFOs as thought leaders within the executive team who are able to foster new ways of thinking.
“In today’s environment, CFOs need to be open to the outside world. This means that they must be externally-focused, aware of the developments in other industries or countries. They need to promote this behaviour across their organisation in order to stimulate innovation and agility, which will increasingly be key differentiators going forward,” he says.
Helping to steer the company’s growth and expansion is increasingly expected of CFOs these days, thus the need to develop a sharp business mind-set.
“We have to think as part of the front line business team and offer additional insights and suggestions from the financial and operational point of view to help the company develop a sustainable business and build profitable and sustainable growth,” affirms Ms Cathy Chen, CFO at Peak Re.
She believes her added skills in marketing has been valuable in assisting her to better drive business development.
“I gained good exposure on the marketing side of the business through my previous role. The experience added great value to my current CFO position as I can think from the business side and make recommendations that better fit our business goals,” she says.
Thinking like a customer
A recent management report highlighted that many CFOs do not get enough exposure to the world of understanding customers and what drives their behaviour, as well as understanding non-customers and why they are not behaving in certain ways. Hence there is an opportunity for CFOs to forge closer links with Chief Marketing Officers in order learn more and weigh in on the other side of the debate.
While CFOs naturally seek to drive operational improvements in the business, the ability to think from a client or consumer perspective is an important added-value as CFOs look to support growth, says Mr Stuart Farquharson is the CFO for AIG Australia.
“I really think the key is to keep the end client at front of mind when making key business decisions in order to truly create the value that the broader business is after. You also need to understand your business, the market dynamics of that business, and how value is created for customers.”
Collaboration key to success
Given the varied scope of work which CFOs have to undertake, it is not surprising that many point to the ability to collaborate effectively with other functions of the business as a crucial factor for success.
“Any CFO must have enough leadership skills to attract and retain talents with different skill sets and the willingness to work in virtual teams. The challenges of today can only be met through collaboration across departmental boundaries,” says Mr Pohl of Munich Re.
The need to collaborate is obviously evident for insurers with multinational offerings. CFOs have a big role in building internal structures that will enhance the company’s global offering going forward, says Mr Farquharson of AIG.
“Spending enough ‘face time’ with the team and key stakeholders, is something that can be difficult but is vital as is making sure that all the stakeholders in a particular issue have an opportunity to provide input and influence outcomes if they feel they need to,” he says.
Building a winning team
Aside from working well across departments, CFOs need to find a winning formula within their own teams. Constructing and retaining a team with an eclectic skill set has become ever more important given the variety of roles expected to be undertaken.
“The CFO today is widening their focus on strategy formation and risk management with partners in the business while maintaining a strong and efficient finance operation. Attracting and developing a more diversified finance talent pool is critical as the traditional skill may no longer be sufficient in facing these new challenges,” says Ms Adelyn Chen, CFO Reinsurance Asia, Swiss Re.
However, finding the right talent is a challenge especially for insurers who are moving rapidly into high growth markets.
“Evolution of regulatory framework is constantly evident in these markets and the availability of sufficient human capital talent with industry knowledge are key challenges,” adds Ms Chen.
For Mr Marguin of Zurich, having a reliable team you can trust allows the CFO to maintain an overall perspective, something which many can be distracted away from given the array of responsibilities at hand.
“While a CFO must be detail oriented, particularly in providing accurate and timely numbers, their true value is in interpreting those numbers as well as in critical issues such as solvency management and maintaining liquidity. CFOs need to build a team of people that have a clear understanding of their responsibilities and accountabilities so that the CFO can focus on the bigger picture,” he says.
Conclusion
The role of a CFO is multi-faceted and dynamic, and cuts across the spectrum from being agents of change to gatekeepers who enforce governance and risk management, and drivers of growth who help deliver value to the end client.
“I believe that a key challenge for CFOs is achieving the right balance between supporting innovation within the business, driving ongoing operational improvements and being an effective business partner while delivering on the fundamentals, such as timely and accurate reporting and compliance,” says Mr Farquharson.
It is ultimately a fine balancing act which requires continuous recalibration. CFOs are increasingly power brokers able to influence a company’s direction, for better or worse.
“CFOs create value when they find the right balance between supporting business strategies and challenging their colleagues on decisions that could take a company off course,” says Mr Marguin.
Striking the right balance is an art which today’s CFOs will undoubtedly continue to refine.