THE CFO BANGLADESH | Jul-Aug 2016

JUL- AUG 2016

LEADING FROM THE FRONT IMTIAZ IBNE SATTAR

CFO - STANDARD CHARTERED BANK, BANGLADESH

Finance Role Playing – The Context and the Future Chief Editor Md. Kausar Alam MBA(IBA), FCS, FCCA, FCMA

Editorial Pannel Khaled Mahmud Raihan, ACCA Mohammad Nazrul Islam, FCMA, FCA Mohammad Shakawat Hossain Bhuyan ACA, QIA(UK), CIMA(UK) Md. Anwar Hossain, ACA Ms. Farhana Sultana, ACA

Publishing Director Mohammad Akram Hossain Siblee FCMA, ACCA, CPA

Published by: CFO Connect Bangladesh ‘The CFO Bangladesh’ is the monthly publiation of CFO Connect Bangladesh.

Copyright 2016 CFO Connect Bangladesh all rights reserved. While the publishers have made every

The balanced role of finance is to provide management across the organization with appropriate knowledge, information and guidance to help them make financial information based informed business decision. Drive finance internal efficiencies and deliver optimal cost versus benefits for the organization and provide support in identification and management of efficiency drives across the organization. Importantly, to establish the balance between control and risk for sustainable growth. The future of finance functions are increasingly focused on financial management performance over financial control or volume of financial transactions management.

Importance of finance is shaped as much by the global business and competitions as it is by internal factors. Across the world organizations are coming up against forces that influence their strategy and structure. Finance must response to support these business challenges. The face of globalization continued aided by movement of money and information liberally and virtually.

This resultant ever increased global competitions since investors are increasingly active in running global businesses. Increased regulations and stronger governance is expected to have great impact on the profession at the present time and over the future for longer term. Technology is playing and will continue to play a very important role with business enabling technology and also social media coming in the forefront in the globalized business operation. Technology revolution has made the workplace anywhere you want it be. Sustainability in micro, macro and global context is increasingly, a big concern for shareholders and stakeholders. Organizations are increasingly considering the impact of their business on environment, taking steps to reduce the impact on environment. Risk management and accompanying control environment assurance has become an extra burden due to global financial scandals and crisis. It has become a permanent concern for organization to ensure that controls are effective to allow the organization to grow and evolve in a sustainable manner. In this context professional accountants are expected to look beyond numbers and should possess the skills not only to meet more frequent request for holistic and forward looking information but also more frequent ad-hoc reporting from every more demanding stakeholders as the barriers are eroded between financial and non-financial performance.

In our country context relatively large and a few medium corporates have done and or started automating business through implementing ERPs for financial and non-financial information availability, accuracy and reporting. This must be backed by adequate organization structure, policies, control mechanism and overall corporate governance environment. At macro level, to respond to frequent external business environmental changes there needs proactive analysis on market dynamics and competitions with careful focus on business image and brand building.

Finance can play a pivotal role in achieving these milestones. Board should seriously look into the matter for empowering finance function not only for control purpose but also importantly for ensuring growth and sustainability of the business. Finance people should know the success of finance greatly depends on using technology better, training and developing finance team and greater self promotion and selling to the rest of the business in order to contribute to better decision making. It is all about flexibility – so that whatever the world brings you can adapt to it across industries, geographies and tough time. If finance truly adding value, it will be a source of leadership talent for other parts of the business and for overall organization. Finance needs to step up in the face of these business changes. The future finance professional is as much a strategist as an accountant.

effort to ensure the accuracy of all information in this magazine, they will not be held responsible for any errors therein.

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Md. Kausar Alam MBA(IBA), FCS, FCCA, FCMA Chief Editor

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Fiscal Impacts from Fin Act 2016 Major fiscal impacts arising from finance act 2016.

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Rout to Top

Aditya Shome, MD & CEO of Marico Bangladesh Ltd. elucidates his experience of transition of CFO to CEO position.

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Strategy That Works

Five acts to transform your future.

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Leading From The Front

Imtiaz Ibne Sattar, CFO of Standard Chartered Bank tells how he leads the finance division of one of the best financial institutions of the country.

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Inventory Management Ten ways to improve inventory management.

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Exposure to Global Platform Nurul Haque, FCA, the managing partner of Chartered Accountant firm Nufhas / BDO Bangladesh shares the growth opportunities as well as changes of the profession.

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Internal Audit for Sustainable Governance

Md. Shakawat Hossain, the Group Head of Internal Audit of SSG expresses his views on role of internal audit on the sustainable governance in companies.

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Extracting Enhanced Value

CFO of MJL Bangladesh Ltd. Mohammad Tipu Sultan FCA shares his role transition in pre and post IPO of the company as well as in other corporate governance issues.

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Nine Things For A Fulfilling Life

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Thriving in Turbulent Times

Critical factors for business transformation success.

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Want to Sell Your Business?

Preparing for the sale.

Top Line

New NBR Format for PVT Cos to Submit Salary Statements In a move to raise more revenue from payroll tax, the National Board of Revenue (NBR) has issued a prescribed format for the private sector employers to submit salary statements of their employees.

Such a format was inducted in the income tax rules issued on June 29, 2016.

As per the format, the private companies will have to furnish detailed account of cash reimbursement of its employees, number of employees without TIN and expenditure on salary payment to foreign employees to the taxmen.

The NBR has included the measures in the income tax rules with a view to raising the contribution of payroll tax to 7.0 per cent from existing 3.0 per cent in the total withholding tax.

Companies will have to deposit the tax deducted at source from salaries of their employees within two weeks to the taxmen which earlier could be extended up to three months.

Companies will have to submit salary statements with information on the number of foreign employees, total amount spent as their salaries and percentage of the paid amount on total income of the company, the rules said.

The employer will also have to give a list of employees of the company who do not have taxpayers identification number (TIN).

Companies will also have to furnish details of the amount of cash reimburse-

Capital Market Update 1. Bangladesh Securities and Exchange Commission (BSEC) approved Initial Public Offering (IPO) of Fortune Shoes Limited. The company will issue 22,000,000 ordinary shares at BDT. 20.00 per share and rise totaling of BDT. 220,000,000. IPO proceeds will be utilized in construction of building, purchase of machineries and meeting IPO related expenses. Latest Earnings Per Share (EPS) of the company BDT. 1.22 and Net Assets Value (NAV) per share BDT. 13.75. Imperial Capital Limited and Prime Bank Investment Limited are acting as issue managers of the company.

2. Initial prospectus of open-ended mutual fund of ICL Balanced Fund has approved to raise BDT. 100 million at value of BDT. 10 per unit. BDT. 20 million of the fund will be funded by sponsors and rest BDT. 80 million allocated to general investors which will be raised through selling of units.

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ment per employee in the salary statement.

It has been alleged that many companies provide higher amount in cash to their employees than that of the salary amount to evade payment of income tax. With the information, the difference between salary amount and cash payment will be known.

However, taxmen will not create any tax liability for taxpayers on the basis of the information.

The payroll tax is more than 30 per cent in developed countries. In India and Pakistan, it accounts for more than 15 per cent of the total withholding tax. In the Finance Act-2016, submission of a list of employees and their TIN numbers to the taxmen has been made mandatory at the time of showing salary expenses.

In case of failure of doing so, salary payment by companies will be treated as income and will be taxable. The NBR also made TIN mandatory for employees in management, supervisory level in private companies and all government officials who are drawing minimum Tk 16,000 monthly salary.

About 95 per cent of the employed people work in the private sector. Of the employed, 24 million are paid employees and half of them receive salaries on a monthly basis. According to Labour Force Survey 2013 by the Bangladesh Bureau of Statistics, the number of managers, professionals, technicians and associate professionals is 3.4 million or 14.6 per cent of the total employees. They have an average monthly income between Tk 17,746 and Tk 21,323, according to the survey.

3. Initial prospectus of open-ended mutual fund of ATC Shariah Unit Fund has approved to raise BDT. 100 million at value of BDT. 10 per unit. BDT. 21 million of the fund will be funded by sponsors and rest BDT. 90 million allocated to general investors which will be raised through selling of units.

4. The Commission has approved the right offer of 1R:1 i.e. one rights share against one ordinary share of Bangladesh Thai Aluminum Limited. The company will raise BDT. 523,350,280 from capital market to increase production capacity and pay a portion of debt. The NAV of the company BDT 47.94 per share and EPS BTD. 1.03.

5. United Airways (BD) Limited will raise BDT. 2,240 million by issuing Coupon Bearing Secured Cumulative Fully Redeemable Bond through private placement to other than existing shareholders.

The bond is non-convertible, fully redeemable coupon bearing, secured and sub-ordinated. Per unit value of this 6 year tenure bond is BDT. 10 million and interest rate is 12.5% with one year interest lock-up period.

Reporting Fatigue Hits CFOs Amid an increasingly demanding corporate reporting environment, CFOs are losing confidence in the effectiveness of reporting, with many complaining of reporting overload, according to EY survey.

The survey of 1,000 CFOs across 25 countries in organization with revenue greater than $500 million found confidence across all key aspects of corporate reporting has fallen in 2015 compared with 2014. The biggest decline was in “confidence in degree of compliance”, with only 55% of respondents saying they are fully or somewhat confident, compared with 84% in 2014.

There are other significant declines in extent of benchmarking reporting (44% today vs. 66% in 2014), clarity and relevance of messages (45% vs. 67%), and consistency in application of key performance indicators (44% vs. 65%).

Only 39% finance chiefs perceived reporting as being cost-effective, compared with 68% in 2014, and just 48% said their reporting was effective in securing the confidence of the board, a significant drop from 71% last year.

CFOs need to step back and evaluate what they are producing and address concerns over confidence and effectiveness quickly. Corporate reporting will only serve its intended purpose if the CFO is confident of its value. EY identified a number of reasons for the loss of confidence in reporting, including the increased complexity of reporting, growing demand, with finance leaders concerned there is a widening gap between the reports that regulators demand and the reports that other stakeholders, such as investors, require; and pressure on resources.

The survey also found that finance chiefs are feeling the ripple effect of increased scrutiny being placed on audit committees and supervisory boards. Eighty-four percent of respondents said that audit committees and boards have increased their overall attention on reporting in the past three years, with 34% saying that the attention has increased significantly. Audit committees are under spotlighting for how they carry out their responsibilities, and CFOs are in turn under pressure to provide more and more information.

Key Stats BDT 48 billion Govt’s net bank borrowings in FY 2016

Feature

Taxation

MAJOR FISCAL IMPACTS ARISING OUT OF FINANCE ACT 2016 Masud Khan, FCA, FCMA Chief Financial Officer Lafarge Surma Cement Ltd.

The Finance Bill has just been passed in the Parliament on 30 June with some amendments. It is heartening to note that a number of key changes proposed have been accepted by the Government.

These include: Tax at source on exports: In the proposed Finance Bill, tax at source was proposed to be increased from 0.60% to 1.5%. Facing stiff opposition from trade bodies, this amount has been brought down to 0.7%.

Deposit of VAT on appeal: The Finance Bill had proposed an increase from 10% to 50%. This proposal was highly unjustified. Current VAT audits are extremely arbitrary in nature and often big demands are raised either to increase government revenue or for unethical reasons. Increase of tax amount from 10% to 50% would have severely strained the cash flow of the companies.

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Base value for tax deducted at source: The Finance Bill had proposed to add the VAT on the price and income tax at source to be calculated on the higher amount. This proposal would have amounted to tax on tax. Both income tax and VAT should be calculated on the price to be paid. Much to the relief of the corporate taxpayers, this provision has been withdrawn.

Higher rate of tax on distributors’ commission: The Finance Bill had proposed to increase the rate of tax deduction for distributor commission.

Earlier, the rate was 3% of the amount representing the difference between the retail selling price and the invoice price to the distributor. The Finance Bill had proposed to increase the rate to 5% with a flat margin of 12%. In the first place, the tax should be applicable only on distributors’ income. Tax on retailers income should not be included which is not being earned by distributors.

Secondly, the flat margin of 12% has got no relationship with the market reality where the distributors get much less commission. Finally, the value addition has been brought down from 12% to 6% that will reduce the cost of doing business for corporates.

Financial year for multinational companies: In the Finance Act 2015, the definition of “income year” was

changed and a uniform income year was imposed for all companies running from July to June. In line with the change in income year for tax purposes, the financial year was also made uniform for all companies. Imposition of this provision would have rendered the consolidation of accounts for multinational an impossible job since globally all multinationals follow a calendar year for financial year. The Government has realized the problems of multinationals and introduced a proviso under Section 2(35) to exclude multinationals.

Limit for investment allowance for individual taxpayers: The government had proposed to reduce the investment allowance from 30% to 20% and has also proposed to reduce the tax rebate on investment allowance from the current rate of 15% to mostly 10%.

Faced with a strong demand from all sections of society, the investment ceiling has been raised by 5% fixed at 25%.

Despite these changes, a number of measures proposed in the budget remain unchanged. This will have a profound impact on the individual as well as corporate houses. Some of these measures are discussed below: Workers Profit Fund: The Finance Act proposes to tax this receipt with an exempt amount of BDT 50,000. For salaried employees who receive

Feature

Taxation

Workers Profit Fund, this receipt has been tax free since the time the Act has been enacted in 1968. Bangladesh Labour Law mentions this income as tax free. Taxability of this income will create industrial unrest among the workers who have never paid tax on this income and destabilize operations. This proposal needs to be withdrawn for the interest of salaried employees.

Tax at source on income of Provident Fund, Gratuity and Workers Profit Fund: The Finance Act proposes to deduct at source at the rate of 5% from the above funds. Income from the funds form a part of retirement scheme. Rates of government sanchapatra have been coming down in recent years. This has decreased the income of the funds. In the case of Gratuity Fund, no investment is possible in sanchayapatra and only investment in TBill is possible which has a very low yield. Under this circumstance, further deduction of 5% will be very damaging to the retirement benefits of retirees. In Bangladesh, there is no state administered pension fund. This reduction will strain the already beleaguered retirement benefit amounts.

Income from funds is exempt under the Sixth Schedule of Income Tax Manual.

Also, payment received against provident fund and gratuity is exempt.

There is therefore no rationale to deduct tax at source against these heads of income.

amendment proposes that the tax payable will be higher of the two amounts. In other words, there will be no refund. This proposal goes against the fundamental principle of Income tax which is to pay tax on the income. Under this proposal, if the tax deducted at source is higher, the income relating to this tax is treated as “deemed income� which will have no relationship with the actual income. Unless the tax authorities prove that the actual income is higher, payment of higher tax is clearly unjustified and unlawful.

Also the rates of deduction at source are clearly unjustified. For example, tax deduction at source from suppliers is at the rate of 7%. The supplier would need to have a net margin of 28% on his sales which is clearly not tenable in the current competitive scenario where suppliers struggle to make a margin of 10%.

Audit of return relating to tax deduction at source: The Finance Act proposes to have the above returns audited. This proposal is highly unjustified. Annual tax returns are audited. In addition, if such half yearly returns are audited, tax payers will face unnecessary harassment.

Higher rates of tax deduction at source: The Finance Act proposes to increase the rates of tax deduction at source.

Both income tax and VAT deduction at source increases the cost of doing business. Most suppliers refuse to accept tax deduction at source and ask the company to bear this amount.

Increase of rates will add to the costs which are already high. There is no doubt that private companies are doing a great service to the government acting as tax collectors for which they do not receive any payment. Hence, such increases should not be done for the interest of business.

Minimum tax for companies filing tax returns with loss: The Finance Bill proposes to raise the minimum tax for above companies from the current rate of 0.3% to 0.6%, 0.75% and 1% depending upon company category.

Making profit or loss is a natural business phenomenon. No company can guarantee that it will always make profit.

The above tax is being charged on the premise that companies are not declaring their true income. The onus of proving lies in the Income tax authorities and unless this is done, the tax loss should be accepted. The Indian Income tax recognizes this fact and allows this payment to be adjusted in subsequent years. The increase in rates will put further burden on loss making companies who are already struggling with big debt burdens and is clearly unjustified.

Amendment of Section 82C: The Finance Act has proposed a major change in the manner tax deduction at source should be dealt with. Earlier, if the actual tax based on the return was lower than the tax deduction at source, the excess income tax paid was refunded under the law. The new

Investment Allowance: The rate of investment allowance is still lower by 5% compared to last year. In addition the rebate has been lowered from 15% to an average of about 11%. Individual tax payers, already reeling under high taxes, will still suffer from this unjustified decrease in investment allowance that is

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reducing their disposable income that will have a detrimental impact on their disposable income as well as further investment.

Concluding remarks: There is no doubt that the Government needs increasing revenue to fund the desperately needed development needs. However, the answer is not to continue to increase the tax burden of those who are paying taxes. It is estimated that around 1 million out of a potential 10 million taxpayers pay taxes. This in effect means 1 million taxpayers are paying the taxes for the 10 million potential taxpayers. If the Government can increase the tax dragnet for the people who are not paying taxes, the tax rates will automatically come down that will enhance the compliance culture. For example, when NBR fixes revenue targets for individual tax circles, there should be more focus on increasing number of non taxpaying entities as opposing to increasing revenue.

Private sector investment as a % of GDP continues to be very low at a figure of 22%. This will deter the objective of the Government to accelerate GDP beyond the 7% mark on a sustaining basis. The Finance Minister, in his concluding speech, has identified three reasons for the sluggish private sector investment.

These relate to lack of energy, land and infrastructure. However, these are just the tip of the iceberg. The deeper malaise lies elsewhere.

I would like to point out that the measures of the government to continuously increase taxes and customs duty are significantly increasing the cost of doing business. At the same time, energy costs are spiraling.

Borrowing costs are coming down but are still high. In such a situation, entrepreneurs face a great deal of uncertainty in recovering their investment particularly when the future is uncertain and import of goods can be done freely at a price that could be significantly lower than that domestically produced. The problem is that Government does not really understand the problems faced by private companies.

There should be more empathy from their side and much more dialogue to address the needs of private sector. This will usher a better economic climate where private sector can flourish that is currently the desperate need of the hour.

Interview

Aditya Shome - CEO, Marico BD

ROUTE TO TOP Aditya Shome is the Managing Director and CEO of Marico Bangladesh Limited, having work experience of over two decades spanning four different geographies and multiple functions. He elucidates his experience of transition of CFO to CEO position as he was CFO of the same company before assuming the CEO role.

In 21st century, how CFOs role has evolved beyond traditional focus on financials and reporting into strategic decision support?

CFOs are accelerators to any business; irrespective of their size, complication or nature of business. This role has traveled a full circle for the past decade and today, CFOs are very much a part of every business decision and execution ladder. Expectation from a CFO is no longer restricted to just "reporting and compliance" but a role that encompasses providing meaningful MIS which facilitates decision making, suggesting newer ways of working and ensuring Governance. When converged, it can get challenging and also act as a double edged sword but since a CFO is best placed in a business vertical, they are equipped to provide a logical advice and solutions. The finance members have the advantage of the developments across all functional verticals of a business and by virtue of having a bird's eye view of the dynamics and risks on hand, can provide meaningful suggestions.

I no longer view the role of "reporting and compliance" as being a goal by itself but a hygiene aspect of today's business. CFOs can no longer be Accountants or Finance professionals but necessarily need to be Business Facilitators.

What are the factors that help in the grooming of a CFO as potential CEO candidate?

The expectations for any senior CEO leadership role are quite similar irrespective of their professional background. It is all in the mindset and interests of that individual. When I decided to move into a general management role, I started planning my career accordingly. I always had this nert desire to be part of a holistic exercise wherein I play, not just a role at the ideation stage but am equally participant with the execution and journey of the task or strategy on hand.

As far as deciphering the capability matrix is concerned, such roles definitely require an individual to possess three key aspects;

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a. clarity of thought and the ability to break down any given objective into simpler deliverables and more importantly, the knack to eliminate possible alternates to decide upon a couple of them. Basically, an individual should possess adequate common sense. b. The second thing which is an extremely crucial, is the Leadership quality and skills. How can the leader create a winning team which is well oiled and engaged at all times? This need becomes all the more imperative and amplified when the business is going through a transition. There are three parts to it; recruiting the right team given the need of the business, engaging them through effective delegation and authority and lastly retaining your best talent at all times. The leadership traits are crucial and this can be achieved in many ways. You need to be objective in concluding the role that is expected out of you and how well can you adopt to the changes and need of the hour. It depends a lot on the leader's belief that he or she doesn't need to control everything but only be an influencer to the members to help them sail in the right direction. So it mandates a fair share of learning and un-learning on the part of the leader. c. Lastly, Execution Excellence. You are as good as of yesterday and you may have a beautiful strategy on hand but if not executed timely and well, it has no meaning. Competition will otherwise eat your strategy for breakfast. Not all strategies work but it depends on your ability to quickly create multiple alternates to execute what you so esire.

Many believe that the experiences and skill set of the finance chief might make him or her a natural fit for the role of a CEO. Do you think CFOs are inherently competent for the position of CEO? Absolutely. There are several examples of CFOs turning into successful and more importantly able CEOs. As I have mentioned above, the traits required are generic in nature. As long as you have the ability and willingness to appreciate

situations, ready to unlearn your pre-notion beliefs and walk the talk with the concerned, you can make a difference to the business and the team.

Business is not always about doing the right or the wrong thing but the best thing. It is about making judgments on the basis of information on hand and living with that decision. One needs to always keep in mind that you will never fail but always win or learn from the experience.

Sometimes it is alleged that the functions of CFO are less pro-business while CEO must be a pro-business leader? Do you think the above acts a hindrance for a CFO to become a CEO? There is an element of truth in this myth.

CFOs tend to stay passive and conservative in their approach. By virtue of their past background, CFOs want to stay focused primarily on the bottom-line and lose their sight on driving growth of the top-line of a business. That is why I said, the key is the ability to un-learn our given and past beliefs. For instance, CFOs tend to argue that unless we earn a particular margin, we should not be launching a product or for that matter without being absolutely sure of the desired ROI, we shouldn't plunge into a new activity. But that is hypothetical in nature.

CFO should stay focused on ideating the building blocks to any given plan or initiative and be willing to be an equal partner to the goal. This doesn't always come naturally to all CFOs. Usually, once you are committed to the thought, you will automatically be coming up with alternate methods to make it succeed in case of an issue. I have come across Finance professionals who like to restrict their role to being an advisor and less of a player. This doesn't help. In any business, risk and rewards go in tandem and the probability of success is always higher once the plan is adequately fleshed out and co-owned by Finance.

What are the key drivers that helped you to assume the position of CEO from CFO? I always felt that I was less of a

Interview

Aditya Shome - CEO, Marico BD

“There is an element of truth in the myth the CFOs are less pro-business while CEO must be a pro-business leader. CFOs tend to stay passive and conservative in their approach.

By virtue of their past background, CFOs want to stay focused primarily on the bottom-line and lose their sight on driving growth of the top-line of a business.�

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Interview

Aditya Shome - CEO, Marico BD

functional expert and more of a generalist. I lacked an element of patience and distasted the practice of doing any analysis which can lead to paralysis! It was more of a personal choice and hence the shift.

I get a personal height when I am close to the ground rather than being on a helicopter and having a look from the top. Secondly, the experiences which I have gathered (by design) over the last decade helped me charter out my career path as a CEO. I had purposefully taken up roles which were tuned towards setting up or turning around businesses ever since I decided to begin my career in the international geography. I realized over time, that this is my forte and also an area of interest. Accordingly, I have planned my career such that I do not lose sight of my final destination. Lastly, I have always built upon my strengths without losing focus on the areas of improvement.

How do you differentiate between your role of CFO as well as CEO? Honestly, I never stayed glued to being a pure CFO. So even during my earlier days as a CFO, I would spend more time with the line functions. This gave me a better appreciation of the business nuances and dynamics. But as a CFO, striking the balance would always be a difficult one since as Finance professionals we are given to believe that we are the sole custodians of business and that we alone know how to protect the interest of business. A completely wrong hypothesis!

In fact, Finance professionals can stay as much or as little informed of the business and solely depends on their mindset. Every line and staff member is equal custodians of business and Finance alone cannot protect the interests of business. Once I got that realization, I was able to do justice to my role as a CFO. On the contrary, once I moved into the CEO role, the task became all the more challenging since I had to continuously unlearn what I have learnt as a Finance professional and also stay away from what I always loved doing i.e. Finance. It was extremely difficult to take the peddle off Finance and leaving the team to swim on their own by being on the other side of the table as a customer.

What additional advantages, do you think an organization receives from a CEO who was earlier a CFO of that organization?

Couple of obvious:

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a. Bottom line appreciation b. Ability to dispassionately evaluate opportunities and thereby bringing in a balance to any business plan c. Networking opportunities thereby providing the desired outside-in perspective to the business at all times 'CFOs are lacking of the capability to make practical/political compromises necessary to move the team and the business forward'-how do you justify it?

I do not believe it at all. It is the collective mindset of the stakeholders involved in any business process and initiative. Any activity or plan can be as practical or as theoretical as it can be, if not fleshed out or co-owned by the relevant stakeholders. The myth will depend on the body language and value which the CFO brings to the table. I believe that this perception was prevalent, a decade

back. In today's scenario this is absent in most of the professional set-ups and secondly CFOs cannot survive unless they add value continually.

What are the Board's take/consideration while choosing a CEO with CFO background?

While choosing any candidate, the Board is keen to know if the incumbent can deliver upon the business mandates and in parallel ensure that there is adequate visibility, transparency in business through processes and early warning signals. Board doesn't like surprises. As long as the assigned leader can drive these agendas, it doesn't matter what pedigree the CEO possesses. In my experience so far, I haven't received any specific mandate nor drawn any specific perception by virtue of being a CFO in the past.

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Feature

Strategy

STRATEGY THAT WORKS FIVE ACTS TO TRANSFORM YOUR FUTURE 14

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hy are so many companies wasting time and money on strategies that never come to life?

Ironically, it sounds like they're doing all the right things of focusing on growth, pursuing functional excellent, reorganizing to drive change, going leaned across the board, reacting quickly to market changes. But this conventional wisdom is a trap: It creates a huge gap between your destination and your ability to get there. In order to build a strategy actually built to execute, you need to do the opposite of what most companies do.

The book "Strategy That Works" reveals the formula for success: five unconventional acts that the world's leading companies use to win. The work is all about closing the strategy to execution gaps that your company can create the profit success and sustainability that you are looking for.

Act -1: Commit to an identity Stop chasing growth invited. Define yourself by what you do, not just what

you sell. A truly differentiating is built on bespoke difficult to build capabilities, your competitors can’t by these off the shelf. So it gives you an unbeatable growth engine. Take IKEA, from 1 store and a Swedish forest to the world’s leading home furnishing read. It has always stayed true to its identity creating a better everyday life for the many people. Everything idea does from its deep research to understand how people actually live at home to its frugal selfpics self carry self-assembly model is designed to deliver on the promise of who the company is and what they do best.

Act -2: Translate the strategy into the everyday Stop focusing on functional excellent and endless benchmarking that will only lead you to the same place in the market as everyone else. Start blueprinting and building a handful of unique cross functional capabilities that actually

Feature

Strategy

deliver your strategy and drive your profits then scale them across your entire organization. Think about Spanish clothing brand ZARA, has turned the fashion industry on its head. It perfected amazing capabilities in fast fashion-forward design and rapid response manufacturing. This allows ZARA to deliver an astonishing 36,000 new design in a year to more than 1,900 stores around the globe.

Act -3: Put your culture to work Stop fighting your culture, start putting it to work for you. No culture is perfect; the key is to identity and leverage the parts that work in your favour. Activate the critical few behaviours and trade that drive your success. This will help inspire every employee to help execute your strategy. Brazilian cosmetic company NATURA does this beautifully. Its corporate culture celebrates relationships with people and nature. Above all else this helped attract 1.5 million sales

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consultants brand zealots who sell door-to-door and build relationships with millions of women across South America. The result, the NATURA is now the region’s largest beauty company.

Act -4: Cut costs to grow stronger Stop cutting costs across the board.

Start driving supercharged growth by cutting costs strategically. Most companies waste 20% to 40% of their budget on things that have nothing to do with their strategy instead invest this money in your unique capabilities and put it to work to fuel your success. That’s what CEMEX did when it had to survive the 2008 financial crisis. There was immense pressure to cut deeply across the board but instead they may dramatic cuts in certain areas. So they could keep investing in the critical capabilities that would fuel its future as a solutions provider. For example it improved its ability to help lower income families to

build homes. It extended its infrastructure design service for local officials and it worked. CEMEX is now a global leader in the industry.

Act -5: Shape your future Stop constantly reacting to market changes. The best way to win the future is to shape it yourself. Give privilege access to your customers so you can discover what they want even before they know. Make sure you constantly advance and involve your capabilities system. Realign your industry around your strength and push the market in a direction where you can dominate.

STARBUCS is a great example. We thought we want coffee, CEO Howard Schultz knew before we needed that.

We wanted a third place beyond home and work together. STARBUCS took the market in a completely new direction and with 22,000 stores and counting it continues dominate the coffee and community space it created.

Cover Story

SCB CFO

LEADING FROM THE FRONT

Standard Chartered Bank (SCB), the leading multinational bank has been operating in Bangladesh more than 100 years. Imtiaz Ibne Sattar, Chief Financial Officer of the bank tells The CFO Bangladesh how he leads the finance division of one of the best financial institutions of the country.

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Cover Story

SCB CFO

“I focus on drivers of performance, track them on consistent basis, not on crisis basis, discuss them with business partners at regular intervals and if drivers are driven in a timely manner, then results will follow.”

SCB has been in Bangladesh for more than 100 years, how important is the Bangladesh market to SC from its global market perspective?

SCB has been operating in Bangladesh since 1905 and is currently celebrating 111 years. Globally, we are an emerging markets Bank, focusing on Asia, Africa and the Middle East. Bangladesh Economy has been performing well consistently for almost a decade. We feel that the country is at an inflection point, ready to grow exponentially.

Bangladesh, as a market is therefore very important for our Bank; it is in the key growth markets and the Group has identified a lot of potentials for growth in this country.

CFOs are generally known to focus more on reducing operational costs.

Do you think some of these measures compromise growth initiatives, in favour of cost cutting and profit optimisation?

In today’s constantly evolving economic and business scenario, strengths of a company will less likely to be measured against profits and shareholders’ returns, rather more focus to be given on principles of returns balanced against accepted risks, ability to meet cyclical and counter cyclical changes in economy and markets.

I rather see the focus on costs as more from the perspective of resource allocation – spend mandate is very precious and needs to be deployed judiciously. There will be prioritization, concentration on core businesses, constant drive to be nimble and sharp; hence there will be requirements to allocate capital, liquidity and investments not on proportional rule basis, but, to the best in class assets/user basis – this will then significantly assist in the first and core objective of sustainable growth, ability to meet cyclical and counter cyclical changes.

Talking about performance, CFOs are ultimately evaluated by the company’s overall results. Being the CFO of one of the best banks in Bangladesh, how do you deal with performance pressure?

I rather feel excited and passionate about performance aspirations and

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associated challenges. I am not overawed by it; I focus on drivers of performance, track them on consistent basis, not on crisis basis, discuss them with business partners at regular intervals and if drivers are driven in a timely manner, then results will follow.

Even when the trend and outcome seems stressed compared to target, the timely knowledge of same to steer the course towards right direction or change the strategy/revise the target given evolving market conditions are emphasized. In essence, we need to minimize the element of surprise on performance and have the ability to see multiple scenarios and more than one plan for success.

One thing we need to keep in mind that if we act professionally and plan well, we will enjoy work and not get too stressed, however, we also need to have personal fulfillment to balance work pressure. We also need to be able to do things we love outside of work i.e. spend time with family & friends, work on a passion, read books, watch movies, exercise etc.

As per recent published report in newspaper, SCB PAT declined by 27% in 2015 compared to previous year, how critical is the CFO role to achieve strong bottom line of a bank?

In 2015, SCB PAT was in line with expectations; in the final results (vs provisional figures mentioned here), we had few one –off transactions in 2014, which did not repeat and we accounted for few regulatory expenses. We expect our performance to normalize in 2016 and initiatives are on track to deliver performance according to target.

CFO acts as the guide to the franchise/organisation in steering the business units to collectively achieve the results/objectives agreed at the beginning of the year. CFO plays key role is in setting the organisational strategies and in formulating the ways to execute the same. CFO also needs to be the trusted advisor, so that he/she can identify risks and opportunities well ahead of time, and advise the teams to focus on appropriate actions. All external factors must be on the radar of a CFO, in order to help the organisation navigate external challenges. A critical factor in

Cover Story

SCB CFO

“Sound knowledge of systems, maintenance, data mining and generation of decision support MIS are part of core CFO/Finance function responsibilities which needs to be partnered with IT.”

achieving a strong bottom line is managing ‘costs’. CFOs have an integral role to play in this area to ensure business efficiency.

Today, CFOs are generally expected to ensure the cost efficiency and regulatory compliance, while providing strategic business guidance and advice to the CEO. How has the relationship between the CFO and the CEO changed over the last five years?

The relationship between CEOs & CFOs has only expanded over last 5 years as Strategic partners. Governance, compliance, conduct and efficiencies in addition to delivery of growth and Business Performance – in achieving these control and commercial aspects of enterprise’s objectives, CFO’s assist with accurate performance information, initiatives on efficiencies, competitor intelligence for strategic decisions and as participant in senior forums on Business (e.g. MANCO, ALCO, Business review Meetings) and Risks (operational Risk Committees, Credit Committees) can keep CEO informed in advance on key developments, critical action points and recommend decisive executive decisions, when advice is asked for in a situation of competing interests within the organization. This way, CEO is armed with trusted and reliable information/advice on which to take key decision/choose from the most viable option. Regulation wise, CEO and CFOs also periodically need to jointly certify financial statements, soundness of risk, control, legal liabilities of the enterprise.

As CFO of a multinational bank, how your role is intertwined with IT? What are the scopes of CFO and CIO to work together?

Role of CFO or work within Finance & accounts function is heavily intertwined with IT – the world is becoming even more digital and all Global organizations and its functions work on ERP systems.

Global systems now support General Ledger control, performance management, Funds Transfer pricing, Expense & Fixed Asset processing, electronic procurement etc. Therefore, sound

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knowledge of systems, maintenance, data mining and generation of decision support MIS are part of core CFO/Finance function responsibilities which needs to be partnered with IT. CFO and CIOs are key partners where expectations of Global and Large enterprises are to operate nimbly in a fast growing environment; this means that we constantly need to create room for enhanced capacity, cut waste and re-invest for longer term productive growth. It may mean thinking out of the box, challenging status quo, standardization and centralization of processes / core activities – knowledge of technology, systems, processes, running re-engineering projects and in end-state ensuring value accretive outcomes for the enterprise, for these goals combined strengths of CFO & CIO functions need to be leveraged.

IT security or cyber security is the most talked issue in recent days, what is the readiness of your bank to overcome the probable cyber security threats?

Standard Chartered Bank drives the Cyber Security from Top level Group Executives. A Cyber Working Group (CWG) has been established to address and make recommendations on the overall operating model, governance, strategy and external collaboration around how the SCB Group manages cyber issues. The CWG reviews and refreshes the Group’s strategy to address Cyber Risk. The strategy focuses the Group’s resources on the following four objectives: • •

• •

Protect: Assess and protect the Group’s Critical Assets from key threats.

Enable: The Group’s digital transformation by maturing and embedding Information & Cyber Security capabilities Group wide Respond: Strengthen the Group’s ability to Detect, Respond and Recover from breaches Engage: With industry experts and internal stakeholders to address Information & Cyber Security Risk

A central control team monitors the threats in 24x7 in a state-of-the art Central Network Centre (CNC) located at Malaysia.

Cover Story

SCB CFO

One of the important aspects of MNC Bank’s CFO is to ensure Compliance and Governance at highest standard – it means adhering to company’s code of conduct, maintaining highest personal integrity and honesty, abiding by policies, laws, regulations and acting within authorities. In doings so, we always need to comply with Local Laws and regulations.

Which experiences helped you to shape your career as CFO of SCB? Hard work, ability to think differently, being courageous to take on multi-functional experiences have helped me in shaping my career. In addition, I put emphasis on leading from the front, being self starter taking responsibilities yet empowering people to self-pivot towards functional goals, building knowledge base and taking interest outside of my own domain/comfort zone, building networks and having courageous conversations where it is required - these help perform my professional role effectively.

What is unique about being the CFO of a multinational bank?

Ability to multi-task to variety of stakeholders is critical for CFO of a Multi-National (MNC) Bank – in fact the stakeholder map is large and diverse; you are expected to maintain functional responsibilities at Global standard complying with principles, standards and Global policies, respond to Line Manager (LM) leading from the Regional Hub and align the expectation of delivery with Country CEO. Then, you need to partner with Management /Executive committee members comprising of Business Heads and Function Heads, whose delivery objectives may be of different pace, spend levels and may be with healthy friction of growth vs controls/risk management agenda – CFO is expected to work as a bridge to 19

combine these deliveries and ensure sustained financial outcome for the best interest of the company. I have also to maintain liaison with Accounting Bodies/Associations, Alumni, relevant committees of Chamber bodies, all key Regulators for my role/function as well as for interests of the company CFO of MNCs Bank also needs to be commercially savvy – we need to remain on top of strategy, KPIs, track performance to those KPIs, gather market intelligence/competitor information – feed it into strategic and ongoing performance decisions, foster innovation and nimbleness, communicate effectively within own function and outside to align multiple stakeholders towards these common goals.

We must also remember the human touch requirement of successful Leaders – Leaders need to be seen as leading by example for delivery, conduct, responsibility, innovation, remain influential and motivational to let people grow through their strengths, offer tools and equipment to help deliver responsibilities. I try to imbibe these principles of behavioral management in my supervisory and leadership role.

An important aspect to remember is, career do not always grow in a straight line or on a linearly upward basis – I have had rapid growth early in my career, mixed with slack in middle years and then again, significant breaks.

Essence is on having confidence, keep working to our strengths and waiting for the right break/opportunity when the going is bit tough. Eventually, you get recognition for intelligence and meritocracy, people take some risks on you and then, you move to the positive direction.

In my mind, having passion in what I do, enjoying my work, enhancing career longevity by learning, innovation and being a self-starter, is more important than achieving short term goals.

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Working Capital

TEN WAYS TO IMPROVE INVENTORY MANAGEMENT

CFOs and other senior executives already know the importance of inventory management. And yet even the most attentive managers often find it difficult to get it right. There are two classic misconceptions in inventory management: improving the accuracy of sales forecasts is the best way to reduce inventory and beefing up customer service requires keeping more inventory on hand. The fact is, both assumptions can lead to inventory gluts or shortages.

As most executives know, getting the right levels is vital since it not only controls costs but also serves as a barometer of a company's overall health. By asking 10 questions take the pulse of your company's inventory health. They are designed to assess the effectiveness of inventory reduction processes as well as the sophistication and breadth of those efforts.

1) Are you able to break down your operating inventory into the three major categories when reporting levels—safety, replenishment and excess or obsolete stock?

This breakdown makes it easier to make sound decisions about appropriate levels for each of these three areas. It helps to determine the minimum safety stock needed to provide an insurance policy against supply chain problems either from manufacturing glitches or distribution uncertainties so that customers get what they ordered. It's useful for pinpointing the amount of inventory required to

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Working Capital

replenish deliveries every two weeks.

And it helps companies find ways to avoid a backlog of excess or obsolete inventory.

2) Is your company using the most effective method to calculate your safety stock levels?

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•

Are you using statistical formulas that incorporate the accuracy of sales forecasts, required production lead times, manufacturing schedule adherence and service-level data for each SKU? Or are you using a simple rule of thumb such as "all products made in factory ABC need 15 days of safety stock."

The problem with the rule-of-thumb approach is that typically it's based on products with the most uncertain delivery histories. Efficient operations use a standard statistical formula that looks at historical data for individual products.

3) Do you recalculate safety stock levels on a regular basis to ensure they are up to date?

Supply-savvy operations update their calculations about every three to six months to ensure that decisions are based on the most accurate information.

4) Who decides key inventory-related policy such as striking the right balance between customer service and cost-effective product inventory levels?

Many decisions about inventory levels are strategically important. So instead of relying solely on the supply organization to decide, executives need to have a major say in the fundamental issues that impact inventory management—everything from determining the right breadth and complexity of product offerings to optimal plant and distribution footprints.

5) Who determines the optimal frequency for producing or ordering products?

• •

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A cross-functional team; or Only production planning or sourcing managers?

Several factors impact effective inventory planning. For example, marketing campaigns can play a role alongside sourcing. So a cross-functional team should set production and ordering schedules. Production alone determines lot sizes, usually based solely on minimizing production costs.

By weighing all factors and using a sales and operations planning process (S&OP), cross-functional teams often reduce the company's replenishment stock by 50 percent and ensure that the right products are available for big promotions.

6) How do you determine the frequency for ordering and inventory production if it's not set solely by factories or the supply organization?

Ideally, there are two factors: companies should consider calculations that minimize the overall cost such as inventory and changeover costs. They also should base frequency on negotiations between the different parties involved and factor in upcoming events such as promotions and uncertainties like bad weather.

7) Is the optimal order or production frequency calculated on a regular basis as part of a continuous improvement process?

Once you've reduced inventories, you'll have to put new processes in place to lower them even more over time. Use analytical tools that highlight the biggest levers for continually reducing inventory.

For example, instead of working to improve sales forecast accuracy from 70 percent to just 75 percent, establishing a team that's focused on reducing lead times from alternative suppliers may have more impact.

8) Do you have regular visibility into excess and obsolete stock, and is it linked to targeted action plans to sell off or reduce this inventory?

Typically, excess and obsolete stock stems from ineffective sales forecasting, planning or using a business model that fails to factor in product complexity and life cycles correctly. Inventory leaders

establish processes to determine why excesses are being created and then develop a plan of action to sell it off. In some instances, the fear of the write-off has led to a large buildup over time of obsolete inventory.

9) Do you perform root-cause analyses on excess and obsolete stock and know how they are linked to action plans that curb more excesses from being created?

Companies with efficient inventory management create two task forces with linked action plans. The first task force identifies the root causes and determines ways to reduce the creation of new excess and obsolete stock. The second focuses on ways to sell off the stock more effectively. It provides the sales team with a list of top excess or obsolete products to push to ensure that they're discounting specified excess products.

10) Do you apply the above practices to all parts of your inventory (finished goods, raw material, works in process and spare parts) and in all organizational entities?

One of the most common mistakes made by supply organizations is looking at only a small subset of all inventory—the finished goods sitting in major warehouses—even though raw materials, works in process, spare parts and even goods in retail stores can make up 50 percent of the total. As a result, they miss potential savings. An organizational map of all inventories will help better prioritize ways to reduce inventories. And all the inventory techniques we've discussed apply.

After answering all 10 questions, right or wrong, the diagnosis of your inventory health sets your company up for significant opportunities to improve expense and asset effectiveness and creates potential for capturing missed top-line sales. Often ignored, inventory pulse checks can be a huge lever to improve the financial health of a company.

Source: WSJ.com's CFO Journal

Interview

Partner Nurul Faruk Hasan & Co (nufhas).

EXPOSURE TO GLOBAL PLATFORM Nurul Faruk Hasan & Co (nufhas), Chartered Accountants is one of the leading public accounting firms in Bangladesh, which is also a member firm of world’s fifth largest accounting firm BDO International. Nurul Haque, FCA the managing partner of the firm shares the growth opportunities as well as challenges of the profession.

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Interview

Partner Nurul Faruk Hasan & Co (nufhas).

Briefly tell us about the journey of your firm i.e. Nurul Faruk Hasan & Co (nufhas) / BDO Bangladesh.

Our journey started during early 2008 with the name & style as Nurul Faruk Hasan & Co (nufhas), Chartered Accountants.

Since then the firm has been operating and providing a wide range of professional services to its valued clients ensuring highest level of standard and professional ethics.

A journey of a newly formed professional firm is always very challenging. No one wants to take the risk of appointing a new and unknown firm as their auditor or services provider. Moreover, it is needed to have formal enlistments with some regulatory authorities to enable a firm to be eligible for audits, like Bangladesh Bank, NGO Affairs Bureau, BSEC, IDRA, different international donor/funding agencies, etc. We had to strive getting enlisted with all those agencies and it took about 2/3 years to complete.

As we had been focusing to provide professional services to multinational companies and foreign companies/entities, we realized an affiliation with an International public accounting firm is extremely important to attract them. We started trying for affiliation of global accounting network firms. In April 2013, we were awarded with Correspondent Firm of RSM International, 6th largest public accounting network firm in the world.

BDO International was exploring the possibility of extending their footprint in Bangladesh. After a rigorous evaluation process, BDO International selected nufhas as its member firm in Bangladesh, and signed Member Firms Agreement effective from 1st June 2014. BDO International is the 5th largest international network of public accounting, tax and advisory services firm in the world.

BDO Bangladesh provides a wide array of professional services in the field of audit & assurance, finance & accounting, taxation, payroll & HR services, information

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technology and business services outsourcing (BSO). BDO Bangladesh is led by four partners whose expertise and experience blended together creates a unique mix capable of serving varied needs of businesses. Under their leadership and guidance, a dedicated team of professionals with appropriate knowledge and proficiency work relentlessly to meet the promises we make to our clients.

Your firm is an independent member firm of BDO International, what is the significance of being part of an international network?

Nurul Faruk Hasan & Co and Business Consulting Services jointly represents the worldwide seamless service providing network – ‘BDO International’ in Bangladesh as independent Member Firm. BDO's global network spans over 154 countries, with 64,300 people working out of more than 1,400 offices worldwide providing exceptional services in the field of audit, tax and advisory.

Being a part of an international network gives us exposure to the global platform and broader opportunities; access to knowledge, resources and expertise spanning over 154 countries and ability to offer our clients or potential clients unique services where the local industry may lack skills or experience.

The local knowledge of BDO member firms combined with the international expertise and strength of the network promotes effective and efficient service delivery to all our clients in every country in which BDO is representing.

As a member of BDO network, BDO Bangladesh aspires to provide the clients with service experience transcending local quality within the local

boundary. We thrive to become the professional partner of business houses in their pursuit of sustainability, growth and profitability.

What local expertise can you bring to this international network?

We pool together our sound grasp of local knowledge and international expertise and leverage upon global resources of the BDO network to create a unique blend of tailored services for the specific needs of the clients.

BDO Bangladesh enhances the client portfolio of the network with its strong client base comprising of a mix of prominent multinational companies, foreign invested companies, international funding agencies as well as some small to large local companies.

Apart from sound technical knowledge, BDO Bangladesh has experience in dealing with the emerging market which the giant network with greater exposure to Western-European might lack. As South Asia gains more attention and prominence among the Western, European and other global investors, the international networks need someone within who understands the peculiarity of the market, the economy and the political and social environment. BDO BD gives the BDO international network the required experience, comfort and confidence in this market.

We already have the presence of big four international firm and also international firms like BDO and Grant Thornton, how our industry accommodates the presence of these international firms?

Among Big 4 firms, only KPMG has the true presence as Member Firm (MF) in

“As a member of BDO network, BDO Bangladesh aspires to provide the clients with service experience transcending local quality within the local boundary. We thrive to become the professional partner of business houses in their pursuit of sustainability, growth and profitability.”

Interview

Partner Nurul Faruk Hasan & Co (nufhas).

“Thrust of quality and true audit in the local market is yet to be established. The scenario will eventually improve when business houses will be more matured and getting to know the importance and presence of strong internal control in the financial management and accounting. ”

Bangladesh under the name & style of Rahman Rahman Huq. PwC India and EY India established their subsidiaries in Bangladesh to provide advisory services (other than assurance services).

However, both the Indian firms do have formal and/or informal tie-up with two Bangladeshi professional firms to ensure assurance services of their global clients.

Apart from the big four, representations of tier-two global firms are there in Bangladesh as their Member Firm or Correspondent Firm, including BDO, Grant Thornton International, RSM International, PKF International, Baker Tilly, Moore Stephens and Crowe Horwath.

The target market/client of the firms differs along with their relative size. The big players mainly target and serve the big multinational companies, projects of international development agencies, large public sector projects, INGOs and prominent local companies and conglomerates. Other firms serve the small and medium scale business houses of the country. However, there are few Bangladeshi firms who are equally big in Bangladesh context.

Thrust of quality and true audit in the local market is yet to be established. The scenario will eventually improve when business houses will be more matured and getting to know the importance and presence of strong internal control in the financial management and accounting.

Quality audit can help the entrepreneurs to ensure sound financial management of their business house. Presence of network Member Firms (MF) ensures the quality audit. Rigorous accreditation process bounds MF to comply same international standard as set by global network for all MFs worldwide. Local market is getting matured day by day and will start looking for quality audit.

Presence of MFs of international network will certainly give them wide choices to choose their auditor.

Students/staffs of MFs are well trained as they have access to global resources of the network and this gives them opportunity to learn how to provide services with international standards.

Students coming out from MF will go to

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business houses and local professional firms which will eventually enhance the quality of our industries.

True presence of big 4 firms in the same way they operate in other countries will definitely help the accounting profession as a whole in Bangladesh, and this will help our professional accountants to grow and enrich their knowledge, skill and capability. However, flying in-out approach of consultants from neighboring country will never help the accounting profession in Bangladesh.

What is your Firm's vision in next 5 years’ time?

Our vision is to be the leader for exceptional client service in the fields of Audit & Assurance, Advisory and BSO services in Bangladesh. We plan to ensure exceptional client service by constantly focusing on five service attributes, namely Client needs, Communication, Commitment, People and Values.

There is a saying that general investors have less confidence on the audited financial statements, why this perception exists and what is the audit firm's role to regain the investors’ confidence?

It is the prime responsibility of the management of a company/entity to draw-up its financial statements and disclose all material facts and figures, on which auditors are carrying out their audit activities, on test basis, to express audit opinion. Management of the most companies look for an auditor who will charge a minimum fee. Anything goes wrong with the audited FS, everyone including management/stakeholders will start talking against auditors. But no one talks about those companies or management of those companies who are primarily responsible for that. It is also said that some tax practitioners are making/printing audited financial statements in the name of some auditors for tax purposes, where existence of that auditors may not be there. That is how perception is created against the auditors.

Interview

Partner Nurul Faruk Hasan & Co (nufhas).

“The spirit of any law has been always good, benefits of which largely depend how best it is being implemented. We hope FRA will bring more accountability and discipline in the accounting industry of the country.�

No one is confident that s/he is getting the right services from any sector in Bangladesh. It is not only the accounting professions, rather lack of confidence on every sector is common here. This is a national problem. Because of our actions and inactions we are losing our country image too. Unless law & order are fully enforced at all level and accountability is not established properly, situation may not improve.

However, presence of MF of International network automatically ensures the quality audit and relevant services as MFs are using international system and standards and has to go through international accreditation process to ensure the global standards. So increase of true MFs of international network, which already have presence in Bangladesh like KPMG, BDO, etc, will give choices to entrepreneurs/investors to involve quality auditors and will certainly regain their confidence over auditors and will eventually change their perception.

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What is your view on the newly enacted FRA (Financial Reporting Act), how it can be made effective to improve the financial reporting system in the country?

The Financial Reporting Act was enacted in September 2015 with the aim to ensuring more transparency and accountability in audit and accounting sector in Bangladesh. A Financial Reporting Council (FRC), a statutory body with members from various government bodies, institutions and professional groups, under the Act will ensure the transparency and accountability and monitor the performance of the professional accountants of Bangladesh.

The spirit of any law has been always good, benefits of which largely depend how best it is being implemented. We hope this will bring more accountability and discipline in the accounting industry of the country.

What transformation you have seen in finance and accounting industry in last 5 years and what you foresee in near future?

The finance and accountancy industry has been under more scrutiny due to the mayhems caused by accounting fraud and scandals it has seen over the past two decades. Those incidents have led the international standard setters, regulatory authorities and local overseeing bodies to be more cautious and introduce more stringent accounting standards and regulatory requirements to ensure transparency and lessen / reduce the scope for fraud. The concept of corporate governance has gained cognizance all over the world and every country is trying to find its own way to enforce corporate governance and promote integrity and reliability.

There has been a movement towards harmonization over differing accounting practices in different countries. The ongoing convergence project between IFRS and US GAAP is a major step forward in that effort. Thus we expect to emerge into an era of uniform accounting practice in near future.

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Corporate Governance

PARTNERING OF AUDIT COMMITTEES AND CFOs FOR GOOD GOVERNANCE Mohammed Shahid Ullah, ACA EVP & CFO Islami Bank Bangladesh Ltd.

committee is responsible for Audit oversight of the financial reporting

process, selection of the independent auditor, and receipt of audit results both internal and external. The committee assists the board of directors in fulfilling its corporate governance and overseeing responsibilities in relation to an entity’s financial reporting, internal control system, risk management system and internal and external audit functions. Its role is to provide advice and recommendations to the board within the scope of its terms of reference.

The concept of audit committee was first endorsed by New York Stock Exchange (NYSE) in 1939 and US Securities and Exchange Commission first recommended the same in 1972. In 2002 Sarbanes-Oxley Act has passed in the wake of corporate scandals and included whistleblower and financial expert disclosure requirement for audit committee. In Bangladesh, the audit committee concept was established in banking sector in 2002 as per BRPD

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circular of Bangladesh Bank and subsequently the BSEC made the same mandatory for all listed companies in 2006.

The terms of reference and requirements for an audit committee vary by country, but may be influenced by economic and political unions capable of passing legislation. However, the Board of Directors expects that the audit committee will oversee the financial reporting and disclosure process, monitor choice of accounting policies and principles, oversee hiring, performance and independence of the external auditors, oversight of regulatory compliance, ethics and whistleblower hotlines, monitor the internal control process, oversee the performance of the internal audit function and discuss risk management policies and practices with management.

In this context, CFO is a position from whom the Board/Audit Committee can expects the idea of financial perfor-

mance, financial policies and risks of business faces in any point of time. The CFO is primarily responsible for managing the financial risks of the corporation. He is also responsible for financial planning and record-keeping, as well as financial reporting to higher management. CFO contributes the company by creating value, enabling value, preserving value and reporting value. The duties of a modern CFO now straddle the traditional areas of financial stewardship and the more progressive areas of strategic and business leadership with direct responsibility and oversight of operations expanding exponentially.

Due to worldwide economic scandals, evolving risks in financial sectors, the partnering of Audit Committee and CFO has increased. Economic conditions, investor pressures, and technology changes are reshaping the CFO's role.

In addition to serving as the source of information on corporate performance and effective financial management and

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Corporate Governance

control, today's CFOs face an expanded set of responsibilities, including strategy development, investor engagement, and enterprise risk management. This expansion comes amidst increasing challenges in managing the function’s traditional roles, as the global economy continues to recover from the financial crisis.

To go with the above strategic partnering of Audit Committee with CFO, the audit committee and its chair should: -

Have a good technical knowledge of finance and accounting.

Take the time to thoroughly absorb information between meetings.

Offer positive, not adversarial feedback, yet push for continuous improvement.

Give the CFO adequate time to obtain answers to queries.

The mandate of the audit committee should be clear, with well thought out agendas and objectives for the time.

Like any relationship, it would be ideal to have a two-way exchange between CFO

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and audit committee, based on a free flow of information, as well as mutual trust and respect. This comfort level must be balanced with the need for maintaining enough distance that the quality of the CFO’s data can still be critically assessed and tested.

Various surveys were made on relationship of CFO and audit committee and found that good partnership among Audit Committee, CEO and CFO ensure good corporate governance. Summary of various survey means that CFOs can assist audit committees in following ways: -

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Try to think like a CEO by working to understand all aspects of the business rather than focusing only on finance; Bring a holistic, integrated perspective – including operations issues – towards managing enterprise risk to the audit committee table; Respond as quickly as possible when the audit committee raises an issue or question, and make their concerns a top priority;

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Take the shareholders’ mindset when examining issues relevant to the business and agree to expand discussion and debates at the audit committee table beyond compliance and regulatory issues.

However, upon partnering of Audit Committee with CFO, the Audit Committee can expect the following performance from Chief Financial Officer (CFO) of the organization: 1. “No surprises”: One of the most common phrases we hear from audit chairs is, “I want no surprises.” While surprises are generally inevitable in the course of business, audit chairs and committees want the CFO to manage the avoidable issues and inform them in a timely way when the unexpected occurs.

2. Strong partnering with the CEO and other leaders: Audit committees and the overall board want to see a CFO who effectively partners with the CEO and other key

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Corporate Governance

business leaders. The partnership with the CEO is the most important of these relationships. Although some CEOs and boards prefer their CFO to focus on the traditional roles of operator and steward, many look for support from the finance chief as a strategist and catalyst. As a strategist, a CFO can align financial strategy to business strategy for growth. Similarly, CFOs can drive change in organizations through levers, such as efficiency initiatives and new ways of measuring and rewarding performance.

3. Confidence in finance organization talent: As the workhorse for creating accurate and timely financial reports, the broader finance organization is of interest to audit committees. They want to know that the organization is stable and supports and complements the skills of the CFO. 4. Command of key accounting, finance, and business issues: These days, CFOs are often appointed with finance or operating business backgrounds versus accounting backgrounds. Yet, to truly own their CFO role, these appointees need to master the key technical accounting, financial reporting, tax compliance and planning, control environment, finance, or treasury issues pertinent to their companies. CFO may first need to focus on understanding the critical business issues and business model for the company. Again, deep dives on unfamiliar business models can help the finance chief gain the requisite command over pertinent issues.

5. Insightful forecasting and earnings guidance: Audit committees frequently express the need for the CFO to take ownership of improving forecasting and budgeting in the company to deliver more effective guidance on future cash flows and avoid earnings misses.

But beyond the forecasts and guidance, what many audit committees really want is an insightful CFO—one who can clearly articulate the underlying assumptions and drivers that guide estimates of future performance. In other words, they want someone who can tell “the story behind the numbers” that makes up the forecasts and guidance.

6. Effective risk management: A key CFO role is to manage risk. While a

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board’s risk committee may oversee enterprise-level risk management, many audit committees also expect the CFO to take a leading role in managing enterprise and operational risk beyond traditional financial, accounting, and regulatory compliance risks. The CFO will likely be expected to set the tone at the top on ethics and integrity, oversee the control environment, and ensure the right people are deployed across the organization to support compliance.

In addition, the audit committee will want to ensure that reporting lines are clear across the organization and that the organization structure encourages the right behaviors and timely flow of risk information.

7. An owner’s mentality: Audit committees are especially committed to oversight on behalf of shareholders and they expect CFOs to do the same. CFOs that follow CEO-level thinking, in thoroughly understanding the business, have a more powerful impact.

8. Push past the must-do’s: While a large responsibility for CFOs deals with regulatory issues, board members want them to push discussions toward matters that drive the business toward increased profitability. A business-driven view will result in a more proactive agenda between the board and CFO. 9. Get your hands around risk: This practice best highlights the CFO’s role in risk management. ERM continues to be a growing priority in corporate governance today. The relationship between the audit committee and CFO is dependent on their shared responsibility in managing risk.

10. Showcase the bench: The audit committee’s regular exposure to the CFO and finance team is essential in having a complete understanding of

the business and its risks. This regular contact will foster a high level of trust and produce a strong partnership.

11. Get familiar: Finally, CFOs and audit committee members should develop some degree of a personal relationship. Doing so can cause them to feel better prepared in striving toward a successful oversight. They may met in a ‘Director’s Day’ where a board member schedules a one day meeting with members of management to review specific aspects of the business, provides a valuable addition to continuing director education.

While board packages can be voluminous paper or electronic documents, audit committees generally expect clear and concise communications from the CFO that give the story behind the numbers and trends and offer new levels of insights. In addition, communications with analysts and investors should demonstrate the CFO’s mastery over the business, financial, and accounting issues pertinent to the company.

Specifically, the CFO has to provide insight into key drivers of future performance and convey how he or she will work to deliver results to the market.

However, in Bangladesh valuing of CFO is not in line with the global expectation, even sometimes CFO is working mere as an accountant. Partnering of Audit Committee with CFO is also at very minimum level as corporate governance is not fully existed in all listed companies due to single family based management structure. However, the situation is improving and regulators including BSEC, Bangladesh Bank are continuously pursuing for good corporate governance. Professional bodies like ICAB, ICMAB, ICSB etc. are also trying to formulate rules and regulations for good governance. Hope the sector will get benefits upon initiatives of all stakeholders within short time.

Interview

Head of Internal Audit - SSG

INTERNAL AUDIT FOR SUSTAINABLE GOVERNANCE Md. Shakawat Hossain, ACA, ACMA, CGMA (UK), QIA (UK) & MBA is the Group Head of Internal Audit of SSG expresses his views on role of internal audit on the sustainable governance in companies.

How changed outlook of Internal Audit can play vital role to corporate governance?

Now a day’s internal audit is more focused towards value additive business partnering role to improve controls, risk management, process improvement, identifying savings opportunity or alternatively cost optimization initiatives and safeguarding of assets etc. Outlook of internal audit has recently changed from complete assurance function to good chemistry of assurance and consultative role to help in sustainable controls improvement and development for visible change in business process and practices.

How risk based internal audit can contribute positively in business?

Risk based internal audit is being carried out to identify control gaps and improvement opportunities, where pertinent risks remain unaddressed or partially addressed or not been adequately taken care of due to understanding gap and lack of control conscious culture. This audit adopts 360 degree risk based approach following global best practices and guideline such as COSO framework, IIA standards, COBIT, SOA, ISO etc.. It ensures robust financial reporting, effectiveness and efficiency of operation, compliance with laws & regulation, optimum utilization of resources and safeguarding of assets etc.

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What factors drive towards the growing demand of Internal Audit in local business house apart from regulatory requirement?

The demand for internal audit has enhanced in awake of corporate accountability, transparency, KPI monitoring for smooth execution, control & compliance conscious culture, risk management and corporate governance initiatives within organization.

How Internal Audit can ensure accountability and strong monitoring in organization?

Continuous review, follow up and monitoring to ensure compliance with policies, procedures, laws and regulation are the major driving forces towards ensuring accountability and strong monitoring in organization. It also analyses whether activities, operation, projects and endeavors are performed in line with approved job description, KPI and specific guideline/direction.

What should be the composition and skill of Internal Audit team towards value creation?

Internal audit team should be consisted of people from Finance, corporate, commercial, technology and general staff. There should be separate audit, investigation/review, and analysis and

quality assurance team. Professional certification such as qualified accountants is must in respective field to ensure professional competence, integrity, independence, exercise due professional care, corroborative evidence gathering and confidentiality etc.

How Internal Audit helps private organization to transform into public limited company?

Strong internal audit team can ensure good governance, process improvement, controls and compliance culture, fair financial reporting, effective and efficient operation, cost optimization and safeguarding of resources. Hence financial statements and reports shall be more acceptable and credible to internal and external stakeholders which ultimately help to improve governance standard.

Does Internal Audit help to ensure sustainable bottom line management?

Internal Audit constantly reviews and audits the financial statements to identify controls gaps and improvement scope in various processes and practices that enables bottom line improvement.

It also helps to identify savings opportunities and determine cost excellence program to optimize cost and safeguard resources.

Interview

CFO - MJL Bangladesh Ltd.

EXTRACTING ENHANCED VALUE MJL Bangladesh Limited (formerly known as Mobil Jamuna Lubricants Ltd.) is the market leader in lubricant industry in Bangladesh with flagship global brand of Mobil. Chief Financial Officer (CFO) of the company Mohammad Tipu Sultan, FCA shares his role transition in pre and post IPO of the company as well as in other corporate governance issues.

Under your leadership, MJL Bangladesh went for IPO; what role CFO plays in the IPO journey of a company?

When I joined, MJL Bangladesh Ltd. was not as large as it is now. At that time, we had some expansion plans but we did not have sufficient internally generated funds. We had plans for purchasing a large crude oil tanker and setting up a LPG bottling plant and LPG cylinder manufacturing plant by forming a subsidiary. We also wanted to have our own corporate tower in Gulshan area.

Grossly we required about BDT 5,000 million to 6,000 million and initially we were thinking to go to different financial institutions for raising funds. But eventually we decided to go for IPO to ease the implementation of these mega projects.

In the pre-IPO approval phase, in addition to convince our own Board, we had to convince our government shareholders that why we should go for IPO and how our value will be enhanced by entering into the capital market. We also had to go to Jamuna Oil Company’s Board for their approval. So this pre-IPO approval phase was not so smooth and as CFO I had to convince all the stakeholders.

When we got the final decision for raising fund through IPO from all the corners, then our major task was to extract the right value from the market.

In order to get the maximum value, we went through book-building method and we were one of the leading companies which came in capital market under this process. Book building process was very rigorous and new for us but we successfully overcome all the steps.

Since the process was new, there were some controversies that the price we set was very high and one point we agreed to return some funds rose from IPO. Throughout the IPO journey, we had to meet BSEC, DSE and CSE in many occasions to fulfill their queries. This was a memorable journey but was a tough job also. CFO has to play critical role to determine the right time of going for IPO, extract the right valuation, convince the relevant stakeholders as well as to fulfill the documentation and meeting the deadlines of different steps of IPO process.

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In Bangladesh, banks are the first choice to raise finance by the companies, why do good local companies as well as multinational companies are reluctant to come to IPO? Probably there are regulatory requirements like quarterly submission of financial statements, holding AGM etc. which are very easy to meet the requirements but we saw disturbances in AGM from various stakeholders which might act as a deterrent factor of not coming to IPO. Whatever the reasons are, companies could not justify themselves for not going to public. I think bottlenecks are not those much, if we compare our regulations with renowned stock exchanges like NASDAQ or New York Stock Exchange, their regulations are much more stringent, but still companies are going for IPOs. One more thing that deters the companies to go for IPO is pricing mechanism. BSEC sometimes dictates what the price should be at the time of IPO. If they just let it leave freely upon the market then it would probably encourage the multinational companies to go for IPO You saw the transition of MJL Bangladesh from private ltd. to publicly listed company, how your role has changed in this transition?

The major transition is that I am now more compliance oriented due to compliance structure of and rules set by BSEC, DSE and CSE. I need to give quarterly declarations, annual declaration, providing price sensitive information whenever price sensitive incident happens and giving statutory declaration in the annual report. From the Board meeting aspect, now I have to provide quarterly presentation to the Board about the performance of the past quarter and previously I was not aware of providing price sensitive information but now it is mandatory. At the time of dividend declaration, I am very cautious about sharing the profitability and percentage of dividend with any of my colleagues and even declaration papers are not circulated to board members in advance; it has been placed during board meeting. The CFO has to treat the information as confidential and sensitive as it is.

Interview

CFO - MJL Bangladesh Ltd.

As per corporate governance guideline, CFO has to sign in audited financial statements along with CEO, what is the significance of it and how do you see it from CFO perspective?

Throughout my career I have followed one thing very strictly is transparency in every aspect of my working relationship with anyone. So I have to make sure that wherever I put my signature, I am confident about the numbers; otherwise I will not put my signature on it. Although the financial statements are audited by the external auditors, still I need to go through it and see that whether any number strikes me. I am now becoming more concern before signing the statements and when auditors bring any observation, I took it very seriously, discuss with my team and try to address and when I am fully convinced with the matter then only I sign on it.

Signing of financial statements by CFO and CEO has positive impact on the quality of the report. Since, Board is not involved in the operation on daily basis, the top executives are more aware than the Board. So it is a good idea to sign the financial statements by both CFO and CEO. Investors relation/communication is an important activity of a stock exchange listed company, what do you think about CFO's role in investors' communication?

Whenever quarterly results are published, I myself make sure that it is properly published in our website so that investors can see our financial results easily. The Annual report and other reports whatever is published we immediately make it available to the website and through other media as well.

Moreover, whenever there is any price

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Interview

CFO - MJL Bangladesh Ltd.

sensitive information which will affect price we immediately make it public.

Sometimes price sensitive information is a judgmental issue and there is no hard and fast rules of which one is price sensitive but whenever we think there is a doubt that a particular information may affect price we bring it to the notice of our shareholders immediately.

While communicating any information with shareholders/investors, I put myself into their shoes and saying that if I am an investor does this particular information affect my judgment? If I am affected positively or negatively by that particular information, then as a CFO, I should make it available to the shareholders.

How has your role as CFO factored into MJL’s aims?

Generally in financial terms what happened that when a company has some growth plans or expansion plans consequently it has some funding requirements also. As a CFO, I need to find out a way how we can fund it in the most cost effective manner. The company’s aim is there but my role is to arrange that fund in a manner either equity or subordinated debt or senior loans whatever the name you call it, so that company’s objective is attained in a mode of most cost effective way.

In current volatile and competitive market, how does finance contribute in improvement of margin as well as control the cost?

In fact, reduction or control cost is one of my important roles. To manage treasury or cost of funding, we have been bringing more innovation in our treasury tools and if you see our last five years financial statements and almost in every year cost has been going down although volume has gone up.

Moreover, our cost of production has also gone down for couple of reasons because we now manage to bring products in much more cost effective manners and also manage our suppliers in such a manner so that we are not required to hold stocks for longer period.

Our holding period of stock is very optimum at the same time we don’t keep any of our customers waiting without any goods.

From your point of view what is the most challenging role of a CFO? 32

“Signing of financial statements by CFO and CEO has positive impact on the quality of the report. Since, Board is not involved in the operation on daily basis, the top executives are more aware than the Board. So it is a good idea to sign the financial statements by both CFO and CEO.” I think leadership is important but not very challenging. What I see the success factor for me is definitely a good team management. I have a very energetic, enthusiastic team and always ‘go for it’ team. I think it is always a team effort and I never say that I have done it rather I say we have done it. ‘We’ concept is very important. The challenge is to keep everyone motivated to achieve the common objective. If you can achieve it you will be successful. Good balance in life and work is also very important. I don’t hold anyone after office hour and I don’t also expect anyone comes after the office entry hour. I have seen the productivity through this process and I had never failed any of my deadlines.

Do you think the role of CFO is very different today from what it was ten years ago?

I think it has changed a lot. Especially for listed companies lots of new regulations have come into effect. CFO’s roles are now not only more challenging rather I say it is more active in the day to day operation than in the past. Now there are lots of good companies in the market, so keeping motivated your team is also very challenging. There are many head hunting companies coming with continuous offers, so keeping your team may sometimes be very challenging. Previously you didn’t need to handle this part of job but now you have to manage this also.

Column

Munshi Abdul Alim

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Things for a fulfilling LIFE “Success has a pattern and failure too.

Some of us can see it others can’t. We need to develop good habit to build the pattern of success and we need some

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here are debates about life. Is it a game or a play? Or is it a journey? At least we are sure that there is no coming back. We are human and we are a learning being.

There are many things we learn from life as trial and error and it takes a longer path. We can learn many things from others without a trial. We learn from stories, role models and mentors. We learn from success and we learn from failures. There are small things that make a BIG difference in life. Without a holistic view an accomplished life sometimes become less fulfilling.

Challenges and struggles are inevitable but a few things can make our life bold and beautiful. Here goes nine things if we learn and manage will help us to have a great life.

1. A philosophy A philosophy about life that empowers us and guides us to make decision and choices. When life is a game you try to win every time but when you see life as a journey you can take many on board and win together. Learning is living is a powerful life philosophy.

2. Mindset/world view A basket of world views that makes us happy and successful. Many of us expect many things from the world.

Naturally they get frustrated when they can’t get it. If someone changes their philosophy to “giving is happiness” his

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rituals to fight negativity and build

life will not be the same again.

3. Rituals/ patterns Success has a pattern and failure too.

Some of us can see it others can’t. We need to develop good habit to build the pattern of success and we need some rituals to fight negativity and build optimism. Prayer is one of the Interventions that can protect us from predatory commerce and illusions 4. Natural struggle It’s a part of life. We will fall and we need to learn how to stand again. We need to learn how to turn an adversity into blessings. We need to convert our enemies into our friends.

5. Starting small Planning is the key to live a life by design. When we plan, we need to dream BIG. We need to move beyond our comfort zone. But we must test and build our competency in a small segment, make it beautiful and durable.

Then move to the wider horizon. Create a prototype, keep focused, have courage for a test drive. Start, don’t procrastinate.

6. Battery You need something to start your car though it runs with fuels. Learn how to motivate yourself. Re charge and recreate. Take a day off. You have the potential. Find your passion, work on your talents, and make something valuable and meaningful.

optimism. Prayer is one of the Interventions that can protect us from predatory commerce and illusions ”

Munshi Abdul Alim, FCMA CFO - Fiber@Home

7. Bank account Social bank account, not your credit card. Help others you will be helped.

Give a smile. Make right association with like-minded diverse people, expand and grow beyond. Think about the relationships you ignored as you have credit cards. Get out of the illusion to be dependent. It is an interdependent world.

Enlist and engage.

8. Know your home What is the ultimate purpose of your life?

What legacy you want to leave behind?

What the universe is telling us. What we learned from the mighty generals and generations? Where we all are heading back? Think about a home, underneath springs flow. Learn about it. Earn it.

9. Be curious Are you curious? Curiosity is pulse of life. It makes life: LIFE. When you have it you are on the path, you are on the journey. Be curious and mindful and experience the glorious gift of life.

Develop new interests, open a new door, grow and expand.

Feature

Transformation

THRIVING IN TURBULENT TIMES Critical factors for business transformation success

Major organizations across the globe are attuned to the urgent need to transform their business and operating models, in light of evolving customer behaviors, disruptive technologies, regulatory policies, and globalization. Yet many senior executives feel their organizations are not capable of driving the transformational changes necessary to create higher performing organizations.

KPMG’s Global Transformation Survey 2016 reveals that senior executives are alert to the rapidly unfolding risks and opportunities, but many lack key capabilities to respond effectively. The survey summarizes what causes transformation to fail and what enables transformation to succeed.

What causes transformation to fail?

Most organizations have failed to achieve the value they anticipated from previous transformation initiatives. Here is why: a. Failure to understand the complexity of the operating model: underestimating the significance of operating model changes necessary to affect transformation across the organization. b. Inability to innovate: incapability of implementing formal innovation processes, management, and budgets. c. Missing the cultural connection: the existing organizational culture is a barrier to execution.

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Feature

Transformation

d. Failure to take a “business value first” approach to technology: organizations’ legacy technology/systems are a barrier to success.

Transformations that begin with a specific technology (rather than with strategic objectives) are twice as likely to fail. e. Inability to execute: organizations are highly capable of executing on an implementation plan to build and operationalize a new target operating model.

What enables transformations to succeed?

To succeed in today’s environment, organizations need to improve their ability to capture and analyze an immense amount of data to develop timely customer, competitive, and operational insights. They need to embed innovation within their core business to continually develop new ways of creating and delivering value to customers in the most cost effective way. They must also use the latest technologies as business innovation enablers and create an agile culture, organization, and asset base to thrive in an environment of change. The survey points to three critical factors for business transformation success: 1. Focus on the customer It is unquestionable that the customer has become more powerful and informed. Organizations are attempting to bring the customer’s perspective and value to the table; however, few are properly understanding the customers’ evolving expectations and aligning it to the value drivers of the organization.

To remain relevant to the customers as market change accelerates, organizations need to understand the value customers attach to particular products, services, and delivery models. From there, the key is to understand and quantify the competitive value that transforming the customer experience will bring to the organization, and then align the necessary changes to the business and operating models around that value.

Essentially, the task is to continually evaluate and adjust the customer

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experience, based on the needs of today and tempered with a clear understanding that tomorrow’s customers will have different expectations than today’s. That means continuously listening and analyzing what customers want and value, evaluating the leading comparative practices, and then deciding how the organization can evolve its customer value propositions to meet these needs both profitably and competitively.

Consequently, segmenting customers strategically is critical. For that, the correct data and a strong analytics capability are vital. Top executives point to data & analytics as both the top driver and enabler of new business and/or operating models in organizations.

2. Embed continual innovation into the success Business leaders must embed continuous innovation into the culture and structure of their organizations in order to build enduring competitive advantages. To do so, they must have insights into what customers today and in the future truly value, and must follow a “business value first” approach to technology. Such an effort calls for enabling the organization to work smarter and faster so it can create return on investment even as it continues to innovate.

Executives must look at all corners of the marketplace to predict disruptive changes to stay ahead of their competitors. Successful companies will proactively disrupt themselves before a competitor or regulatory change forces disruption upon them, so they can remain competitive and continue to satisfy current and future customer needs. That means transforming the business and operating models with the technology tools, the time commitment, and the appropriate resources and decision-making authority so that innovations can be created and implemented. Innovation has to become a core capability and a top organizational priority.

Keeping a finger on the pulse of technologies spearheaded or matured in other sectors can also spark and enable innovation. In addition to evaluating and exploiting existing systems, innovative organizations are more likely to address

the impacts of current technologies such as cloud, digital, and mobile and emerging technologies such as cognitive/artificial intelligence.

Organizations that commit resources to foster a culture of innovation are best positioned to take advantage of the convergence of current and emerging technologies. Organizations are dedicating specific budgets to innovation centers and research labs to pilot and deploy new disruptive technologies.

Successful innovation strategies will ultimately depend on collaboration between technology and business leaders to translate new systems and processes into value drivers for the business.

3. Learn to thrive on a change Senior executives need to build agility into their organizations, so that as the business environments they operate in shift, their organizations are better able to transform and adapt to the innovations generated.

Learning to thrive on change means more than merely quick reaction times to market demands. In order to drive value in this dynamic environment, organizations need to take a fresh perspective on transformation, organizational structure, and asset ownership. To thrive on innovation and collaboration will require the enablement and transformation of operating models including the refocusing and revitalization of cultures.

Organizations need to be realistic about the changes necessary to realize desired outcomes.

Executives need to build a culture in which people expect and embrace change, and ensure that people at all levels of the organization have the right skillsets for tomorrow. Anticipating that customer demands and technologies will constantly change, executives need to put into place programs that train and retrain talent on an ongoing basis, and recruit the right talent as required skillsets evolve. Embedding a new culture that embraces innovation requires the active, ongoing support of all leaders, managers, employees, contractors, and partners of the business.

Feature

Want to Sell Your Business?

Want to Sell Your Business?

Preparing for the sale

After careful thought, and probably a few sleepless nights, you have determined that it is time to sell the business. The preliminary valuation work pointed to a range of acceptable estimated market values and, hopefully, you have engaged the services of a financial advisor to spearhead the effort.

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Feature

Want to Sell Your Business?

For many, this is a once-in-a-lifetime event. As with most such events, the process is likely to be unfamiliar and perhaps a little uncomfortable. But you didn't get this far by avoiding the unknown. Now that you have a good idea about why you want to sell the business, the question is: "How?" Prepare to succeed It has often been said that successful entrepreneurs begin to prepare their companies for sale the first day that their businesses are established. While this may not be meant to be taken literally, it does highlight a key point: most characteristics that enhance your company's marketability take time to develop. It takes more than a little touch-up or a coat of paint to sell your business at the price you feel it is worth.

The presence of several of the following characteristics will significantly enhance your company's marketability and make it more likely that you will obtain a strong offer: • • • • •

Depth of management Clear top management succession History of audited financial statements Consistent reinvestment of earnings into operations Discipline of regular business plans / projections

To the extent that selling your company is planned for some time in the future, addressing the above attributes and incorporating them into your operations now will go a long way to ensure that you meet your financial objectives when the time is right to sell.

Grooming tips Every effort should be made to prepare or ‘groom’ your business to ensure it is sold successfully first time. While the financial advisors you appoint will work with you to address issues specific to your company, there are a number of general grooming points worth considering (even before you appoint advisors) to maximise the value of your business:

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•

Sales & Profitability: In the past you may have been setting your prices, and thus your profit margins, at levels designed to create barriers to entry for your competition. If you are planning a business sale your focus is likely to be less long-term in nature and it may be worth re-examining your market and customer base to see if higher selling prices and margins could be achieved.

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Operating Costs: You should regularly review your operating costs but especially so when preparing your business for sale. Are there any costs that could be reduced, or removed altogether, without affecting the operational effectiveness of your business?

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Profit Trends: Apart from current margins, a purchaser will be looking at profit trends. They will be hoping to see stable and steady growth in the years leading up to a sale.

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Management Team: The purchaser of your business will be hoping to acquire a quality management team.

It may be worth reviewing your corporate structure to ensure that job titles and role descriptions adequately reflect the contribution that your management team makes to your business.

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Asset Base: Are there any assets in the business that may be of little or no interest or use to a potential purchaser – e.g. short term investments, under-utilised property, equipment or perhaps surplus cash?

Think about realising and removing them from the business before the sale. It is also worthwhile having all your property assets valued separately.

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Restructuring: If your business has more than one division some thought should be given to restructuring it into a number of stand-alone entities and perhaps selling these separately.

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Tax Planning: Make sure that all your Corporation Tax and VAT returns and payments are up to date.

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Valuation Expectations: You must have realistic valuation expectations.

Valuation is important but do not let it get in the way of securing the sale.

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Timing: Deciding the best time to sell your business can be a difficult call to make. Factors to be considered when making this decision include: the level of corporate activity in your industry; the state of the economy; changes in legislation impacting on your sector; etc.

It is better to sell your business on historical trends and results - they are a proven track record to which you can point and will provide a strong negotiation platform. If you forecast growth of 20% for the coming year and can point to 20% annual growth for the last two to three years your forecast will have more credibility.

Put it in writing A major step in readying your company for market is the preparation of an Information Memorandum. This document can range from 10 to 200 pages and is an initial compilation of materials that will be distributed to interested buyers. The key to preparing this memorandum is to focus on its intended purpose – marketing your business. Accurately describe the company, its history, products, markets, competition, personnel, facilities and financial performance (historical and projected) in a way that highlights your organisation's strengths and potential.

When prospective buyers complete a review of the memorandum, they should clearly understand the company's unique investment merits, or ‘growth potential’. Your company's investment story is introduced, supported and reinforced in the memorandum.

Feature

Want to Sell Your Business?

Target potential buyers While the selling document is being prepared, you and your advisor should be developing a list of possible purchasers to target. It is during this process that the advisor's knowledge of the mergers and acquisitions marketplace will be extremely valuable. Your advisor should have a feel for which buyers are actively pursuing investment opportunities and a good sense of the attractiveness of your particular industry segment to such investors. Potential buyers usually fall into one of the following categories: • Direct competitors • Companies serving the same end-user • Customers looking to capture channels of distribution • Suppliers • Companies using similar technology • Companies with countercyclical products • Investment companies Value is in the eye of the buyer There are more buyers out there for your company than you might think. The sale process is extremely competitive, attracting a wide spectrum of buyers, each with its own specific interest in the company.

The initial list of potential buyers should be as broad as possible, both domestic and international. It is easier to start from here and carefully reduce the numbers (usually through a system of setting priorities) than it is trying to add to a short list later in the selling process.

Ranking potential acquirers from most to least logical requires an assessment of how each of the following characteristics applies to a particular buyer: • • • • • •

Potential synergistic benefits of your business with their existing operations Capital / financing available to close the transaction Experience in completing acquisitions Previous knowledge of, or involvement with, the company / industry Geographical proximity Announced intentions to grow through acquisition.

It is at this point that the first critical decision must be made: how broadly should you market your company?

A wide distribution of the Information Memorandum increases the probability of achieving the best price, but also increases the likelihood of damaging your company by sharing sensitive information with too many people. Your competitors may be the ‘best’ buyers, but they are also the ones who could inflict the most harm on your business if they are privy to confidential marketing and manufacturing information.

Maintain your momentum Investing time in the preparation phase is likely to pay off by putting you at a distinct advantage during negotiations.

Remember, keep asking yourself: "What

can I do now to avoid delays once the process is rolling?” For example: •

•

•

Ensure that your company's ‘investment story’ is clearly understood and supported by senior management, particularly those who will have regular contact with potential buyers Anticipate the buyer's basic due diligence requirements and gather the appropriate information as early as possible Adjust your corporate structure to eliminate certain asset classes that you may wish to retain

Once you have begun preparing your company for sale, your momentum will maximise the strength of your bargaining position.

Source: PwC

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