SERVE, SHOOT, MANAGE: RUNNING THE FINANCES OF SPORTS CLUBS P. 19
CASE STUDY: GIRISH BHATT, CFO, GAMMON INDIA p. 48
CFO IndIa SERVE, SHOOT, MANAGE: CFOS OF SPORTS CLUBS 19 | CASE STUDY: GIRISH BHATT, CFO, GAMMON INDIA 48 | ROYAL RETREAT: UDAIPUR 62 VOLUME
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ROYAL RETREAT: RAIN-SOAKED UDAIPUR p. 62
VOLUME 02 ISSUE 07 Rs.50 JULY 2011
IndIa
cfo-india.in
ANIL KHANDELWAL CFO, Cox &Kings
INDRANIL DEB, CFO, Marine Solutions
THE
DREAM MERCHANTS They cruise the world, dine with the stars and hold meetings in yachts as part of their job. CFOs of five such organisations discuss the challenges they face and the fun they have. Pg 12
ULRIKE STARK, CFO, Marriott Hotels, India & South Asia
A 9.9 MEDIA PUBLICATION
CFO JULY
|
2011
InsIde
12 COvER STORy
FINANCE & SPORTS 19 A DIFFERENT BALL GAME The CFOs of AC Milan football club, the 2010 Vancouver Olympics and the All England Lawn Tennis & Croquet Club discuss how different and often tricky it is to run the finance function of a sports club or a global sporting extravaganza
INSIghT 52 PAYING BACK SHAREHOLDERS Successful companies have to pay back their shareholders. The question is, what is the best way?
THE DREAM MERCHANTS
bIg PICTuRE 45 GROWTH IN THE TIMES OF INFLATION A CFO India survey finds most CFOs are hopeful of high growth, though they are worried about the lack of government action on the policy front
CFO PROFIlE of ponytails, football and finance
24
Gulshan Dua, Company Secretary, Country Controller and Finance Head at Freescale Semiconductors, India, talks about tackling crises, his vision for the company and his passions
30 THE AGE OF TRANSPARENCY Companies need to rethink information sharing rules and their approach to corporate transparency
10 ARUN KEDIA
10
The CFO of Adhunik Power & Natural Resources says managing and satisfying both external and internal shareholder-demands are a constant source of worry for him. SERVE, SHOOT, MANAGE: RUNNING OF SPORTSTHE FINANCES CLUBS P. 19
CASE STUDY: BHATT, CFO, GIRISH INDIA p. 48 GAMMON
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ROYAL RETREAT: RAIN-SOAKED UDAIPUR p. 62
lEADER’S WORlD 56 PASSING THE FITNESS TEST To be an able leader, one has to stay fit, healthy and follow some basic fitness rules, says David Lim
CFO lOuNgE 60 ON WHEELS | NEW FORD FIESTA 62 TRAVEL | UDAIPUR
IN PRACTICE
I ThINK
CFOs who work in exciting sectors and whose companies sell holidays, ice creams, films and yachts, tell us about the unique challenges they face and the fun they have
59 GIZMOS| AUDIO TECHNICA
REgulARS 04 LETTERS TO THE EDITOR 06 O-ZONE 64 NOT JUST THE LAST WORD
VOLUME 02 ISSUE 07 Rs.50 JULY 2011
INDIA
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SERVE, SHOOT, MANAGE:
COVER DESIGN BINESH SREEDHARAN
CFOS OF SPORTS CLUBS 19 | CASE STUDY: GIRISH BHATT, CFO,
ANIL KHANDELWAL CFO, Cox &Kings
GAMMON INDIA 48 | ROYAL RETREAT:
TH DR E
INDRANIL CFO, Marine DEB, Solutions
UDAIPUR 62
EAM MERC HANTS They cruise stars and the world, dine the as part ofhold meetings in with their job. CFOs yachts such organisati of the challenge ons discussfive s they face and the fun have. they
VOLUME
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Channel Mentor Inside Front Cover | Financial Executive 02 | Airtel 35,36 | NGO 51 | Sodexo Inside Back Cover | Nokia Back Cover
ULRIKE STARK, CFO, Marriott India & SouthHotels, Asia
Pg 12
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from the
managing editor
dhiman chattopadhyay dhiman.c@9dot9.in
MANAGING DIRECTOR: Dr. Pramath Raj Sinha
Number Crunching For Fun
IMAGINE A JOB that takes you to the most exotic destinations to talk money or lets you call a yacht your temporary office, taste ice creams as part of ‘strategy’ and call the rich and famous by their first names. No, you can’t have them all in one job. So we thought we would bring you the next best thing this month – an engrossing story about how CFOs of companies that sell holidays, yachts, ice creams and films face the unique demands of their job. The perks of their jobs may cause a bit of envy, but the nature of the financial challenges they face certainly didn’t make me envy them! When selling five less yachts than the previous year means a drop in revenues to the tune of 50 crore, or when one botched up tour in Hawaii means hundreds of clients shifting loyalty to your competitor – life cannot possibly be a bed of roses for these CFOs. It is an equally crazy life for those heading the finance functions of some of the world’s bestknown sports clubs – something we discovered when we spoke to the CFOs of AC Milan Football Club, The All England Lawn Tennis & Croquet Club (better known as the club that hosts the Wimbledon tennis championships) and the Vancouver Winter Olympics. Would you ever hear the CFO of a manufacturing firm saying he would “rather win than make money”? Or spend $100 million to insure a star employee’s right toe? Don’t for a moment think their jobs are not demanding though. In fact it is rather more difficult in some cases, since many of the skills they have acquired in these jobs are never taught in any B-School. Nonetheless, the colourful nature of their challenges makes this month’s cover story (Dream Merchants, Page 12) worth a read. In other sections we ask Girish Bhat, the CFO of Gammon India how is getting state-of-the-art IT infrastructure at Gammon and profile the colurful Gulshan Dua who heads the finance function at Freescale Semiconductors, India. I hope you enjoy the issue.
EDITORIAL EDITOR: Anuradha Das Mathur MANAGING EDITOR: Dhiman Chattopadhyay CONTRIBUTING EDITOR: Bennett Voyles DESIGN SENIOR CREATIVE DIRECTOR: Jayan K Narayanan ART DIRECTORS: Binesh Sreedharan & Anil VK ASSOCIATE ART DIRECTOR: PC Anoop VISUALISERS: Prasanth TR, Anil T SENIOR DESIGNERS: Joffy Jose, Anoop Verma NV Baiju, Chander Dange & Sristi Maurya DESIGNER: Suneesh K, Shigil N & Charu Dwivedi CHIEF PHOTOGRAPHER: Subhojit Paul PHOTOGRAPHER: Jiten Gandhi THE CFO INSTITUTE EXECUTIVE DIRECTOR: Deepak Garg NATIONAL HEAD: Bindu Krishna ASSISTANT BRAND MANAGER: Nisha Anand SENIOR MANAGER: Shreya Pilani ASSOCIATE: Deepika Sharma SALES & MARKETING ASSISTANT REGIONAL MANAGER (SALES): Rajesh Kandari (+919811140424) NATIONAL MANAGER (EVENTS & SPECIAL PROJECTS): Mahantesh Godi (+91-9680436623) ASSISTANT BRAND MANAGER: Arpita Ganguli CO-ORDINATOR (AD SALES, MIS, SCHEDULING): Aatish Mohite SOUTH: Vinodh Kaliappan (+91-9740714817) WEST: Sachin N Mhashilkar (+91-9920348755) For any customer queries and assistance please contact help@9dot9.in PRODUCTION & LOGISTICS SENIOR GENERAL MANAGER (OPERATIONS): Shivshankar M Hiremath ASSISTANT PRODUCTION MANAGER: Vilas Mhatre LOGISTICS: MP Singh, Mohamed Ansari, Shashi Shekhar Singh OFFICE ADDRESS Nine Dot Nine Interactive Pvt Ltd Kakson House, A & B Wing, 2nd Floor 80 Sion Trombay Road, Chembur, Mumbai- 400071 INDIA. Published, Printed and Owned by Nine Dot Nine Interactive Pvt Ltd. Published and printed on their behalf by Kanak Ghosh. Published at Bungalow No. 725, Sector - 1, Shirvane, Nerul, Navi Mumbai - 400706 Printed at Nutech Photolithographers,B-240, Okhla Industrial Area Phase-1,New Delhi-110020 All rights reserved: Reproduction in whole or in part without written permission from Nine Dot Nine Interactive Pvt Ltd is prohibited.
SUBSCRIBER SERVICES: Call +91-120-4010999 VISIT CFO INDIA’S WEBSITE www.cfo-india.in
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Letters
CFO INDIA
JuLy 2011
Keep it up! I enjoyed reading the June issue of CFO India (Get Tech, Go!). The content, as it presently exists is excellent and makes very interesting reading. Keep it up. — B Prabhakar, GM Finance,Karvy Consultants,Hyderabad
07.11 A SECTION ON AMENDMENTS I must compliment you for a superb issue in May (The Game Changers). While most sections make for interesting reading, it will be good idea if you can add a section where you cover summaries of different amendments/updates issued by various bodies during each month, for example, by the taxation department, the RBI, the SEBI or the IRDA. We do get mailers from various firms but all those are scattered and subject specific. If someone can put together a ready summary it will be of great help. Certainly more people will look forward to the monthly edition eagerly. —Yogesh Dhingra,Finance Director and COO, Blue Dart Express Ltd,Mumbai
DIGITAL TO PRINT I read the digital version of the magazine’s June issue and it made for good reading. Well done. I would like to become a regular subscriber of CFO India and would be happy if you could include me in your mailing list. —Amit Kumar,Founder & CEO, Kasper Consulting, Gurgaon
LOOKING AHEAD TO ‘TECH II’ What a brilliant idea to have an issue dedicated
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Your voice can make a change: Share your view point on what’s happening in the community and your feedback on the magazine at editor@cfo-india.in
to technology that will benefit the finance function. IT is the backbone of any organisation and having the latest IT infrastructure helps organisations work far more efficiently. It was a great learning experience for me personally, reading about how CFOs across India view technology and new tools and the kind of technology they wish for. I hope you will come out with a similar issue soon where you can talk about new software and tools to be launched as well as about cloud computing. —Ramesh Jagdale, CIO, Gystec Communications, Pune
INSPIRING PROFILE It was interesting to read the profile of KEC’s CFO Vardhan Dharkar. His rise from humble beginnings to the position of CFO at Dabur and then at KEC, is inspiring indeed. The fact that he remains a humble man who still drives to work instead of hiring a chauffer, has time to sit and chat with his juniors and hopes to help the less priviledged one day, makes his story that much more endearing. —Sangita Chanda, Webel, Kolkata
MISSING BOOKS The back of the book (Lounge) section is fun to read. However, I have noticed that for the last few issues, you have dropped the Art section. Many CXOs invest heavily in art and look forward to information about new and rising artists. —Robert Jose, VP Finance, Verdana Shipping, Vizag
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07.11 TELECOM
Apple: Smart Choice for Jet Setters
SHIGIL N
MORE AND MORE CXOs in the US are no longer seen flaunting the BlackBerry, once almost like a second skin for many of them. According to the latest smartphone market data, BlackBerry is at third place as Google Android and Apple iPhone further increased their share in the US. Market research firm ComScore says Google Android devices have carved 6
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out as much as 38.1 per cent of the market share during the past three months. During this period ending May, 2011, Google Android ranked as the top operating system with 38.1 per cent of US smartphone subscribers, up 5.1 per cent. Apple toppled BlackBerry from the number two position with 26.6 per cent of the market share. BlackBerry was relegated to the third rank with 24.7 per cent, slipping 4.2 per cent during the period. The share of Microsoft also shrank to 5.8 per cent, down almost two per cent, the report said. In its precipitous fall in the American smartphone market, BlackBerry has lost its top position in a matter of months. Just last October, it was the top-seller with a market share of more than 33.5 per cent. In the handset market, RIM was pushed to the fifth slot (by Apple), with its share shrinking to 8.1 per cent from 8.6 per cent three months ago. Apple gained 1.2 per cent to control 8.7 per cent of the handset market. Samsung remained the topper in the handset market, with a share of 24.8 per cent, followed by LG (21.1 per cent) and Motorola (15.1 per cent). Are CXOs going the same way in India as well and dumping their BlackBerrys for Apple and Google phones? There is no clear data on this as yet.
WHAT’S AROUND ZONE CFObook .............................................................. Pg 08 Jargon Decoded: Chainsaw Consultant..............Pg 08 Brain Chips ..........................................................Pg 09 People Movement ................................................Pg 09
THE CFO POLL RESULT
Will cloud computing solve data storage and other tech issues at work?
19% No 12% Maybe
69% Yes
CURRENT POLL QUESTION
Is succession planning an accepted practice at your workplace ? Vote now at www.cfoinstitute.com/poll
WHEELS
New Land Rovers Soon
MEDIA
Murdoch Shuts Shop MEDIA BARON RUPERT Murdoch’s News Corp has shut its controversial British tabloid News of the World in the wake of a recent phone hacking scandal. News Corp claims the 168-year old Sundayonly tabloid was read by more people than any other English-language newspaper. Close to three mn copies were sold every Sunday. The paper was sharply criticized in early July for revelations that it had hacked into the cellular phone and voice mail of a missing girl in England in 2002. The tabloid is accused of hacking into the cellphone messages of victims ranging from missing schoolgirls to grieving families, celebrities, royals and politicians in a quest for attention-grabbing headlines. British police say they are examining 4,000 names of people who may have been targeted by the paper.
THE TATA MOTORS owned Land Rover will introduce two new variants of sports utility vehicles Discovery 4 and Range Rover Sport in October 2011 in the UK, the on-road prices of which will start from 37,995 Pounds (about 27 lakh). Both the 2012 Model Year Discovery 4 and 2012 Model Year Range Rover Sport will come with 8-speed automatic transmissions and will be powered by 3.0-litre diesel engines, Land Rover said in two separate statements. While the Discovery 4 will be available from 37,995 Pounds onward, the Range Rover Sport’s price will start from 48,795 Pounds, it said. With the new engine, both the upcoming variants will emit 230 grams of CO2 per km, compared to 244 grams every km in previous models. Earlier this week, British marque Jaguar Land Rover (JLR) said it has started production of its SUV Range Rover Evoque at Land Rover’s Halewood facility in the UK. The company said it has already received over 18,000 advance bookings for the vehicle across the world. In India too JLR cars are picking up in sales, specially in the metros with many of the rich and famous lapping up these iconic cars as status symbols. Currently, the company directly employs about 19,000 people in the UK and indirectly supports up to 1.40 lakh jobs through its supply chain, dealer network and associated business operations. J U LY 2 0 1 1
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O-ZONE cfobook
JARGON DECODED
rishi Gupta Wall
Info
Boxes
THE pHrasE: CHainsaw ConsulTanT
+
What’s on your mind? Attach
Share Rishi Gupta likes reading The Economist July 21, at 11.36 · Comment. 4 people like this
IFC, India
1996–2003 — DGM, ICICI Bank
EDUCATION Institute of Chartered Accountants of India – 1993 Institute of Cost & Works Accountants of India – 1991
Rishi Gupta thinks working in a start-up situation is one of the most enriching experiences in life July 19 at 9.53 · 2 people commented . 6 people like this
Rishi Gupta believes there is an entrepreneur lurking within every Indian July 12 at 08.00 · 2 people commented . Like
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ARTS & ENTERTAINMENT: Classical music, old film songs RECENT ACTIVITY Rishi Gupta likes CFO India and two others ...
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HEALTH
Web of Depression THAT SITTING IN front of the laptop for hours can lead to health problems for all overworked CXOs, is a known fact. The same rule applies for children too! Two new studies have revealed that media usage can lead to depression in college students and disrupt sleep patterns in even pre-school children. A total of 224 college students at two US universities completed a survey that included the Internet Addiction Test (IAT) as well as a questionnaire which assessed the link between problematic internet usage and its association with depression. The study found a significant association between problematic internet usage overall and moderate to severe depression. In a separate study, the results demonstrated how the use of media such as television, video games and online content can affect a child’s sleep. 8
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THE MEANING: It refers to an outside consultant who is advising the management on who is to be sacked THE USAGE Put your best foot forward and keep your ears open if you ever hear your colleague in HR telling someone, “The chainsaw consultant is drawing up a list.” This one’s no mechanic he is talking about. Beware!
PHOTOS.COM
March 2010 to Present – CFO, PERSONAL Netambit. Dec 2008 – Feb 2010 – CFO Zodiac: NA Bothli PoliticalChemicals Views: Liberal & Mining 2006-2008 – National WORK Commercial Manager, Spencer's Retail June 2006–Present — Director 1999 – 2006 & CFO, FINO – Sr Manager, Seagram 2003–2006 — Project Officer,
O-ZONE COMMUNICATION
pEoplE
RADIO GA GA THIS IS NOT just good news for those in the FM radio space but also for entire India Inc. The chances of reaching out to millions of new customers through FM channels is an opportunity that few organisations would want to let go of. The Indian government has just cleared the third phase of expansion of FM radio by approving e-auctioning of a record 839 private radio stations in 227 towns and cities. In the past two phases, the government had offered 250 stations in 86 cities. The government expects to earn 1733 crore as auction fee in phase III.
The government also increased the FDI limit in private FM radio broadcasting companies from 20 per cent to 26 per cent. This is in line with the Telecom Regulatory Authority of India’s recommendation of June 2010, but much lower than the 49 per cent limit it had suggested in 2008. To make it easier for owners to sell stakes and get partners, the cabinet also reduced the lock-in period for the shareholding pattern from five to three years. To encourage operators to launch channels in remote areas, the cabinet reduced by half the licence fee for these areas for the first three years.
RESEARCH
PHOTOS.COM
Brain Chips IMAGINE IMPLANTING A chip in your brain to find out exactly how those grey matters work, even when you are sleeping. A new brain chips processor technology would be linked together to stimulate the highly-complex workings of the brain, whose functionality derives from networks of billions of interacting, highly-connected neurons. The chips upon which this work depends have passed functionality tests and were delivered in June, according to a University of Manchester press statement. A massive computer called SpiNNaker aims to map out the brain’s individual functions. SpiNNaker could also be a vital tool for neuroscientists, psychologists and doctors to help understand complex brain injuries, diseases and conditions, and identify the most effective therapies. The University of Manchester was selected to design the system architecture for the project. It received half of the 5 mn Pound grant that supported the work while the Universities of Southampton, Cambridge and Sheffield share the rest to work on other parts of the project.
HR Khan is RBI Deputy Governor Harun Rashid Khan has assumed charge as Deputy Governor of RBI for a period of 3 years, starting July 4, 2011. Khan replaces Shyamala Gopinath whose term ended in June, a Reserve Bank of India statement said.
New CFO at Firstsource
Firstsource Solutions Limited, a leading global business process outsourcing (BPO) provider, has announced the appointment of Rajesh Subramaniam as its Deputy Managing Director and Chief Financial Officer, from August 1, 2011. He succeeds Carl Saldanha as CFO, whose term with the company comes to an end in August, 2011. Saldanha will remain with the company until the end of the calendar year, ensuring a smooth transition while continuing to support the MD & CEO, Matthew Vallance, on strategic projects
Changes at Reliance Infra Anil Ambani-promoted Reliance Infrastructure is revamping its senior management team. It has inducted 16 new faces in top level positions. Anil P Gupta has been appointed President and Head, infrastructure. Neeraj Jain has been appointed senior VP to head the Mumbai Metro Line-II project. Further, Virendra Joshi has been appointed Head of finance and CFO for the Mumbai Metro project.
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cfo
i think
Facts & Trivia PROFESSIONAL QUALIFICATIONS: CA from the Institute of Chartered Accountants of India. ACS from the Institute of Company Secretaries of India FIRST JOB: KHSL Ltd as Manager (F&A) PREVIOUS JOB: Essel Mining Ltd asVP (Projects)
TAKING STRATEGIC DECISIONS, managing costs, raising capital and formulating a long-term vision for the company – the challenges before the CFO are many. Obviously, these are issues that occupy much of my time. However, one challenge that keeps me thinking at all times is how to manage the increasing difference in demands and expectations of the internal and external stakeholders. The business landscape or to put it simply, the way business is conducted in India, is changing rapidly. India Inc is witnessing major changes, be it in terms of new regulations and laws, or at a macro level, inflation and funding issues. Closer home, in our business (power), the increasing scarcity of fuel and the rising costs, are a hard reality. In such a scenario, external stakeholders have become far more demanding. They want more risk mitigation, higher interest on loans and more transparency in the way a com10
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ARUN KEDIA Walking the tightrope between external and internal stakeholders is a constant challenge that CFOs are grappling with, feels the EVP & CFO of Adhunik Power & Natural Resources Limited
pany conducts its business and communicates its decisions. Yet, internally things have not changed that much, if at all. Family-owned businesses, especially, continue to function in much the same manner. And if anything has changed here, it is the fact that controls have become tighter and with stricter
“The only thing that has not changed is the expectation that the company CFO will always, somehow, come up with solutions to keep both external and internal stakeholders happy”
corporate governance laws, the chances of rapid growth have diminished. The only thing that has not changed at all is the expectation that the company CFO will always, somehow, come up with solutions to keep both external and internal stakeholders happy. Today, the external shareholder is not just demanding but his/her demands are also backed with the assurance of knowledge; that was absent in earlier decades. Most of them are professionals – bankers, corporate leaders or senior executives – who are answerable to their superiors at work and so want to know how and where their money is being invested. Dealing with this demand, month after month, is a challenge all right! Of course, matters are not made any easier by the fact that banks and lenders today need a lot more convincing than before, since it is common knowledge that fuel, the main raw material in our business, is a diminishing resource and is in short supply.
Banks are sometimes less wiling to extend loans in such situations. So, at all times, we need to have a plan B ready, whether it be an alternate source of funding or maintaining a high level of liquidity. Equity shareholders too, do not always want to open their purse strings and would rather that we raise money through other means.
The other change that will have many CFOs of family-owned businesses a bit worried is the change in focus from ‘managing a business’ to ‘compliance’. While earlier, a company was expected to get away by showing compliance in spirit, with stiffer regulations and stricter monitoring, compliance has become mandatory. Personally,
I welcome India Inc’s move towards increasing corporate governance, since it helps a CFO conduct his work in a healthy atmosphere. However, in India, where a large number of companies are family-owned and family-run, too much of corporate governance and government interference may lead to an overall slump in growth. J U LY 2 0 1 1
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cover
STory
The
Dream Merchants
Some of their companies sell holidays, ice creams and yachts while others build hotels or produce films. Sure it's fun, but as the CFOs of five such companies tell us, the challenges they face are unique and demanding. So how difficult is it to manage the finances in sectors where the rules of the game are different? DHIMAN CHATTOPADHYAY |
SUBHOJIT PAUL
FROM LEFT: ANIL KHANDELWAL, CFO, Cox & Kings | INDRANIL DEB, CFO, Marine Solutions | ULRIKE STARK, CFO, Marriott Hotels, India, Malaysia, Maldives & Australia | GAUTAM VERLEKAR, CFO, Amore Gelato
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cover coverSTory story
t
hey Seem To Be Doing pretty much the same work their fellow CFOs in the IT or manufacturing businesses do – manage costs, raise capital, come up with strategies to increase Returns on Investments, identify risks, plan for the future and ensure their company takes the right financial decisions. But that is where the similarities end. For instance, would an infrastructure CFO allocate 20 crore for his R&D team
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cover STory
rd to a h e b y “It ma , but I have to believe ough the day work thr am on top of even if I peak” JungfraNuDELWAL, HA – ANIL K Kings, India & CFO, Cox
the trade that most of their peers in other sectors would never have to. And yes, they too have challenges that keep them awake at night, have 12-hour workdays and deal with shareholder expectations when it comes to paying dividends. Still, they admit, after a bit of pestering, that budgeting for ice creams, watching a film with Shah Rukh Khan or planning financial strategy in Maldives is something that makes their job that much more enjoyable.
Different strokes:
challenges & Perks
Company Dashboard COMPANY: Cox & Kings Ltd ESTABLISHED: 1758 WHAT THEY DO: The world’s oldest travel company CFO’S CHALLENGE: Raising capital without showing a tangible product. Selling dreams, as the CFO says. 14
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to taste ice cream flavours? Or would an IT CFO sip single malt on the high seas with a potential client, because that is the only way he can sell his product? Or for that matter would a steel manufacturing firm's Finance Director climb mountains or check out virgin beaches on work? For most outsiders, a film production house, a leisure holiday firm, a luxury hotel chain, an ice cream plant or a company that sells yachts, are great places to work in, simply because they seemingly offer a good life – free holidays, great food, a chance to meet celebrities and maybe even hold quarterly meetings in French chalets. So are these the best jobs in the world? Not quite for the reasons others envy them, if you ask the CFOs of such firms. In fact, some of the financial challenges and demands on the CFOs of these firms are so unique, that they have to develop special skills and learn new tricks of
Take the case of Anil Khandelwal, the globetrotting CFO of Cox & Kings, India. By his own admission, there are very few countries in the world that he hasn't been to. How many CFOs for instance, have to been to New Caledonia, an exotic island off the Australian coast? “Of course it is one of the perks of the job, though trust me, I spend much of the time in these locations looking at the financial viability of setting up operations there and conducting meetings. It may be hard to believe, but I have to work through the day even if I am on top of Jungfrau peak,” laughs Khandelwal when I quiz him about the perks of his job. But don't for a moment think his job is easy. The leisure travel business is notoriously fickle and one wrong step, one bad experience can snowball into hundreds of clients changing their tour operator, resulting in losses of several lakhs of rupees, often crores to a company. “When a manufacturing or an IT CFO meets a client, he can show a bridge, a previous proj-
cover STory ect or a software to convince him of a product's worth. My job is that of a dream merchant. I sell dreams, I sell an idea , a vision. Imagine how tough it is to get money from a client or get someone come on board as a partner, based on just a vision,” he smiles. And then, as he says, all strategies may come to nought, if a group of tourists feel a holiday wasn't good value for money or go through a bad experience. It is much the same with Blesson Oommen, the low profile but hard-working CFO of Red Chillies Entertainment, perhaps more famous as Shah Rukh Khan's company. “Sure you feel happy seeing your name during the credit lines of films like Ashoka, Paheli or Om Shanti Om, but managing the finances of a film is a nightmare sometimes. Budgeting for unforeseen delays, factoring in stuff like political strikes delaying shoots or a star not being able to give dates leading to spiralling costs, all have to be kept in mind by a CFO,” he says, adding, “I don't think CFOs in any other sector have so many challenges when it comes to managing cost-overruns.” Agrees, Indranil Deb, the CFO of Marine Solutions, India's largest luxury yacht selling firm. “The reasons for budgeting are similar, but the challenges are varied. In the leisure industry, the cycles are long and deep. You can have a couple of good years like we had in 2006 and 2007, followed by three very difficult years. Toplines can
swing more than 25 per cent year on year and it is not easy to convince bankers to continue to support the business,” he says. The job of a CFO in the luxury segment is fraught with perils, he says, since the first thing people stop buying at the slightest hint of a slowdown, is luxury items. And when each of your products cost anything between 3 crore and 25 crore, losing 5 clients could mean a financial crisis in your company. For others like Gautam Verlekar, the Goa based CFO of Amore Gelato ice creams, finance in the ice cream business has totally different variables attached to it. “At Amore for instance, finance works like the kitchen at home. Everyone knows how important we are but we work as a backroom unit, quietly. It is only at times of crisis that we come to the fore,” he says.
Company Dashboard COMPANY: Marine Solutions Ltd ESTABLISHED: 2001 WHAT THEY DO: Exclusive right to sell luxury boats such as Ferretti and Pershing CFO’S CHALLENGE: Managing cash flows and motivating sales team
“toplines more than can swing 25 year-on-ye per cent is not alwa ar and it convince bys easy to a continue to nkers to supp the busine ort ss” – INDRANIL
DE
B, CFO, Marin e Solutions
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Company Dashboard COMPANY: Marriott Hotels ESTABLISHED: First hotel in 1957 WHAT IT DOES: Global leaders in the hospitality industry CFO’S CHALLENGE: Financial success irrespective of location, size and other differences.
In the hotel business, there is another twist in the tale. “For us every project is a new challenge since everything from land prices to manpower skills and the size of the hotel vary from one state to another,” says Ulrike Stark, the Director Finance of Marriott Hotels for India, Maldives, Malaysia and Australia.
Let the Party begin Nonetheless, as almost all the CFOs we spoke to, admit, their jobs offer some joys others can only dream of. “My job role enables me to meet people from the retail industry who actually have the pulse of the rich and famous,” says Amore's Verlekar, adding with a laugh, “and of course I can taste new flavours well before it reaches our stores.” For Marine Solution's Deb,
selling yachts can certainly be fun when the going is good. “One of the perks is getting to know the rich and famous. I also enjoy the fact that at the end of a gruelling meeting we can unwind over a drink at the Yacht Club or soak in the atmosphere while sailing in a yacht.” For Cox & Kings' Khandelwal, there is no greater incentive than a job that lets him travel to new territories and learn about different cultures. “It is incredibly hard work, but still, it is not a bad job if you get paid to see the world and try out good food,” he laughs. It is much the same for Stark, who still remembers her trip to the magical beaches of Maldives when she went to Male to launch a new hotel. “My job has taken me to lovely new places around the world, introduced me to different cultures, people and food. I love this part of my job,” she says. Oommen, a man of few words, agrees that watching films with Bollywood's top stars and interacting with them on the sets or in office, is a privilege he would probably not get if he moved to a company than makes pipes.
Getting serious: challenges ahead All the five CFOs though agree that while they enjoy the little joys their jobs throw their way, it does not take away from the fact that being the CFO of any of these organisations is serious
is a new t c e j o r “every p e. the size of challengls may vary, the hote enchmarks are but the bnt and quality sacrosa essential” control, K ysia, dia, Mala
STAR Hotels, In Marriott Australia – ULRIKE r, to c e ir aldives & ce D n Area Fina
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KAR M VERLE – GAUTA to la Ge ore CFO, Am
business. So what are the key challenges that they face? How different are these from other sectors? “I think the main challenge for us is to retain the financial discipline that we have built up at Amore and maximise gains through delivery of quality at the best price. It is a tough sector, since in many states and micro markets, local players are very strong. At the same time MNCs have also entered the fray now. So while the challenge with local competitors lies in a price war, at the same time, I have to ensure that we set clear benchmarks so that our quality matches up to the MNC challenge,” says Verlekar. Deb says the luxury market has its own quirks. “The sales-cycles can be long. This can be very frustrating for the marketing and sales teams. Being in a cyclical business, at times, we have to wait for fairly long periods before sales happen, while our costs and expenses remain steady. Managing cash flows is my biggest worry in the year ahead,” he says. Khandelwal says the tourism business too is a high risk one. “Every competitor is breathing down your neck and price wars are a constant reality. I have to ensure that we plan each package right in terms of value for money, ensure that we back the right locations and take well
informed risks when it comes to launching a new destination. It requires a lot of financial planning and strategy,” he says. At Cox & Kings therefore, the finance team is always thinking of putting their money into special packages. “For instance, we recently tied up with Kaun Banega Crorepati, to be their official travel partners. It gave us huge visibility. Then, during the recent solar eclipse, we chartered an aircraft, and took near 200 guests 30,000 feet up in the air to get an unobstructed view of the eclipse. The cost is high, but the returns are good,” he says. For Stark, the big challenge is maintaining quality benchmarks they have set for themselves, in all their hotels, be it in the largest property in Mumbai or a small one in Ludhiana. Not an easy job, if you consider the difference in manpower skills, behaviour patterns, local cultures, the huge difference in food habits and several other factors. Oommen's challenge perhaps is the most interesting one: to one day make Red Chillies rake in more revenues than the personal earnings of its high profile CEO.
Company Dashboard COMPANY: Amore Gelato, India ESTABLISHED: 1960 (India 2006) WHAT THEY DO: Produce authentic Italian gelato/cold dessert CFO’S CHALLENGE: To retain financial discipline and set quality benchmarks
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cover STory lenges they face, all of them say they love their jobs and cherish the many high points in their careers here. Verlekar says nothing pleases him more than the fact that for the past few years they are undisputed leaders in the cold dessert space and premium dessert space in Goa. “It's not easy cracking the market here, since over 75 per cent of the visitors are foreigners who have tasted the best ice creams in the words and are therefore, very demanding. So when we became number one in India's party capital, Goa, it was definitely a great moment for me,” he says. Deb of Marine Solutions says his high points have inevitably come from dealing successfully with a tough challenge. “For a CFO the greatest satisfaction comes when you tackle a financial crisis and turn things around. Earlier this year, we sat down to analyse the reasons for the drop in revenues. After identifying the reasons, we began de-risking our business model to introduce multiple streams of revenue. While much
me “When we beca ia's d number one in Inoa, it G party capital of ent for was a great mom the entire team” AR – GAUTAM VERLEK
o CFO, Amore Gelat
of the work is still in progress, the progress has been very satisfying,” he says. Compliments and plaudits from peers is also a huge high for some like Stark. Her golden moment, she says, was when the India operations received a huge thumbs up during Marriott's Asia summit a few months back. “To be told by your colleagues that your team is one of the very best...that is the ultimate satisfaction,” she says. And what about big moments in a company's history? “My biggest high as a CFO was when we did a successful IPO in Decem18
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ber 2009 and were listed in the Bombay Stock Exchange. The sound of the gong (when the markets opened) on the way we got listed, still rings in my year. We had worked round the clock for months before that to make the IPO a success,” recalls Cox & King’s Khandelwal.
Learning on the job: Lessons Having spent a significant number of years in these exciting businesses, all the five CFOs say they are grateful to their jobs for teaching them key business lessons. “The 2008-09 financial crisis taught me the value of liquidity. In retail cash is king. Liquidity is like the joker in a pack of cards, the card that can save you,” says Verlekar.. The slowdown was also an eye opener for Marriott's Stark, when the hotel industry around the world faced one of its worst crises in recent history. “I realised that if you remain honest and transparent in your dealings and communicate the reality effectively to your clients, then clients will retain their faith in you,” she says. For Khandelwal the learnings have been very different “Never be complacent, even if you are the market leader. The numbers can change before you know it,” he says. Deb talks about learning to take ownership. “Once you get individuals to take ownership for separate parts of a business, you can actually see things happening on the ground. Every employee must believe he is a stakeholder,” he suggests. These are learnings that are common to the experiences of many of their peers across sectors. But it is the unique nature of the challenges, the different kinds of demands that they have to deal with and of course the cool perks that come with their jobs, which makes their stories much more interesting.
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ser ve, shoot,
Manage What is it like being the CFO of a football club, an Olympic committee or an iconic tennis tournament? And how different is their world? BENNETT VOYLES
FROM LEFT: MASSIMO CAMPIOLI, CFO, AC Milan Football Club | JOHN MCLAUGHLIN CFO, 2010 Vancouver Winter Olympics | RICHARD ATKINSON, CFO, All England Lawn Tennis & Croquet Club J U LY 2 0 1 1
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B Company Dashboard COMPANY: AC Milan Football Club ESTABLISHED: 1899 WHAT THEY DO: One of Italy’s top football clubs. Started out as a ‘cricket & football club’. CFO MANTRA: Winning is more important than just making money
eing the CFO of a major sports team or a sporting event sounds like a good deal – a key role in a business that people across the social spectrum understand and follow. Also it means you get a chance to meet your favorite players, go to the game a bit more often, and take strategic decisions that will make players richer or poorer, bring in more fans, rake in the moolah and attract sponsors. And of course, make you, your company figures prominently on the sports pages for all the right reasons. But before you decide to give up electrical wire distribution or concrete manufacturing for football or tennis, keep in mind that it takes a particular kind of financial genius to tolerate all the uncertainty that comes with this sector. Sports is a crazy business, with owners who often do not care how much money they spend as long as they win, and investment decisions that are difficult to model by conventional means, such
as whether you want to invest $10 million in the ankles of an 18-year-old Brazilian star. To an outsider, in fact, it can seem bewildering. Simon Kuper and Stefan Symanski even quip in Why England Lose, a book analysing the dysfunctional side of English football, “Anyone who spends any time inside football soon discovers that just as oil is part of the oil business, stupidity is part of the football business.”
winning matters Sports should be a lucrative business. Worldwide, sports-related spending is over $110 billion and climbing at nearly 4 percent per year, according to recent estimates by PriceWaterhouseCoopers. Championship games are some of the most-watched events in history (more than million people tuned in to the World Cup Football final last summer). However, in spite of all the money being raised and spent, the teams themselves sometimes do not seem to be all that good at making money – and in fact, the owners often seem to feel that making money is beside the point. Certainly, this is true at the iconic Italian football culb AC Milan, where CFO Massimo Campioli says, “The results of the football matches are more important than the financial results.” This means the CFO’s goals are perhaps different than those of his colleague headaing the finance function at an infrastructure or IT firm. “The work is the same, but the context is different,” reflects Campioli, who is also vice president of ANDAF (the Italian CFO Association). “The culture in a normal company is to mini-
re in a u t l u c e h “t y is to n a p m o c normal losses. Here, minimiserent. the first it is diffe o win,” thing isCtAMPIOLI, O all Club ilan Footb M CFO, AC
– MASSIM
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p... u t r a t ke a s have the i l s ’ t i “ you ow e r n u k s o t e k ma s in place g on.” tool hat’s goin HLIN w CLAUG uver, HN M
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Vanco mpics, ly O r e t 010 Win CFO, 2
– JO
mise losses. Here, it is different. The first thing is to win,” he says. Founded by two English expatriates as the Milan Cricket and Football Club in 1899, AC Milan has been a dominant team in Italian football from the early days when the goalkeeper would sometimes keep a chair, whisky, and cigarettes handy to pass the time. Yet although sports have evolved far beyond those early, amateurish days, and the executives behind it are much more professional too, the tone is still somehow different than in a regular business. One reason is that although the sporting scene has grown more corporate in recent decades, team ownership remains a popular accessory for the mogul who has everything, right up there with running for public office. In fact, the two often go together: Just ask Silvio Berlusconi, prime minister of Italy, who has owned Milan AC since 1986, or Herb Kohl, US Senator from Wisconsin and owner of the Milwaukee Brewers basketball team. Nor is it only useful as a way to get into politics; it may be a helpful way to stay there. Even now, Berlusconi keeps an eye on his guys in the red and black jerseys, “the devils”, a team traditionally favored by conservative, working class Milanese. “He is very busy with his commitments as prime minister, and so he cannot be very present, but you know he’s Milan’s number one supporter, he is involved when we buy big or expensive players,” says Campioli. For the CFO, this can lead to some bizarre situations. Although AC Milan is one of the most successful clubs in European football, it still racks up large, multi-million dollar deficits. In fact, Campioli says, the better the team does, the worse the impact on the company’s financial year. Winning translates into player bonuses, but ticket sales and other revenue don’t actually
rise that much. “In this moment for the club, success and the annual rate of return are in competition,” he says. However, as a passionate fan himself, Campioli doesn’t seem too distraught about cash shortages. In fact, asked about the lowest point since he joined AC Milan 25 years ago, he gives the same answer many Milan fans would: Ricardo Kaká’s defection to Real Madrid in 2009. “It was very difficult because Kaká was for us our big, big player,” he recalls, despite the fact that Madrid bought out his contract for $70 milliion. Nor is this unusual. Overall, the relationship between the sporting results and finance is so far from a normal business in European football that one of the biggest issues in the sport is how to make sure owners don’t invest so much money in players’ salaries that they make it impossible for other clubs to compete. To level the playing field and improve competition, the clubs have decided to limit the amount of money a team can lose very year– with the goal being that every club reaches breakeven in ten years’ time.
Company Dashboard COMPANY: Vancouver Olympics, 2010 ESTABLISHED: 2000 WHAT THEY DID: Organised the 2010 Winter Olympics CFO MANTRA: Make sure costs do not outrun the budget
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cover story But the financial dysfunctionality may depend on the point of view. Clubs like AC Milan may generate deficits year after year and yet still create value for the owner and the owner’s company.
it is Like a start Up If the CFO of a football team is a kind of midfield player of the back office – a useful part of the team, maybe, but still, a supporting role – the CFO of a big event, such as the Olympics, is a goalkeeper. He has a lot to lose if things don't go right. Deflect most of the goals and the entire planet has something fun to watch for a few weeks. Miss the ball a few times and you will want to change your name, leave town, and find a new line of work: When something as big as the Olympics is financially mismanaged, the damage can linger for decades. The 1976 Montreal Summer Olympics debt was not paid off by Montreal taxpayers until 2006. And the 2004 Athens Olympics wracked up an estimated $12 billion in debt – around $75,000 per Greek household. “It’s like a start up,” says John McLaughlin, who was the CFO of the 2010 Winter Olympics in Vancouver, BC. You begin with almost nothing, he says, and then over time, build a huge organisation. Pat Glisson, the finance chief of the 1996 Atlanta Olympics, once described the task as having to “create a Fortune 500 company
Company Dashboard COMPANY: All England Lawn Tennis & Croquet Club ESTABLISHED: 1868 WHAT THEY DO: Home for Wimbledon CFO MANTRA Run the world’s best tennis tournament. The money will come
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from scratch, then take it apart at the end.” Now the CFO of Concert Properties, a Vancouver construction company, McLaughlin served as Executive Vice President and Chief Financial Officer of the Vancouver Organising Committee for the 2010 Winter Olympics and Paralympics for over 10 years, from the bid preparation through the wind-down the year after the 2010 games. The biggest challenge of the role, McLaughlin says, is the same as any any project – making sure that the costs don’t outrun the budget. In the beginning, when the organisation is small, keeping track of what’s going on isn’t too difficult, but as the games near and the organisation grows, it’s no longer possible to manage everything. “Make sure you have the tools in place to know what’s going on,” McLaughlin advises others trying to manage a major event like the Olympics. Another useful tactic: embed financial people within each of the operational units who can keep tabs on how things are going. An event like the Olympics attracts a lot of important personalities, McLaughlin says, all of whom want their part of it to be the most prominent and highlighted one. The CFO, as one of only a handful who has a view of the entire project, must often say no. “You have to push back a lot,” he says. But most of all, it helps, if from the beginning, the organising committee has a clear vision of where it is going and what it’s likely to do. Finally, he says, to make sure the money got
cover story to where it needed to go, his team developed a budget review process that made it easy to move money not needed in one project over to another unfinished section. This ability to slalom between budgets turned out to be very handy.
a Different scoring system One of the more confusing things about sports such as tennis is the scoring system – all those 'Loves' and points that turn instantly to 15 or 30. Financially, too, the way you keep score can be quite different. Richard Atkinson, the CFO of the All-England Lawn Tennis and Croquet Club, the private tennis club that happens to own the legendary Wimbledon tennis tournament, says that in some respects, his job is similar to the work he did in his previous job as CFO at Time Warner. “The analytics that you do, the basics of the bookkeeping, the financial reporting, the way you intersect with management is to all practical purposes identical,” he says. The organisations have their similarities as well. “Wimbledon, if you look at it coldly, is a media company,” he says. “Where does our money come from? It comes from TV rights, it comes from selling tickets to a live event, it comes from sponsorships and corporate entertainment.” But there is one important difference. As
“it is funny how chasing that nonfinancial goal can actually produce very positive financial outcomes,” – RICHARD ATKINSON,
CFO All-England Lawn Tennis & Croquet Club
although sports have evolved far beyond those early, amateurish days... the tone is still somehow different than in a regular business. the AELTC is a private organisation, Atkinson doesn’t have to worry about making quarterly earnings numbers. The roughly £30 million ($48 million) in profit that the club generates every year doesn’t go into a dividend for the club’s 350 members, but to the Lawn Tennis Association, the United Kingdom’s tennis support association. Not having to keep score for Wall Street also frees the club to make long-term investments, such as the club’s decision a decade ago to invest more than £100 million ($160 million) to rebuild the famous Centre Court as a state of the art facility that includes a retractable roof. It’s very different than what might happen at Time Warner, he says. “If you told one of your major institutional shareholders in Time Warner you were going to invest in something not because it was going to make money but because it was good for the company they would look at you like you were mad,” he says. “The key point is we want Wimbledon to be the greatest tennis tournament in the world and that tends to be the driving force behind what we do here.” The success of this approach has led him to reconsider whether business decisions should always be driven by finance, or whether they are sometimes better decided on the basis of other considerations. “Sometimes in commercial life we need to have an objective that has nothing to do with finance, that has nothing to do with profitability. It is funny how chasing that non-financial goal can actually produce very positive financial outcomes,” he says. “We set out to be the world's best tennis tournament. If you actually do that, the chances are, it is going to be commercially quite successful.” Running the finances of a sporting event or a team is one heck of a job. Ask these men and they will all swear by it. But, as they all say in unanimity, it is also a lot of fun. J U LY 2 0 1 1
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CFO
Profile GUlSHAN DUA
FREESCALE SEMICONDUCTOR INDIA
Of
Ponytails, Do not get fooled by his long locks or the fact that he loves soccer and salsa. Gulshan Dua, the Country Controller, Company Secretary and CFO at Freescale Semiconductor India, has done M&A deals, led the company ably through the global financial crisis and is now focussing on making its R&D facilities the best in its class. He talks about both and happy moments in his life. DHIMAN CHATTOPADHYAY 24
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AT FIRST GLANCE you would not think he is a senior executive of a multi national corporation, let alone its chief of finance. But then, our notions of what a CFO should look like are rather stereotyped. And Gulshan Dua believes in breaking such stereotypes. The 42-year-old finance head of Freescale Semiconductor India sports a ponytail, runs half-marathons, plays soccer on weekends with men half his age and hits the treadmill with fierce determination. In between all this, he does a pretty good job of managing the finances of his company and taking strategic decisions to keep the money flowing in. In fact, he has done remarkably well in his 18-year career so far, spending the last 11 years as a CFO, first as Director Finance at EXL and then as CFO and Controller - Far East Asia at Cendant (GTA), before joining Freescale in 2006. We catch up with the flamboyant Dua during one of his frequent pit stops in Mumbai. He is candid in his replies and says he considers himself lucky in having reached as far as he has in
SUBHOJIT PAUL
Footballand Finance
MileStoNeS FIRST JOB Intraport Group BIG BREAK CFO and Controller-Far East Asia at Cendant (GTA) in February 2004 A HA! MOMENT When Freescale emerged from the global slowdown as a stronger force and re-listed on the stock exchange LITTLE KNOWN FACT Has completed the Delhi half marathon in 2 hours DREAM To teach underprivileged children, and to learn Salsa
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CFO Profile
his career, since he was never a good student. “I wanted to become a sportsman or a pilot. I just about managed to make it through to the next class each year,” he laughs. It did not come as a surprise, therefore, when he got a second division in his school finals. Commerce was the only option, he says, since he did not qualify for science and, in any case, math was one subject he liked. So, how did the truant schoolboy who wanted to fly planes become an expert in finance? The story is a funny one. A friend who had picked up an additional application form for the Chartered Accountancy course, handed him the spare form and Dua decided to fill it up just for fun. “Most of my friends joked that I would never get beyond the intermediate level, but since I had enrolled, I gave it an honest shot. Maybe their jibes egged me on,” he recalls. After clearing his CA in 1992 he worked for a few months with a CA firm and then joined the Intraport Group, best known as the producers of Sandpiper beer but also a big name in garments at the time. Nearly two decades have passed since then and Dua has grown up, in more ways than one. Today, as he heads the finance function for the US-headquartered Freescale’s India operations, Dua knows he has seen the worst during the global economic crisis and has taken his organisation to greater financial stability today with his sound cost management and strategic skills, qualities which earned him a place in the 2010 CFO 100 roll of honour. The big challenge for him now is to set new benchmarks for Freescale in India. “There are many multinational companies who have big R&D activities in India. With increasing salaries and higher cost of living, the cost arbitrage is no more an attraction or a selling story for India. Moreover there is competition from China, Vietnam, Romania, Brazil and other countries. The real challenge now is to move up in the value chain and create a centre of excellence in the R&D space,” he explains. R&D is one area where he takes great interest. Asked about his biggest learning in the current job, he says, “It has to be learning about semiconductors, VLSI and embedded technology. Getting to know more about the state-of-the-art innovation R&D work that takes place in the 26
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fAvoUrite
PickS NEWSPAPERS
TOI & ET MAGAZINES
The Economist, Men's Health MUSIC Latin pop and jazz DESTINATION Venice & Goa
BOOK
First, break all the rules QUOTE When the going gets tough, the tough get going
DUA IS AS COMFORTABLE IN HIS SUIT AS HE IS IN HIS SPORTING GEAR. THE FITNESS BUFF PLAYS FOOTBALL WHEN NOT BUSY WITH FINANCIAL STRATEGY
company was a big high. Often CFOs focus only on the finances of the company without finding out how that money is utilised and what the company produces in the end. Learning about the technology we use has made me a more complete person and a better leader.” For a finance head, he sounds remarkably unlike one again, when I ask him about the challenges ahead. “With increasing salaries and higher costs of operations, attracting and retain-
CFO Profile
“The real challenge now is to move up in the value chain and create a centre of excellence in the Research and Development space”
ing engineering and R&D talent is a big challenge for us today. Working out the budgets and taking a long term view of things is critical here,” he says. Then he stops for a bit before adding: “It is at these times that my sporting background helps me. It helps me stay calm, take risks, dream big and be honest. Sports teaches you all these qualities.” He believes his passion for sports once landed him the job of a CFO. “This was during the final interview for the position of CFO, Far East Asia for GTA. There were three candidates and I was the youngest and had the least experience. When my turn came, one of the board members asked me how I thought playing soccer or cricket would help me professionally. I told him that running a business today was like playing a limited over cricket match. The
one who scores maximum runs using the least number of deliveries wins the match. I was later told that my answer and the sheer energy that I showed landed me the job,” he recalls. That staying fit and healthy helps everyone perform better at work is no secret. And Dua takes his health and fitness levels rather seriously. “I run four kms every day and play soccer on weekends. I also love dancing,” he says. It helps that he is a teetotaller. As we get ready for the photo shoot post our conversation, I ask Dua a question he must have been asked a million times: what is the story behind his ponytail? “As a teenager, I had the desire to grow my hair like the legendary Latin football players. So, three years back, one fine day I started growing it,” he says. Some of his colleagues
tell me that the HR head was initially opposed to a CFO meeting clients sporting a ponytail. “Initially it was tough. Some people thought I was a painter,” he laughs. Today he tells his juniors that long hair or not, they should play football. “It teaches you teamwork and gives you the ability to take risks,” he reasons. At 42, life is still just beginning for this nattily dressed CFO. And there is a lot more he wants to do. “I would like to teach students about experiences of life and how to overcome challenges. I want to help children who are less privileged,” he says. On a lighter note, he wants to learn salsa and hopes to perform one day before an audience. With his flowing locks, we are sure he would be a perfect fit. J U LY 2 0 1 1
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in practice
TELECOM SOLUTIONS
KEEPING FINANCE CONNECTED Telecom solutions have really helped the finance function improve work efficiency. CFOs now wish for more. NISHA ANAND
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PHOTOS.COM
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echnology is no longer a word that worries Chief Financial Officers. Once known as a fraternity that treated Information Technology as a cost centre and stayed well clear of tech tools, CFOs are today increasingly pushing for the latest IT solutions at their workplace and, in many cases, driving and leading the IT function as well. One of the most important players in this IT revolution is the telecom industry. As many of the CFOs across sectors mentioned, telecom solutions have made a major difference to the way companies in India work today. “Telecom plays a vital role in the finance fraternity. Services such as Airtel’s Data and IT solutions and Voice solutions help us communicate and collaborate within and beyond the organisation,” says S.K.Joshi, CFO of Bharat Petroleum Corporation Ltd. It has made operations more productive and efficient, he feels. “As an organisation that is into oil marketing, we have to deal
in practice with a large customer, retailers and dealers across India Telecom solutions play an important role by connecting us with our different partners and associates far more easily than before,” he adds. Hero Honda’s CFO Ravi Sud elaborates further: “All of us today expect uninterrupted and fast access to organisational resources round the clock, be it applications, data, intranet or e-mails on any device – be it a PC, laptop, ipad, mobile phone or others.” Sud says at Hero Honda telecom solutions play a major role in achieving business goals by enabling access to applications and data at all times. Some of the telecom solutions he talks about include a mesh network of IP VPNs and point-to-point links for accessing enterprise applications across locations. These range from links of 1 to 2 MB capacity for smaller locations to a number of very high speed DS3 based connectivity links – both for primary and secondary connectivity for the plants and marketing offices spread across the country. “In addition, we have links connecting our dealers to disaster recovery sites. Apart from this, we provide access to e-mail, most key workflows and other information on mobile phones and access of relevant systems to our dealers and key suppliers,” he says. Some Enterprise Business Solutions from market leader Airtel such as it’s Network IT Solutions, are making life easier for CFOs across sectors. The Healthcare sector for instance, is a mjor beneficiary. “Healthcare IT and telecom solutions
“it would be great if we can get much better and faster data speeds on our mobile phones.” –Ravi Sud, CFO Hero Honda Motors and its variation provide a huge opportunity for the company. Telemetry is becoming a solution to increase reach, especially in a geographically spread out country like India. It is also a way to leverage expertise from high-skilled areas to areas, which are relatively weak. It is a cost leveler and an opportunity leveler,” says Joydip Nag, CFO of GE Healthcare, India. Is there any particular telecom solution that CFOs think has helped the finance function work more efficiently? Joshi, predictably, talks about mobile phones. “We are able to provide customer centric solutions, which makes the
“it would be great to get Oracle reports transmitted through a system trigger into my cell... and intelligent alerts from the erp system...” –Joydip Nag,
CFO, GE Healthcare
trade and commerce easy and leverage our supplies. With the advent of smartphones, tablets and PDAs communication has become a hassle free task,” he explains. Sud talks of Internet connectivity - be it in terms of data cards, Wi-Fi, BlackBerry or the availability of applications on telecom devices such as Bloomberg or e-mail or various kinds of workflow’s that are enabled by telecom solutions, as solutions that are boons for any CFO. GE Healthcare’s Nag mentions that everything from simple SMS, conference facilities and e-mails to T-conference are of immense help. “Networking tele presence has helped us bridge distances, cut costs and make meetings more powerful,” he says. So is there anything they would want telecom companies to come up with in the days and years to come? A wish list of sorts? “I would really wish that leaders in the telecom solutions space such as Airtel come up with solutions which help CFOs access data and figures, updates and news from across the globe at a much faster pace and smoothens the operational part of our jobs. I would look forward to an advanced product which helps me access the structured cloud,” says Joshi. Sud says the finance function has unique requirements such as information in real time especially to take certain treasury and investment related decisions. “It would be great if one can get much better data speeds on our mobile phones,” he says. GE’s Nag probably is more precise when it comes to his wish list. “I would like three things really. It would be great to get Oracle reports transmitted through a system trigger into my cell, to have Skype on cell and to get intelligent alerts from the ERP system as and when we breach some metrics threshold.” Now that’s a lot of food for thought for India’s leading telecom solution providers. J U LY 2 0 1 1
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Corporate Values
THE AGE OF TRANSPARENCY Recognised authorities on digital strategy, Don Tapscott and Anthony Williams, urge companies to rethink information sharing rules and develop an integrated approach to corporate transparency on the web
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hen the global financial crisis wiped out $30 trillion in financial assets, caused mass unemployment and nearly bankrupted Europe, it reinforced the need for more effective corporate governance, better transparency and greater integrity in corporate management. When WikiLeaks — the so-called “people’s intelligence service” — embarrassed the Pentagon and the US State Department, it became clear that not even the world’s most powerful government could maintain a monopoly on information. And when a connected generation of freedom-seeking youth topple despots and dictators across North Africa and the Middle East, it’s safe to say that the transparency trend has gone truly global. Taken together, these events point to one inescapable conclusion: a potent cocktail of technological, demographic and economic forces is making the world a radically more transparent place. In fact, the waves of damaging WikiLeaks revelations are merely a hint of the world to come. Site founder
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Julian Assange says private sector companies are also on his hit list, starting with the financial services industry. Even if the United States government successfully prosecutes Assange, there are thousands of like-minded wiki revolutionaries who will gladly fill his shoes.
A NEW ERA OF TRANSPARENCY For companies, this transparency goes far beyond the simple obligation to disclose basic financial information. Thanks
to the Internet, people and institutions are gaining unprecedented access to all kinds of information about corporate behaviour, operations and performance — from real-time analysis of company financials on StockTwits to third-party monitoring of overseas supply chains. Armed with new tools to find information about matters that affect their interests, stakeholders now scrutinize companies of interest like never before, informing others and organising collective responses. Customers can evaluate the worth of products and services at
in this age of transparency all organisations need integrity as part of their Dna — not just to secure a healthy business environment, but for their own sustainability and competitive advantage
in practice
FINN O’HARA / GETTY
(L-R) Don Tapscott and Anthony D. Williams
levels not previously possible. Employees can share formerly secret information about corporate strategy, challenges and management. Global networks of business partners and suppliers share intimate commercial data to help their business ecosystems perform more like a single enterprise. Powerful institutional investors — the ones who own most of the economy — are developing x-ray vision, while increasingly networked investors dig up the “real dirt” on company financials in micro-blogging sites and chat rooms. Finally, in a world of instant communications, whistle-blowers, inquisitive media and Googling, citizens and communities routinely put companies under the microscope.
When organisations are increasingly naked, “fitness” is no longer optional as survival will force them to get buff. With demands for transparency originating from all sides and for all imaginable issues, a new, more systemic and integrated approach to corporate transparency is required. Corporate leaders need to start thinking about transparency as a critical component of competitive strategy and an essential pre-condition for building collaborative relationships with customers, partners, shareholders and the broader public. Naturally, in the face of relentless scrutiny, it’s tempting to just hunker down. Indeed, many executives assume that ramping up secrecy is the best antidote to their growing sense of impotence in the battle to control information. It is not.
But, leaders should embrace transparency, not fear it. Companies with higher levels of transparency create trust based relationships that can help manage risk, increase brand value, drive down business costs and unlock new sources of value creation. In the capital markets, trust and confidence in a company’s management builds investor loyalty and reduces its cost of capital. In the public sphere, trust can help create a social license to operate and lessen regulatory burdens. Trust and transparency in the company and business web can create enterprise-wide alignment on values, enhance collaboration and lower transaction costs in the supply chain. But transparency can be somewhat of a double-edged sword. It can surface J U LY 2 0 1 1
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in praCtiCe mortal threats for the companies that are caught unprepared. Conversely, openness also creates exciting new opportunities for value creation and high performance, as the numerous examples cited below can attest. Bottom line, in this age of transparency all organisations need integrity as part of their DNA — not just to secure a healthy business environment, but for their own sustainability and competitive advantage. Society will be increasingly alert to individuals and organisations that cultivate an aura of responsibility, when their business practices don’t measure up in reality. In everything from motivating employees, negotiating with partners, disclosing financial information or explaining the environmental impacts of a new factory, companies and other organisations must tell the truth, be considerate of the interests of others and be willing to be held accountable for delivering against their commitments.
TRANSPARENCY STRATEGY NEEDED
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But today, there are multiple layers of transparency CFOs must heed if they want to build and maintain shareholder value. These multiple layers include customers, employees, business partners, shareholders and the public; and each of these five groups has different needs.
CUSTOMERS In the past, customers were isolated. A few joined quaint consumer groups, others talked to neighbours about products they might buy, or read Consumer Reports, the main source of objective
Challenges Facing the CFO Corporate Values, Integrity And Collaboration If it is true that transparency makes socially and environmentally responsible behaviour a new source of competitive advantage and customer loyalty, how can companies in all industries take advantage? How are leading companies fusing wealth creation with social values to produce powerful and sustainable value propositions for their customers and the societies in which they operate? Can mass collaboration enhance the contribution firms make to solving the profound challenges facing the world?
Corporate Reporting How will transparency, new open data formats and the rise of social media transform the way corporate information is measured and reported? Will Webbased reporting pave the way for a more interactive and conversational approach where data and knowledge flow both ways? How can industries move toward providing comparable information in formats that make the data easy to interpret, visualise and act on?
Transparency Strategy What information should we share
and with whom? What constitutes a legitimate secret? How can companies prevent or mitigate trust erosion when whistleblowers or third parties disclose damaging information? What are leading companies doing to infuse the principles of integrity — honesty, consideration and accountability into the DNA of the organisation?
21st Century Metrics for Corporate Success What are the benefits of having auditable metrics of non financial performance that apply to topics like innovation, human capital, productivity, customer satisfaction, supply chain performance and environmental sustainability? What non financial information is most relevant to performance? How it should be defined, measured and reported? And, what level, if any, of assurance ought to be given — and by whom?
Source Moxie Insight.
The new era of transparency can be confusing, even frightening. That’s understandable. It’s sometimes harder to operate under the glare of constant scrutiny. Thus, some organisations will choose to fight transparency and resist the changes in the way the world operates around them. But the successful companies will choose the transparent alternative and seek opportunities to profit from a more open and networked business world. In fact, smart businesses already recognise that proactive transparency increases corporate success and will be an increasingly important source of differentiation in the future. That said, there are many tough questions when it comes time to setting the appropriate strategy and managing its implementation: Which corporate functions need to be involved in managing transparency to ensure success and what are the unique leadership responsibilities
of chief financial officers? What are the key classes of information and what should be open or closed? Which stakeholders should get access to information and how often? To ensure success, organisations need something new — a transparency strategy — to rethink what information should be made available to all of their key constituents. The natural candidate person to lead a company in developing its transparency strategy is the CFO who has fulfilled the requirements of corporate disclosure since the US Securities and Exchange Commission started requiring filing of annual financial reports in the 1930s.
in praCtiCe advice. Now, they self-organise, they get other readers’ book reviews on Amazon.com from their home, workplace or coffee shop — even on their smart -phones. To learn what others think about a wide range of products and services, they can consult numerous sites such as Epinions.com. Consumer electronics retailer Best Buy Co. Inc. is one of a handful of leading organisations that understands how transparency with customers engenders success. Through its Chief Executive Brian Dunn, the company has adopted the principle that “our customers should know everything that we know.” This “everything” includes data about the defect levels in the products it sells, and BestBuy has reaped benefits in increased customer loyalty. Progressive Insurance Co also embraces customer candour. Years ago Progressive started publishing online its own prices along with its competitors’ prices, and it didn’t always win the comparison. But customers love this internet-enabled honesty. It builds trusting relationships. And if the comparison shows Progressive not to be competitive, it’s so public that Progressive and its employees are highly motivated to improve the situation.
EMPLOYEES Thanks to email, instant messaging, Facebook and Twitter, employees are better informed. Every worker has an electronic printing press at his or her fingertips. All actions by company leaders are scrutinised, analysed and judged, and employees use the internet and other communications tools to reach shared conclusions that directly affect morale and productivity. No company can afford to ignore this force. It’s uncanny how fast news and rumours spread across organisations as the process amplifies an atmosphere of growing mistrust and cynicism. Fortune wrote that vault.com is “the best place on the Web to prepare for a job search.” Job seekers — from students to
all actions by company leaders are scrutinised, analysed and judged, and employees use the internet and other communication tools to reach shared conclusions that directly affect morale and productivity experienced professionals — have discovered that Vault is a comprehensive resource for career management and job search information, including juicy insider intelligence on salaries, hiring practices and company cultures. The site combines the inside perspective of anonymous employee reviews with expert context from Vault’s editors. Accenture Plc Chairman Bill Green has surprising candour with employees about everything from the company’s financial performance to his personal struggle recently regarding the tough decision to terminate the company’s contract with Tiger Woods. “Transparency with employees builds trust; it speeds up the metabolism of collaboration and increases loyalty,” he says. The authors’ research shows that transparency with employees improves and increases loyalty and trust and reduces collaboration costs, office politics and game playing. In short, companies that open up and share pertinent information with all employees can expect better results.
BUSINESS PARTNERS Companies face similar scrutiny from business partners. In the networked global economy, companies increasingly function in networks or business webs. Rather than attempt to do everything from design to component manufacturing, assembly, marketing, distribution and customer service, companies are focussing on what they do best and relying on partners for the rest. As such,
global networks of business partners and suppliers share intimate commercial data to help them perform more like a single enterprise. The Procter & Gamble Co receives specific, real-time performance result from every Wal-Mart store so that it can replenish shelves as needed. Wal-Mart Stores Inc lets P&G in on its store-by-store sales because it is confident that P&G won’t give the information to, say, Target Corp. In the electronics industry, competitors Celestica Inc and Solectron Corp give capacity forecasts and production costs to competitors Dell Inc and IBM Corp, which in turn share market demand signals with Celestica and Solectron. Celestica builds products to IBM’s forecasts because it trusts that IBM will not game the system and stick it with the bill if demand fails to materialise. Nike Inc, another transparency leader, recently launched the GreenXchange where it swaps green tech innovations with other like-minded companies. Some find this openness unorthodox, but CEO Mark Parker insists that extraordinary acts of sharing are critical to addressing the extraordinary challenges facing his industry.
SHAREHOLDERS: THE OWNERS Scrutiny from shareholders continues to build. Consider in the 1970s a relatively small number of individuals still owned almost 80 per cent of US Equities. Today, institutions are the priJ U LY 2 0 1 1
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in praCtiCe mary owners of corporations. Pension funds, mutual funds, insurance companies, other institutional investors and a broad range of individuals own or manage most public equity. And after the recent economic meltdown, institutions are striving to scrutinize their investments even more closely. Achieving shareholder trust reveals who owns the organisation. Progressive CEO Glenn Renwick believes that his company’s monthly report of operating costs — versus the traditional quarterly report issued by other companies — is better because it is the owner’s information. Good or bad, he believes they have the right to know. A now-famous Progressive annual report — which pictured a naked man throughout, illustrating Progressive’s drive to be a fully transparent company— reads: “Our desire for transparency demonstrates our belief that good decisions flow from clear information.” With more than $96 bn in net assets, the Ontario Teachers’ Pension Plan uses its own staff of 200 to research companies and make most investment decisions. Former Executive Vice President of Investments Bob Bertram says that much more information is publicly available than ever before. To him, incremental knowledge comes from dedicated people talking to management and boards of companies. The pension plan’s analysts have a deep understanding of a company’s products, business strategy, human resources, marketing plans, financial assets and competitors. But there is more to know. “Sure we now lots of factual information,” says Bertram. “By spending time with management we know about their thinking processes, we have intimate knowledge about the people making decisions and we understand a lot about their culture and what makes them tick.”
THE PUBLIC Years ago, in trying to make a business case for good corporate behaviour, cor34
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porate social responsibility advocates coined the optimistic adage “You do well by doing good.” Few were persuaded. The main reason for the lack of success in winning support for corporate responsibility was that the “doing well by doing good” adage was not true. Many companies did well by being bad. Creative accounting, unfair labour practices, corporate secrecy, monopolistic behaviours, externalising costs to society and shady environmental behaviours could help beef up the bottomline. Since 2001, market research and public opinion polling firm GlobeScan has been asking consumers across 25 countries to rate the extent to which large
technology advances, so do the capabilities of citizen journalists and civil society groups. CorpWatch.org, a San Francisco-based non-profit, boasts a sophisticated array of research tools that empower amateur corporate investigators to operate out of the comfort of their living rooms. Crocodyl.org — a corporate malfeasance wiki — covers 15 issues and 35 industries and maintains detailed profiles on hundreds of companies that are kept up-to-date by volunteers around the world. And with a recent extension called CrocTail, users can peruse the site’s world map to pinpoint subsidiary locations or browse SEC filings from sev-
transparency can be somewhat of a double-edged sword. it can surface mortal threats for companies that are unprepared. conversely, openness also creates exciting new opportunities for value creation and high performance companies should be held responsible for a variety of different actions, such as CSR initiatives, and has found that more than eight out of 10 people think corporations should take on greater responsibility for solving social and environmental issues. When companies are not responsive to these demands, corporate critics use the internet to pepper management with detailed inquiries, monitor privatesector behaviour around the world and swap insight and intelligence with one another. Many companies are uncomfortable with such scrutiny, which only intensifies as social media continues to accelerate the speed at which critical messages can “go viral.” Indeed, as
eral hundred thousand US publicly traded corporations and their many foreign and domestic subsidiaries.
A NEW CORPORATE REPORTING PARADIGM Rising transparency raises still another issue. In a world where real-time information is increasingly abundant on the Web, the clunky and outmoded mechanics of corporate reporting are looking dangerously anachronistic. Boards of directors face heightened expectations in corporate reporting, but many directors feel they lack effective tools to deliver. Directors are spending more time and are asking more
in praCtiCe questions. Senior managers are trying to provide relevant information in a form directors and others can digest. Everyone is working harder, but it’s not clear that they’re any wiser. There must be a better way. Perhaps there is. Consider the annual report. Traditionally the annual report was a bland and limited way of communicating with shareholders and other stakeholders. And it was historical, focusing on the past. Because the report was printed paper, it was an island — not linked to other pertinent data and information that might help a stakeholder understand the company better or an executive manage more effectively. While essential, financial data alone did not convey a comprehensive picture of corporate health. It was opaque — often the more detailed data, the more difficult it was to understand. here was little non financial information necessary to provide a clear view on current performance and enable more accurate predictions regarding future prospects. It was separate from the company’s Corporate Social Responsibility or Sustainability report, relegating these documents to minor status and preventing the integration of information about critical topics such as risk. This clearly isn’t good enough. One innovation that has promise is the One Report, proposed by Bob Eccles and Mike Kruz in their book of the same name. Eccles and Kruz argue for a comprehensive, networked, real-time, living and breathing system that through integrated reporting provides a single version of the truth to all concerned parties, inside and out. When viewed in this context, comprehensive reporting is at the very heart of the success and even survival of companies. One Report recognises that because of the huge changes occurring in the global economy and every industry and the challenges of rebuilding society for the 21st century, non financial aspects of performance have implications beyond boards, auditors, audit committees and investors. It acknowl-
80%
employees in 25 nations think firms should do more to solve social issues
leaders should embrace transparency, not fear it
edges that organisations do have stakeholders, who have a legitimate, important and overall healthy interest in the breadth, veracity and integrity of corporate performance and behaviour Thus, directors and managers find themselves in a vastly more complex environment, increasingly accountable to and influenced by multiple stakeholders and pressured from allsides for better reporting on corporate health and behaviour. To be sure, this new environment is full of danger and financial executives are right to be concerned. Not everything should be open. Trade secrets and personal data, for example, are properlykept confidential. But more often, opacity is used only to mask deeper problems. Armies of corporate lawyers fight openness as part of a good day’s work. Old cultures — the insular model of yesterday’s firm — die hard. Nevertheless, the technological, economic and socio-political drivers of an open business world will prevail. Smart executives see transparency as an opportunity. They believe they will do better for shareholders when they openly align their business with the interests of stakeholders. Increasingly, they are becoming open enterprises with explicit and sophisticated transparency strategies. Responsible and sustainable business practices strengthen relationships
with customers, employees, business partners and shareholders. Trust, based on open, honest, reliable, transparent and considerate behaviour, increases. That, in turn, strengthens relationships and improves value for all. Corporations will always face trade-offs and will never satisfy everyone. But if they operate with transparency and integrity in the interest of trust, their odds of success improve. Keeping up with society’s evolving expectations can be tough, but integrity shouldn’t be a millstone. Among other things, firms need clear corporate values and a commitment to integrity that runs through every vein and capillary of the organisation. Executives will need to show leadership on openness. Managers will need to pioneer new approaches to customer and stakeholder engagement. A culture of continuous innovation will ensure that companies can be responsive to evolving stakeholder expectations. And an interactive reporting system that collects external knowledge and insight can help cycle good values and behaviours throughout the enterprise. Business leaders with a combination of vision, energy, and communication skills can drive lasting change by helping convince their peers to share the risk and responsibility in meeting the challenges of the 21st century. DON TAPSCOTT IS A WIDELY-RECOGNIZED AUTHORITY ON INNOVATION, MEDIA AND THE ECONOMIC AND SOCIAL IMPACT OF TECHNOLOGY. HE HAS AUTHORED 14 BOOKS AND CHAIRS THE THINK-TANK MOXIE INSIGHT. ANTHONY D. WILLIAMS IS AN AUTHOR, SPEAKER AND CONSULTANT, WHO IS CURRENTLY A VISITING FELLOW WITH THE MUNK SCHOOL OF GLOBAL AFFAIRS AT THE UNIVERSITY OF TORONTO AND A SENIOR FELLOW FOR INNOVATION WITH THE LISBON COUNCIL IN BRUSSELS. TAPSCOTT AND WILLIAMS CO-AUTHORED MACROWIKINOMICS: REBOOTING BUSINESS AND THE WORLD. J U LY 2 0 1 1
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RISK MANAGEMENT
THE CHANGING FACE OF FINANCIAL RISK New risks have emerged post the global financial crisis. CFOs need to be aware of this changing landscape to be better prepared KUNTAL SUR
he snowballing of the global economic crisis, which originated in the US, into a global financial crisis, was a watershed event in our financial history. During this period, many financial risks were observed and new risks emerged. If we go back a bit in time, we see that the global economy was growing at a rapid clip during the early part of the previous decade. In developed economies, inflation was low, financial stability assured, investor and business confidence high. This confidence was reinforced by the bursting of the dotcom bubble in 2001, which may have shaken the financial markets but was seen as a test of the resilience of the global financial system. One of the main reasons for this stability was the development of a financial market that was perceived to transform and reallocate risks efficiently. Emerging-markets, too, became progressively more stable in the last decade. In most cases, they continued setting their public finances in order,
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in practice cleaning up their financial system and sustaining bold reforms to unfetter their dynamic economies. Post the crisis, the global economy’s recovery is underway. Most emerging-markets are once again witnessing robust growth. These economies bounced back relatively quickly in the backdrop of strong domestic demand. But in many of the developed economies, notably the United States and Europe, economic growth has been sluggish, as households, firms and financial institutions continue to repair the damage to their balance sheets.
NEW BASEL III RULES The global financial reform is headed by G-20 leaders, and is designed to address the key weaknesses revealed during the crisis. The main agenda for global financial reform is the new Basel III rules on capital and liquidity. These rules substantially increase the loss-bearing capital of the financial institutions, combined with required liquidity ratios and a limit on leverage. In addition, a counter cyclical buffer will be established so that capital is built up in good times, which can subsequently be available to absorb losses, if the situation reverses for some reason. In the financial markets, steps are being taken to strengthen market infrastructure to reduce systemic risk. The G-20 leaders have agreed the settlement of over-the-counter derivatives through central counter parties, and to increase transparency in markets.
MARKET-BASED FINANCING A related issue is market-based financing, including securitised lending. Work has begun under the auspices of the Financial Stability Board to define the sector, to develop the data and methodology to systematically monitor it, and to develop policy options.
SOVEREIGN RISK In the backdrop of the slow revival
risk is ever-present, but its nature and sources change over time. this calls for vigilance in assessing the shifting nature of risks of the global economy, certain risks require closer attention. Sovereign risk has become increasingly prominent in a number of advanced economies. Many countries entered the crisis with weak fiscal positions and were further weakened by the effect of low growth on tax revenues, costs of economic stimulus, and bailouts of financial institutions. These problems are most acute in Europe – notably in Greece, Ireland and Portugal. Many other developed economies too have precarious public finances and will need to persevere to address these problems. With the slow growth of the major economies, interest rates in a number of these nations are at low levels and are expected to remain low in the short to medium term. This scenario creates a risk for the global financial system, which emanates from the quest for ‘higher returns on a continuous basis’. This may be associated with excessive and undue risk taking as investors seek higher returns, leading to under pricing of risks.
GROWTH RISKS Emerging economies on the other hand are suffering from high growth of commodity and energy prices, which is resulting in supply side inflationary pressures. Higher inflationary expectations coupled with higher current account deficits have moderated the
EU
Some EU economies like Greece and Portugal are still struggling with finances.
prospect of growth in many emerging economies. The outlook for banks in Europe – and, to a lesser extent, the United States – continues to be clouded. Although many banks around the world made substantial progress in repairing their balance sheets, some remain strained. They are also exposed to vulnerable economic sectors. In some cases, funding positions are fragile and subject to feeble investor confidence.
COUNTERPARTY CREDIT RISK This uncertainty among the institutions has increased the ‘Counterparty Credit Risk’. In this regard regulators around the globe are using ‘Stress Testing’ as a standard risk management tool to understand the vulnerability of the institutions under severe conditions. The results of the tests are being used as inputs for capital raising and planning purposes. Many institutions are using sophisticated risk models for various risk measures. The whole ‘model development and validation’ process for risk measurement is increasingly getting regulatory attention. Risk is ever-present, but its nature and sources change over time. This calls for vigilance in assessing the shifting nature of risks. All financial reforms initiated post the crisis are expected to assist global recovery. However, we must expect the unexpected. Complacency is itself a source of risk. THE AUTHOR IS DIRECTOR WITH FINANCIAL RISK MANAGEMENT ADVISORY PRACTICE OF KPMG AND CAN BE REACHED AT KUNTAL_SUR@ YAHOO.COM. THE VIEWS ARE THOSE OF THE AUTHOR. J U LY 2 0 1 1
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TRAVEL MANAGEMENT
REDUCE COST, SAVE TIME, TRAVEL SMART An efficient and cost-effective corporate travel management system is something the CFOs must look at.
R
emember those months in 2009 when travel costs were suddenly cut back, allowances reduced and the size of the cars that picked you up from the airport shrunk significantly? It even prompted a former Union minister to tweet about travelling cattle class! Things have improved once more but what the economic crisis brought home to India Inc. was the need to put in place a better corporate travel management system. Today’s corporations are multi-division and multi-location with many
offices spread across the globe. Such growing corporations have to grapple with work-related travel needs of hundreds or thousands of employees anywhere on the globe. The rising travel spends have put business travel cost just behind materials and salary costs in many corporations. So what should companies do?
POSSIBLE CHALLENGES In this context companies that still depend on manual systems for travel
processing are, and will be increasingly challenged with these problems: Processing of travel requests being handled in each location independently and not consolidated The entire process being form-based and manual with delays in approval, data entry and discrete data Travel Policy compliance being checked manually, adding to the cost of processing Agency bills for ticketing being manually entered by accounts, leading to cost and time constraints
SHIGIL N
in practice
Reconciliation with travel agency leading to many disputes. Refund against cancellation getting delayed. Users lacking knowledge on the ticketing status Travel manager approving bills without reference to the supporting details In emergency, a traveler cannot be traced to current location easily Manual data not being exposed to any analysis, cost control strategy or MIS Some of these problems at least, will sound familiar to many companies in India. Increasingly though solutions to many of these problems are available thanks to the emergence of organisations that provide such travel management solutions.
SOLUTIONS: THE WAY AHEAD A modern travel management solution therefore is designed to address many
in an integrated system, users can manage their own preferences and personal data in an automated way. there are other advantages too. of the above mentioned problems. In an integrated system, users can manage their own preferences and personal data in an automated way. Some of the other advantages of a automated solutions package are: Users are able to build their travel plan and submit for authorization online
Employees may be provided with multiple choices of routes and fares during planning Authorisation and eligibility checks are system driven Users could modify or cancel their travel plan at any stage A travel agency can directly create booking and billing information in the system Bills raised in system are authorised for payment online Cancellations and re-issued tickets are traceable and Online bill approval and posting eliminates data entry by accounts desk Itinerary and accommodation booking information creates vital traceability of each employee in an emergency Travel records provide input for carbon emission data for sustainability reports Market leaders in this space such as Channel Mentor, have come up with packages like the TravelGrid Corporate J U LY 2 0 1 1
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iN pRAcTicE Travel & Expense Management Solution, changing the way corporate travel and associated accounting is handled. The automated process enhances auditability through its reports and brings accountability through checks and controls.
THIS IS IT A system must be flexible as process changes happen all the time in large corporations. Therefore it is imperative that there should be process management tools built into the system. The system needs to be highly configurable with most of the controls being available to the process administrators. It needs to follow a scalable architecture that can grow with the company’s ambition. Today’s systems also create an extendable platform where it may be possible to include additional modules like the employee general expense claims or a guesthouse reservation system. Possibilities on such platforms are enormous. However, the biggest advantage of such an automated system, is that it makes corporate travel an efficient, hassle-free affair. Some of the benefits in fact, are almost immediate. The Company can do away with a travel desk in every location and centralise all ticketing and expense management to a single place. The company could continue with more than one travel agency without any hassles as the system reconciles each agency’s booking and billing data automatically Payment to agencies become smooth and free of disputes
channel Mentor’s travelGrid corporate travel management solution is changing the way corporate travel is handled. Refunds pending from the agency are immediately traceable. Therefore refunds can be adjusted promptly Errors during booking become fewer as information provided is accurate. Travelers become more accountable for repeated cancellations and plan their travel better. Agency performance can be monitored as delays are visible in history. Papers are eliminated in this entire process Data posting to ERP becomes automated Efficiency of the entire travel process improves dramatically.
MONEY WISE: WHY CFO’S SHOULD BE HAPPY According to a National Business Travel Association (NBTA) assessment, the top five travel management initiatives to cut costs are: Overall travel & entertainment budget cuts
Encouraging or requiring less air travel Sending fewer employees to conventions/conferences/trade shows Emphasising advance purchase of air tickets Strengthening travel policy mandates Packages and solutions such as Channel Mentor’s TravelGrid help corporates to meet many of these objectives. It validates need for travel by enforcing pretravel authorisation, enforcing policies, encouraging advance travel planning and centralising travel process. It eliminates manual data entry by automating general ledger posting. The MIS & analytics help consolidated volumes to drive better bargains The system is modular, allowing addition of customer’s own functionalities as well. Surveys have also indicated that the state of the global economy has been a major factor in reduced spend for meetings, conferences, incentives and client events despite the fact that 85 percent of all senior executives report offsite strategy meetings and leadership conferences as an important part of their companies’ business planning and talent-development process. Traveling smarter therefore has become the mantra for many of the smarter companies in India Inc. especially since market volatility is a reality companies will have to live with. An efficient travel management programme is key to saving money while still keeping travelers on the road to help bolster revenue. Corporate travel managers must come to the rescue when corporate cost management is needed most.
in practice
ROUGH RIDE ACROSS CLOUD CONFUSIONS Mike Meikle tries to unravel the real facets of cloud computing buried under loud sales pitch and computing jargon
lying across choppy clouds towards reality has been a challenge for business and IT folks alike. Buffeted by gales of white papers, webinars and sales pitch, we cling grimly to the wheels of our organisation as we attempt to find a beacon in the tempesttossed marketplace. It doesn’t help that the captain had to be tied to the mast after listening to too many slick marketing campaigns. In an attempt to cut through the hype and educate myself outside the vendor sales pitches, I attended the latest AITP meeting on cloud computing. Local Richmond (Virginia, USA) companies, with an international presence, were gathered to discuss their usage of the cloud as well as their rationale for choosing that solution. Also, two vendors were on hand to give their perspective on current and future use of cloud computing. The panel consisted of Chris Burroughs, VP, IT, Infrastructure Services at Mondial Assistance; Mark A Eichenberger, Office 356 Specialist from Microsoft Corporation (Eichenberger
PHOTOS.COM
P
provides a variety of cloud solutions, private, hybrid and public, to his customers); Chet Loveland, Chief Information Security Officer for MeadWestvaco;
Chuck McBride, Senior Global Infrastructure Manager of Tredegar Film Products was on hand to discuss his firm’s early cloud adoption strategy; and Jason J U LY 2 0 1 1
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in practice Karnes, Cloud Architect at VMware. Karnes and Eichenberger kicked off the discussion with a high-level overview of what the “cloud” actually encompasses. Cloud services are ondemand and are self-service oriented. They have broad network access (accessible from nearly everywhere). Resources can be pooled, including staff with certain expertise as well as computing and storage capabilities. The cloud has “rapid elasticity” meaning the services can be quickly scaled to meet a sudden demand then dialled back down after the peak demand has passed. Finally, it is a measured service (you pay for only what you use). The panelists were queried as to why their respective companies first pursued their cloud strategy. Burroughs stated that Mondial did not pursue cloud for Return on Investment (ROI) purposes, but to meet growing demand for their services in an environment where the IT staff was overworked or lacked requisite expertise on certain technologies. The cloud route provided Mondial with the ability to scale to meet high demand and then reduce their footprint after a peak period had passed. Also, a cloud strategy allowed them access to IT skills they did not possess in-house. And finally, the cloud route gave Mondial the ability to test the feasibility of new service offerings such as Computer Telephone Integration (CTI), without a large upfront capital investment. McBride stated that ROI was a driving
20%
of enterprises will adopt systematic workload reprovisioning by 2016 factor in Tredegar’s decision to pursue a cloud strategy. A part of that ROI analysis was the issue of hiring additional IT staff with the requisite experience. This additional cost was deemed prohibitive by Tredegar leadership, which led to their embracing the cloud. Eichenberger then stated that ROI plays an important role in consultations with clients over Microsoft’s cloud solution. However, the flexibility and speed of cloud solutions allow organisations to accomplish M&A activities in weeks that would normally take months. Also, organisations do not have to go through a full capital procurement process for a cloud service, which means quicker time to market for new customer solutions. VMWare’s Karnes validated McBrides point that hardware, software and staff are key areas of cost savings. However, for a True Cost of Ownership (TCO), organisations should factor in risk mitigation and cost avoidance savings, he added. For example, a cloud computing solution solves capacity planning concerns since the service can be scaled up and down to meet demand. Also, data stored in the cloud is a way to meet
When Blogger died in the cloud, there was no way for users to access their data for four days. One strategy is to keep a local copy of your data...you don’t want to be stuck without access to important documents 44
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disaster recovery, business continuity and redundancy goals. The Google Blogger fiasco adds a caveat to Karnes’ assertion about disaster recovery and business continuity. When Blogger died in the cloud, there was no way for users to access their data for four days. A strategy to counter this is to keep a local copy of your data. If Google Apps one day decides to die because of “data corruption”, you do not want to be stuck without access to important documents. The potential for an incident like this is moderately high, since Google has already had a similar situation with Gmail. The next question concerned the difference between public, private and hybrid clouds. To provide some perspective, a public cloud is where organisations/users share computing power and space with others (multi-tenant). But the applications or data are only accessible to authorised users/organisations even though the applications and the data reside in the same storage. A private cloud, on the other hand, is designed and operated just for a specific organisation or user. There is no sharing of resources amongst multiple organisations. A hybrid cloud is a mix of public and private cloud infrastructure. These clouds are separate but use the same standards and technology, allowing the data to be portable. The primary reason behind the hybrid cloud model is to reduce the risk of relying on a single cloud (single point of failure). McBride said that a large number of people already have some experience with public clouds (Gmail, Office 365, Yahoo). Burroughs said Mondial pursues a public and private cloud strategy for multiple services. Currently, the organisation uses cloud platforms for data backup, customer service applications and some managed security services. —THIS ARTICLE IS PUBLISHED WITH PRIOR PERMISSION FROM WWW.INFOSEC ISLAND.COM. FIRST PUBLISHED IN CTOF, JUNE 2011
big picture
SURVEY
GROWTH IN THE TIMES OF INFLATION AND INACTION While some CFOs predict further raise in RBI rates and double digit inflation, others are confident of a 9 per cent growth despite government inaction, finds a CFO India survey NISHA ANAND
PHOTOS.COM
T
he UPA government, though no longer speaking in one voice, still sounds hopeful of achieving 9 per cent growth by the end of the 2011-12 financial year. But, with Foreign Direct Investments (FDI) showing signs of a slowdown, inflation spiralling out of control and the Reserve Bank continuing to raise repo rates, some Chief Financial Officers (CFOs) across India Inc are not in an upbeat mood. They predict that India will miss its growth targets this year or in the near future. They also caution that the government had better smell the coffee now and take some bold steps to lure back investments and speed up growth. Another section of CFOs though is still hopeful. However, all are unanimous in their demand that the government should be more proactive and seriously consider policy reforms. Cutting across sectors, the survey reached out to CFOs of over 70 large and mid-sized organisations in India with a set of six questions: J U LY 2 0 1 1
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big pictURE
iS india UnlikElY to MEEt itS 9% gRowth taRgEt thiS FiScal?
Yes
33
No
67
will a good MonSoon giVE US at lEaSt 8% gRowth? No
11 Yes
67
Maybe
22
Sixty seven per cent of those polled believed a good monsoon would definitely ensure at least 8% growth this fiscal
1 2 3 4
Is India unlikely to meet its 9 per cent growth target this fiscal? Will a good monsoon give us at least 8 per cent growth? Has the UPA Government delayed policy reforms far too long? Do you see inflation hitting double digits before tapering off?
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5 6
Do you foresee the RBI continuing to raise rates? If we continue to squeeze growth, do you foresee an eventual stalling of growth? The results, while clearly showing that the CFOs were unanimous on certain issues, gave a split verdict when it
came to their perceptions of growth prospects, their analysis of RBI behaviour in the coming months and their predictions on the movement of inflationary pressures. Asked if they thought 9 per cent was a realistic target, 67 per cent of the CFOs polled said it was, though, significantly, a third of the respondents (33 %) felt it would be too high a wall to climb. Their pessimism is understandable given the fact that India’s economy rose by a mere 7.8 per cent in the quarter ending March 31, 2011, the slowest in the last five quarters. The rains, however, seem to have buoyed the mood of the financial community considerably, with 67 per cent of those polled saying a good monsoon would definitely ensure at least 8 per cent growth in the current financial year. A fifth of those we surveyed (22%), were not quite sure whether rains would have an impact on the economy, while 11 per cent felt India Inc had moved on from the days when a good monsoon alone was the harbinger of hope and growth. The staunch believers of the monsoon economy, explained that a good monsoon strengthens the economy’s ability to control food inflation and, in effect, can sustain a growth rate of about 8.5 per cent. The question on government’s inaction touched a raw spot with almost all CFOs blaming it squarely for the current economic situation. An overwhelming 89 per cent of the CFOs said that the UPA Government had delayed policy reforms for too long. The remaining 11 per cent were not too sure and said “maybe”. But not a single CFO said the government was on the right track — a telling commentary on what India Inc thinks of the government’s much hyped economic reforms to bolster growth and bring in investments. The message from corporate India and its CFOs is unambiguous: the government should wake up now or be prepared to face the music.
big pictURE
haS thE Upa goVERnMEnt dElaYEd policY REFoRMS FaR too long?
do YoU SEE inFlation hitting doUblE digitS bEFoRE tapERing oFF?
Yes
Maybe
89
44 Maybe
11 The community was vertically divided on the issue of inflation as well. While 45 per cent felt inflation would reach
Yes
45
double digits before tapering off, an almost equal number (44%) took a more optimistic view saying the situa-
do YoU FoRESEE thE Rbi continUing to RaiSE RatES?
45 Yes
No
22 Maybe
33 iF wE continUE to SqUEEzE gRowth, do YoU FoRESEE an EVEntUal Stalling oF gRowth? Yes
45 No
Maybe
11
44
No
11 tion would not deteriorate to that extent. The remaining 11 per cent preferred to wait and watch. Yet, there was almost total consensus that inflationary pressures were a cause for serious concern, since it was slowing down demand and therefore, growth to a large extent. The financial sector’s faith in the Reserve Bank of India too seems to have received a dent, with 45 per cent of the CFOs saying they believed the RBI would continue to raise rates through 2011. The final question asked CFOs to look a few years ahead and predict whether all the previously discussed problems would lead to a stalling of growth and become a roadblock in the India Rising story? CFOs were once again split down the middle with 45 per cent fearing that targets set for 2015 and beyond would be tough to achieve, especially if the government continued with its current policies. But 44 per cent of the CFOs sounded confident about India continuing on its growth trajectory in the long run. High inflation though, was a common concern with a majority stating that it may start affecting future expansion plans, capital spending and long term growth.
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Case
Study
Project MaP THE CHALLENGE: Overhaul the IT set-up to increase business efficiency TIME PERIOD: January 2011- Till date PEOPLE INVOLVED: Top management, entire IT and Finance teams and experts
48
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from IBM, Microsoft, etc KEY TAKEAWAYS: Show risk appetite and ability to dream. Have a strong EQ. There is nothing more important than managing and convincing people
Case study
Game
on!
When he took over as CFO at Gammon India in late 2010, Girish Bhat realised that the infrastructure firm needed an overhaul of sorts to regain its rightful position in India Inc. The most important challenge for the new CFO was setting up a new best-in-class IT system and enhancing business processes. DHIMAN CHATTOPADHYAY
JITEN GANDHI
A
s a former Cadbury man used to state-ofthe-art technology and infrastructure in his previous assignments across Europe and South East Asia, the soft spoken Girish Bhat found himself in the midst of almost another era when he joined infrastructure major Gammon India in late 2010. He soon realised that the biggest and most urgent challenge for him was to overhaul the Information Technology (IT) set-up and enhance business processes. It is a challenge that has taken up a lot of his time in 2011 but seven months into the year, he sounds happy at the
turnaround that is already evident in the company’s performance. The biggest victory is that almost everyone within the organisation is happy with the new-look workplace and the company today is proud of its IT infrastructure.
THE CHALLENGE When he joined Gammon from Cadbury, the new CFO realised that one of the reasons the company had low margins was a below-par IT set up. “As a business we did not have a sufficiently scalable ERP platform. Nor did we have the best-in-class IT infrastructure,” says Bhat, as we sit in his office at Gammon’s south Mumbai headquarters.
“The first big challenge for me was to build IT for the benefit of the business. Enabling services were in a poor shape because we were an old-school engineering firm that had ignored many of the advantages of information technology so far,” he says candidly.
HOW IT IS BEING TACKLED As a first step, Bhat tied up with some of the established market leaders in IT solutions. “To have the best IT set-up, you need to partner with the best in the world. So, we brought in the likes of Microsoft, IBM, Tata Communications and Airtel, to improve connectivJ U LY 2 0 1 1
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Case study
“any transformation will face resistance. your ability to influence people, communicate and make an impact is critical here” ity and set up new software,” he says. The decision to outsource much of the IT-related work was deliberate by the Gammon management. “As the CFO, I felt it was important that we outsource IT as much as possible, since I wanted the internal team to focus on other challenges, such as enhancing business processes,” he says. However, Bhat’s message to the entire team, both internal and external, was clear. He wanted the office to work seamlessly, so that the finance team as well as others could do project reviews, future planning and get real-time information, making it an enjoyable place to work in. The next challenge for the management was to create a blueprint that would set standard benchmarks for each of Gammon’s infrastructure projects – a process that would help manage costs, ensure quality and make clients happy. “We wanted a new ERP system to build a standardised matrix. In short, an IT solution for the benefit of the business,” he says. 50
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Bhat figured that for this to happen, the finance and IT teams had to work in tandem and be kept motivated. “We, therefore, did a competency mapping exercise of all staff and developed specific training modules for each one. To build a company that sets new standards, I have to surround myself with the best people – with the right skills. And, for this, a proper training module is essential,” he explains. Finally, to build superior shareholder value and reinforce the reputation of the company, certain values had to be reestablished and recreated in the organisation, says Bhat. Of course, none of these steps could be implemented before encountering some degree of opposition from one quarter or another. “Any transformation will face resistance. Your ability to influence people, communicate and make an impact is critical. Often the resistance does not come from the junior or middle level executives, but from senior colleagues. So, convinc-
ing everyone, from the management to the juniors, is extremely important. Their questions need to be answered and fears overcome,” says Bhat. Equally important, he recalls, was convincing the CEO, because at the end of the day, any such large-scale overhauling effort means big spending with no guarantee that the returns will be evident quickly. Luckily for him, the CEO and MD agreed to his proposition that it was time for a complete overhaul of the system and the work culture. “The complete support of the management has helped me and my core team to work with passion and give more than 100 per cent to this exercise. Most of the challenges have been met and things are already looking up. Long-term success will depend on how well these changes are executed over time,” he says.
THE LESSONS The entire exercise (Bhat says it will go on for some more time as putting in place a new IT set-up takes time) was an eye-opener for the CFO. “Even after over two decades in the field, there is still so much to learn from each experience,” he says, as we step outside his office for a photoshoot. “For instance, I had to display a risk-taking ability and dream big to ensure success of the project. Anyone wanting to transform a business must display such an appetite for risks and dare to dream,” he says. Bhat also discovered that when tackling challenges where resistance would come and progress would sometimes be slow, a strong Emotional Quotient (EQ) is an asset. It helps one tide over the bad days, he says. The ultimate epiphany for him, though, was the realisation that at the end of the day, to be successful in any endeavour, one has to master the difficult art of people management and effective communication. “It is all about managing people, communicating every decision truthfully and transparently and earning their confidence. Once you do that, success is just a matter of time,” he concludes.
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insight
STRATEGY
PAYING BACK YOUR SHAREHOLDERS Successful companies eventually have to pay back their shareholders. The question is how to do it in the best way possible BIN JIANG AND TIM KOLLER
M RETURN CASH OR INVEST ?
Some executives and board members argue that returning cash to share52
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PC ANOOP
ost successful companies eventually find themselves generating more cash than they can reasonably reinvest in their businesses at attractive returns on capital. Even in the wake of the recent recession, investors are pressuring companies to distribute a mountain of cash they have accumulated in the past few years. In fact, European and US companies currently hold a total of around $2 trillion in excess cash. For many companies, that pressure raises several questions. How much cash should they return to shareholders and how much should they retain for investment and for managing volatility? When they do return cash to shareholders, how should they do so through cash dividends or share repurchases?
insight holders reflects a failure of management to find enough value-creating investments. Share repurchases and dividends, these people argue, send a negative signal to the markets that a company can find nothing better to do with its cash. But in most cases, simple math leaves such companies with little choice: if they have moderate growth and high returns on capital, it’s functionally impossible for them to reinvest every dollar they earn. Consider this example: a company earning $1 bn a year in after-tax profits, with a 25 per cent return on invested capital (ROIC) and projected revenue growth of 5 per cent a year, needs to invest about $200 mn annually to continue growing at the same rate. That leaves $800 mn of additional cash flow available for still more investment or returning to shareholders. Yet finding $800 mn of new valuecreating investment opportunities every year is no simple task in any sector of the economy. Furthermore, at a 25 per cent ROIC, the company would need to increase its revenues by 25 per cent a year to absorb all of its cash flow. It has no choice but to return a substantial amount of cash to shareholders (Exhibit 1). Moreover, concerns about negative signals to the market are misplaced. We have never seen a situation in which the stock market was surprised that a company could not reinvest its cash flow. As many companies are currently finding, investors typically anticipate distributions to shareholders long before managers decide to undertake them, since it is obvious that there aren’t many alternatives. (What investors do not know is when a company will return the cash, so the share price often rises when companies begin share repurchase programmes.) It therefore, comes as little surprise that, in aggregate, US companies have returned to shareholders around 60 per cent of earnings in dividends and share repurchases each year over the past 50 years (Exhibit 2) even if some individual companies hold on
Exhibit 1
Returning cash is inevitable Excess cash flow for $1 bn net income, $ mn
50
600
700
800
900
Projected return 25 on invested capital (ROIC)%
200
400
600
800
0
333
667
15
10
5
15
(333) 20
A company with a 25% ROIC and a projected revenue growth of 5% a year has $800 mn of additional cash flow
Projected growth rate%
Exhibit 2
On average, US companies have returned about 60 % of their net income to shareholders US net income payout ratio,1 %
Dividends as share of total net income Share repurchase as share of total net income Ratio not meaningful
130 120 110 100 90 80 70 60 50 40 30 20 10 0 1965
1970
1975
1980
1985
1990
1995
2000
2005
2008
1 SAMPLE INCLUDES NON FINANCIAL US COMPANIES WITH REAL REVENUE >$100 MILLION IN ANY YEAR BETWEEN 1989 AND 2009 2DATA FOR 1991–92, 2001–02 ARE EXCLUDED BECAUSE OF ABNORMALLY LOW NET INCOMES
to more cash than they need for operational purposes. A number of leading companies have adopted the sensible approach of regularly returning to shareholders all unneeded cash and using share repurchases to make up the difference
between the total payout and dividends. While these companies do not have formal published policies, you can deduce them from actual practice. Over the five years ending in 2010, for instance, IBM generated $48 bn of cash flow from operations after capital expenditures J U LY 2 0 1 1
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15
inSiGhT and acquisitions and returned $56 bn to shareholders in dividends and share repurchases. It is hard to imagine that even a company like IBM could have successfully reinvested that much cash in its own businesses over that time, especially since it was already spending $6 bn a year on R&D and more than $1 bn on advertising and promotions.
Exhibit 3
Earnings multiples are not affected by the payout mix LEVEL OF TOTAL PAYOUTS: AVERAGE ANNUAL PAYOUTS (DIVIDENDS +SHARE REPURCHASES) AS % OF TOTAL NET INCOME,(1) 2002–07
0–65%
66–95% 96–130%
PAYOUT MIX: AVERAGE SHARE OF DIVIDENDS IN TOTAL PAYOUTS, 2002–07, %
RATIO OF MEDIAN ENTERPRISE VALUE TO EBITA MULTIPLE, YEAR-END 2007 (2)
0
While distributions to shareholders, relative to income, have been stable for a long time, the split between dividends and share repurchases has changed significantly. Until the early 1980s, less than 10 per cent of distributions involved share repurchases. Now, about 50 to 60 per cent do. Why the shift? It is primarily about flexibility. Companies, especially in the United States, have conditioned investors to expect that dividends will be cut only in the most dire circumstances. From 2004 to 2008, just 5 per cent of US-listed companies with revenues greater than $500 mn cut their dividend, and in almost every case the company faced a severe financial crisis. So companies are reluctant to establish a dividend level that they aren’t confident of sustaining. They opt, instead, to buy back shares. Some investors, too,
20
25
>20 to 40% >40 to 65% >65 to 100% 1) INSUFFICIENT DATA FOR PAYOUT LEVELS OF 96–130% AT PAYOUT MIX OF >65 TO 100% DIVIDENDS AND FOR PAYOUT LEVELS OF >130% FOR ALL PAYOUT MIXES. 2) FOR 279 NONFINANCIAL COMPANIES THAT WERE IN THE S&P 500 AT THE END OF 2009, WERE CONTINUOUSLY IN OPERATION SINCE 1999, AND PAID DIVIDENDS OR REPURCHASED SHARES. EBITA = EARNINGS BEFORE INTEREST, TAXES, AND AMORTIZATION.
Does it matter whether distributions take the form of dividends or share repurchases? Empirically, the answer is no prefer repurchases because they can then choose whether or not to participate. Institutional investors, for example, can maintain their investment in
Returns to shareholders are unrelated to the payout mix LEVEL OF TOTAL PAYOUTS: AVERAGE ANNUAL PAYOUTS (DIVIDENDS +SHARE REPURCHASES) AS % OF TOTAL NET INCOME, (1) 2002–07 MEDIAN TOTAL RETURNS TO SHAREHOLDERS (TRS), CAGR, 2002–07,(2)
PAYOUT MIX: AVERAGE SHARE OF DIVIDENDS IN TOTAL PAYOUTS, 2002–07, %
-5
0
5
10
15
20
25
0 (100% share repurchases) >0 to 20% >20 to 40% >40 to 65% >65 to 100% 1) INSUFFICIENT DATA FOR PAYOUT LEVEL OF 66–95% AT PAYOUT MIX OF ZERO DIVIDENDS (100% SHARE REPURCHASE). 2) FOR 293 NON FINANCIAL COMPANIES THAT WERE IN THE S&P 500 AT THE END OF 2009, WERE CONTINUOUSLY IN OPERATION SINCE 1999, AND PAID DIVIDENDS OR REPURCHASED SHARES. CAGR = COMPUND ANNUAL GROWTH RATE
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>0 to 20%
Exhibit 4
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10
0 (100% share repurchases)
HOW TO PAY IT OUT
54
5
a company without the transaction costs of reinvesting dividends. Individual investors, by not participating in a share repurchase, can defer taxes on the dividends and turn them into capital gains even years in the future. Does it matter whether distributions take the form of dividends or share repurchases? Empirically, the answer is no. Whichever method is used, earnings multiples are essentially the same for companies when compared with others that have similar total payouts (Exhibit 3). Total returns to shareholders (TRS) are also the same regardless of the mix of dividends and share repurchases (Exhibit 4). These results should not be surprising. What drives value is the cash flow generated by operations. That cash flow is in turn driven by the combination of growth and returns on capital—not the mix of how excess cash is paid out.
inSiGhT SETTING THE RIGHT MIX So how should a company decide between repurchases and dividends? That depends on how confident management is of future cash flows and how much flexibility it needs. Share repurchases offer companies more flexibility to hold onto cash for unexpected investment opportunities or shifts in a volatile economic environment. In contrast, companies that pay dividends enjoy less flexibility because investors have been conditioned to expect cuts in them only in the most dire circumstances. Thus, managers should employ dividends only when they are certain they can continue to do so. Even increasing a dividend sends signals to investors that managers are confident that they will be able to con-
What drives value is the cash flow generated by operations. that cash flow is in turn driven by the combination of growth and returns on capital tinue paying the new, higher dividend level. Share repurchases also signal confidence but offer more flexibility because they do not create a tacit commitment to additional purchases in future years. (As an aside, signalling effects, whether for dividends or share repurchases, do not reflect value creation. They may lift the market’s expectations of a company’s future cash flows but do not affect the cash flows
POINTS TO PONDER The question most companies face is how much cash to return to shareholders and how much to retain for investment managing volatility Investors typically anticipate distributions to shareholders long before managers decide to undertake them Many companies regularly return unneeded cash to shareholders and use repurchases to make up the difference between payout and dividends Ideally, managers should employ divi-
dends only when they are certain they can continue to do so Another argument for share repurchases is that companies can repurchase undervalued shares for the benefit of those shareholders who hold on to them In reality rarely do companies with a good track record, repurchase shares when they are undervalued More often than not, they repurchase shares when prices are high
themselves and therefore do not create any value.) As you would expect, changing the proportion of dividends to share buybacks has no impact on a company’s valuation multiples or TRS, regardless of payout level. One argument for share repurchases that does not hold up to scrutiny: share repurchases increase value because they increase earnings per share. Such an increase is a simple mathematical effect offset by a decline in the priceto-earnings ratio, since a company is more risky as a result of higher leverage. The net effect on share value is zero. Another argument for share repurchases is that companies can repurchase undervalued shares for the benefit of those shareholders who hold on to them. In theory this is correct; however, we have rarely seen companies with a good track record of repurchasing shares when they were undervalued; more often than not, we see companies repurchasing shares when prices are high. BIN JIANG (BIN_JIANG@MCKINSEY. COM) IS A CONSULTANT IN MCKINSEY’S NEW YORK OFFICE, WHERE TIM KOLLER (TIM_KOLLER@MCKINSEY.COM) IS A PARTNER. COPYRIGHT © 2011 MCKINSEY & COMPANY. ALL RIGHTS RESERVED. THIS ARTICLE WAS ORIGINALLY PUBLISHED IN MCKINSEY ON FINANCE SPRING 2011, AND IS ALSO AVAILABLE ON THE THE MCKINSEY QUARTERLY WEB SITE,WWW. MCKINSEYQUARTERLY.COM. COPYRIGHT (C) 2011 MCKINSEY & COMPANY. ALL RIGHTS RESERVED. REPRINTED BY PERMISSION. J U LY 2 0 1 1
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leader’s
world
Have you Passed the
Fitness Test
?
To be an able leader and live up to the enormous work pressure that a CFO’s role demands, one has to stay fit and healthy. Here are a few basic fitness rules DAVID LIM
ABOUT THE AUTHOR David Lim, Founder, Everest Motivation Team, is a leadership and negotiation coach, best-selling author and two-time Mt Everest expedition leader. He can be reached at his blog http:// theasiannegotiator. wordpress.com, or david@everestmotivation.com
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THIS MONTH, as I go through the final preparations for my own little expedition to climb Mount Kilimanjaro in Tanzania in August, I thought it would be timely to address a pressing issue that faces all CFOs–I mean, Chief Fitness Officers. When you look at it from one perspective, you — the successful CFO at the workplace — have no one other than yourself to play the role of the Chief Fitness Officer in your life. For nearly two decades, people have asked me how I keep up an ‘off-season’ fitness plan, as well as an ‘on season’ fitness regime–meaning, how have I kept my weight more or less the same since 1991? Certainly, I have left my peak mountaineering days behind me, but every expedition I undertake still demands a high level of fitness and strength. So this month, it would be apt to share some of the secrets and simplest ways to fight flab, and stay fit for your work and family. There is an old joke that has done the rounds about someone complaining about putting on weight despite joining a gym. His friend says, “So, how often do you go there for a workout?”.“Me?,” the other responds. “You mean I have to go there to lose weight?” The upshot of this is that no amount of abandoned home gym equipment, or a gym membership will help you. So here are the best ways for busy leaders to lose flab.
leader’s world 1) DECIDE THAT YOU WILL BE FITTER; AND CHOOSE A TARGET In this instance, I am not referring to already fit executives who are aiming to gain muscle mass, but for almost all the other Indian executives I meet. Getting “fitter” is a poor goal. Setting yourself a realistic weight loss goal that your physician would approve of is much better. And I would definitely recommend those over 35 years of age to seek some medical advice before starting a wellness programme. A safe estimate is losing a kilo of fat a week by a combination of modified eating behaviour and exercise.
2) YOUR BODY IS INEFFICIENT; TAKE ADVANTAGE OF IT
“A safe estimate is losing a kilo of fat a week by a combination of modified eating behaviours and exercise”
This means that propelling your body is the most time-effective way to burn fat. So people who run a kilometer in seven minutes are not burning much more calories than someone who does it in 10. Similarly, it will take longer to burn the same number of calories while riding a bicycle, than running. As a result, I highly recommend a regime which includes cardio vascular work like brisk walking (not strolling) or jogging, that raises your maximal heart rate to between 60 – 80 per cent of its maximum. You calculate the maximum by using 220 beats per minute (an old, but still good, benchmark for maximal heartbeats per minute for most adults) and deduct your age from that.
Healthier choice
Less healthy choice
Fish
Mutton
Reduced portions
Eat-what-I-want portions
Brown or plain boiled rice
Biryani rice
Whole wheat roll
Fried Puri
Plate of mixed fresh fruits
Gulab Jamun
Low fat cereal
Paratha with gravy
Less sauce/gravy
Drown it with gravy
Water based curries
Milk/fat based curries
Whole-wheat sandwich or fruit
Deep-friend snacks
Baked nuts /trail mix
Fried food
Raw or steamed vegetables
Veggies overcooked in curries
The resulting figure is your unique maximal heartrate. If you cannot sustain a jog or run for 30 minutes at that range, slow down until you do, but keep moving.
3) TRAIN HOLISTICALLY To avoid injury from repetitive exercise injuries, ensure you do a variety of work. Unless you are training specifically for a sports event, I guarantee that very few overweight Indian executives need to run 50 km a week. Mix it up for fun, company and variety. And remember, fat does not burn fat, only muscle burns fat. So, when in the gym, pick a routine which hits all the large muscle (read: energy burning) groups. Squats with a barbell behind your neck, for example, could be used for both endurance as well as strength training. Do not listen to the myth that muscle turns into fat if you do not use it. Muscle tissue is completely different from fat tissue. What happens to many serious body-builders who are heavy on muscle mass is that in the ‘off-season” they eat too much and put on a layer of fat. But when they hit the gym seriously, the fat melts away quickly as the underlying mass of muscle they have acts like an engine, burning carbs and fat. Running alone will not give you as much all-round benefit in fat loss as a programme which maximises how your whole body is working out. J U LY 2 0 1 1
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leader’s world 4) NO TRAINER CAN TELL YOU WHAT NOT TO PUT IN YOUR MOUTH Even the best of us who have personal trainers in a gym, have to exert self-control as to what goes in their mouth. The beauty of my regime is that I do not deprive myself of many things, but eat judiciously based on a mental reward scheme. So, if breakfast was a no-sugar muesli with skimmed milk, I may indulge myself in the evening with a small scoop of ice-cream. But best of all, as I tell my coaching clients, good habits are formed by repeating specific actions and decisions. So, if you are used to masala dosa for breakfast, start giving it up gradually. Look at the previous page for some interesting food decisions you can make. The healthier choices we make, the more they become good eating habits.
5) COMMIT TO TRAINING WHEN TRAVELLING Getting 30 minutes of exercise even when on the road for meetings helps clear my mind, makes my sleep sounder, and burns off all those corporate lunches and buffet dinners.
Here is how you can do it. First, plan to take a pair of athletic shoes in your carry-on baggage together with a set of exercise clothes. Next, plan to reward yourself with a half-hour workout either early in the morning or in the evening. Mornings usually work better for the busy person. If you are in a tall hotel, you could climb the stairs for half an hour, or stay in your room and do a series of body-weight resistance exercise such as push-ups and sit-ups. A good routine is do one type of exercise continuously for 20 seconds, rest for 5 and then switch to another for the same duration. If you can recall and plan for at least four exercises that work all parts of your body, you will be done in 2 minutes. Rest 30 seconds and repeat for 10 circuits. You can do this while listening to the radio or watching the TV news. I guarantee it will leave you in a nice sweat at the end of it. And the beauty of short, intense workouts is that your body will continue to burn fat at an elevated rate for a couple of hours even after you have stopped. Ultimately, it is up to you whether you want to commit to losing weight, looking better, and living a longer, healthier life for yourself and your family. Choose wisely.
cfo lounge
Gizmos new launches
Hot Spot
Huawei MediaPad
Unmatched Comfort The Audio-Technica ATH-AD300 is a great gadget to own, says team Digit EVEN BEFORE ACTUALLY trying on the pair, a few things will stand out. The lattice grill at the back of the driver cups is something that will instantly catch your eye. With AudioTechnica’s signature wing design, the 200g weight (which is quite light to begin with) is barely felt on your noggin. They’re supremely comfortable. The build quality of the headphones is a bit of a paradox. They don’t seem to be badly built, but at the same time give you the impression of being flimsy. The sound on most tracks had a spacious feel to it. Being open cans, there was hardly any pressure. There is little or no isolation to speak of. While this is not a headphone for bass heads, to its credit we should say that it played our 30Hz sample, which is usually an accomplishment in itself for headphones in this price range. However the sample wasn’t as hard-hitting as it should have been. The bass sounded less impactful
and a little loose even. Cymbals are extremely pronounced thanks to the accentuated highs. Vocals are nearneutral, sharp, rich and pleasing. The sound signature of the ATH AD-300 is decidedly bright, even bordering on the sibilant but most non-discerning ears won’t notice anything amiss. The sound quality is above average and the comfort is phenomenal. At a price of `3,550 the ATH-AD300 make for a perfect maiden purchase for anyone gingerly taking their first steps into the audiophile arena. Since they’ve been officially discontinued, availability may be an issue.
SPECIFICATIONS: Driver Type: Open-air Dynamic; Driver size: 40 mm Frequency response: 20 - 25,000 Hz; Maximum input power: 300 mW Sensitivity: 96 dB/mW at 1 kHz; Impedance: 32 ohms MRP: `3,800 SRP: `3,550
The world’s first tablet to run on Qualcomm’s 1.2GHz Snapdragon processor, and Android 3.2. OS is optimised for 7 inch screens and the display has a pixel density of 217 PPI. The other specs are good too, packed into a two-tone aluminum alloy body. Price: TBA
Wii U
Gaming giant Nintendo recently unveiled their new console at the E3 Expo. It features a controller that has a camera and 6.2 inch touchscreen. Price - not yet revealed
Nokia N9
Also known as the Lankku, this is a beautiful 3.9-inch AMOLED screen (854 x 480) MeeGo device that is devoid of any buttons. It comes with 16GB or 64GB of in-built memory, 1GB of RAM, a OMAP3630 1 Ghz processor. Price: TBA POWERED BY
ad Re Y st OG Mo L E ’s NO ZIN dia CH GA In TE MA
Lounge
07.11
CFO
There is a lot of good stuff in store for you this month as we test drive the all new Ford Fiesta, give you a lowdown on Audio Technica’s new ATH AD 300 headphones and take you on a rainsoaked holiday to magical Udaipur. Enjoy!
NEW FORD FIESTA
A driver’s Fiesta
We sampled the new and upgraded Fiesta in Bangalore recently to see whether the brand stood true to its DNA in its latest iteration. Amit Chhangani THE FIESTA CLASSIC or the previous generation Fiesta used to be the gold standard in handling and driving dynamics for cars under 10 lakh. Does the 2011 edition have the goods to take forward the sporty legacy of its predecessors? We took the car for a drive around Bangalore for a day, and tried to unravel the
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virtues, wonders and vices of this smart looking set of wheels from the Ford stable. Here’s what we experienced:
Design and styling The new Fiesta comes across as a dynamic, sporty and ready-for-action car at first glance. The jazzy headlamps make no bones about the athletic overtures of this car. The
DiD yOu
know?
The Fiesta was originally developed under the project name “Bobcat” and approved for development by Henry Ford -II in September 1972. The shortlisted names for the new car were Amigo, Bambi, Bravo, Fiesta, Forito, Metro, and Sierra. Despite more board votes for “Bravo”, Mr Ford personally overruled them and named the car “Fiesta”.
e
CFO LOungE
on wHeels three multi-focal barrels housed within the external elongated and swept back assembly go a long way in underlining the dynamic character of this car. Unlike a few other cars in its segment, this one is not out here to exude elegance or subtlety. It is bred for a dash, and that is what its exteriors convey – at least from the front and the sides. However, the design seems to lose its way slightly as you approach the rear. There are some elements which try to lend muscle to the rear such as the extended lip on the top of the boot and the chiseled bumpers, but the effect isn’t quite as dynamic as the front. More horizontally positioned and sharply styled tail-lamps matching the headlamps would have helped.
JAZZY HEADLAMPS AND FEATURE-RICH INTERIORS MAKE THE NEW FORD FIESTA A GOOD BUY, SPECIALLY IF YOU LOVE DRIVING INSTEAD OF BEING DRIVEN.
new FoRD
Comfort We can state in no equivocal terms that the Fiesta bwoasts of the sportiest driver and front passenger seat on any car in, or below its segment. Extremely well bolstered, the front seats are spacious and provide superior lateral support along with great back and thigh support. For those who weigh more than hundred kgs and take up more space, however, the seats are probably not very comfortable. The space at the backseats isn’t best in class either. Headroom and knee-room is just about sufficient and those who like spending their time on the back bench will not be too pleased.
Features and details The Fiesta is quite a feature-rich car and introduces a few firsts in its segment, with Cruise Control being the most prominent amenity in the list. Voice activated A/C, stereo and phone controls may not be an absolute first in the segment, but come across as rare features nonetheless. You can select tracks from your CD/USB, make calls, increase or decrease cabin temperature and do a lot of other
FIesTA Engines
1.5-litre TiVCT
petrol and a 1.5-litre TDCi turbo diesel Power
91 BHP
3750rpm (diesel) and 110 Nm@ 6045 rpm (petrol) Torque 204 NM@ 2000 – 2750 rpm (diesel) and 140 Nm @ 4500 rpm (petrol) Price Not announced yet (Expected to be well below
10 lakhs)
POSITIVES car with voice activated A/C, stereo and phone controls, ABS and twin front airbags. Also a great car to drive. NEGATIVES Space a problem for the overweight and obese. The space at the backseats isn’t best in class either. VERDICT A good buy if you are looking for a comfortable family car.
stuff with the voice activated controls. We tried the voice activated controls on our way to Mysore and back, with around 70 per cent success rate. The ABS and twin front airbags are features that we expect on a car in this segment, and Ford India duly obliges. Automatic climate control, auto retracting electric mirrors, electric ORVMs, driver side auto up and down window, child lock, remote locking for doors from the front and rear parking sensors are a few other features that need a mention.
Bottomline The Fiesta continues to stay true to its legacy in its newest avatar – at least in the handling department. Ford is making no bones about the fact that the new Fiesta is a driver’s car. They are trying to target the small Indian family with this one, and that’s one reason why we didn’t mind the lack of backseat space much. Loaded with great features, the Fiesta is an amazing car if you love driving. For most such people, the quality of fabric or feel of the plastics may not matter much. And if you are one of them, you are going to have a lot of fun with this new baby from Ford. J U LY 2 0 1 1
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cfo lounge
travel
uDAIPuR, RAJASTHAn
A Palatial Holiday
UDAIPUR IS A fairytale city with lakes, palaces, hilltop forts and gardens with fountains. It comes as no surprise therefore that this idyllic town in Rajasthan is a firm favourite with tourists, including the Hollywood jetset. Apart from its array of attractions that range from a living heritage of arts and handicrafts to impressive medieval buildings, Udaipur is also one of India’s luxury destinations with delightful palace hotels, including the 18th century island palace called the Lake Palace Hotel that is frequented by the rich and famous. The city also boasts of luxury lakeside resorts such as Oberoi’s Udai Vilas and the Leela Palace. During rains, Udaipur looks like a dream with its lakes full of water. We made an early start from Ahmedabad and in four hours reached the Dudh Talai jetty from where a boat took us along Lake Pichola to the Leela Palace, passing the two island palaces – the Lake Palace Hotel and the Jag Mandir Palace. We also passed the gigantic façade of the City Palace looming beside the lakefront. At the Leela, we were welcomed in traditional style and escorted by umbrella-bearing hotel staff to our room. The window overlooked the lake and we could see the Aravalli Hills beyond. After a glass of wine in the Raj-style Library Bar, which has leather sofas, dark wood furniture and, as the name suggests, cabinets full of books, we started out for a tour of the city. Our first stop: the City Palace. Built over a period of a few hundred years, it was founded by Rana Udai Singh in the 16th century and the last additions were made by 62
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Fateh Singhji in the early-20th century. A majority of the buildings in the complex date back to the 18th century. We entered the City Palace Museum to see the Maharanas’ memorabilia, the courtyard with peacock mosaics, miniature paintings and other sites. This being the off-season for tourists, the City Palace was relatively quiet. We came out in
DINESH SHUKLA
Anil Mulchandani soaks in the atmosphere at the luxurious Leela Palace in Udaipur
cfo lounge
travel
LEFT: THE LEELA PALACE HOTEL OFERS EVERY COMFORT AND LUXURY YOU CAN IMAGINE. BELOW: THE ICONIC TAJ HOTEL IN THE MIDDLE OF A LAKE IS A MUST VISIT FOR THE LOVELY VIEW IT OFFERS, THE GREAT FOOD AND THE CHANCE THAT YOU MAY CATCH A GLIMPSE OF A CELEBRITY GUEST
UDAIPUR IS FULL OF BEAUTIFUL SITES. WHETHER IT IS THE LAKES, THE ARAVALLI HILLS, THE MAGNIFICIENT HOTELS OR THE PANORAMIC VIEWS THAT YOU GET DURING DRIVES IN AND AROUND THE CITY, A WEEKEND HERE IS NEVER DULL.
the fountain-fed courtyard where we had risotto and pasta at the café before entering the Fatehprakash Palace to see the Crystal Gallery, an awe-inspiring exhibition of 19th century crystal furniture and artefacts custom-made for the Maharanas of Udaipur. For car-buffs, a must is the Vintage and Classic Car Collection in a garden near the City Palace which includes coachbuilt Rolls Royce cars from the 1920s and 30s, a couple of Cadillacs and other cars from the present owner’s collection. In the late afternoon, we drove out of the city and took the
road into the forests of the Aravalli Hills. The drive took us through the Sajjangarh Wildlife Sanctuary to the palace of the former Maharana of Mewar, 3100 feet above sea level. From the ramparts of this palace which is now largely derelict except for a forest museum, we enjoyed a panoramic view of Udaipur city on one side and the Aravalli hills on the other. The forests around us trilled with the calls of birds. We drove back to the lake shores and took a boat ride to the Taj Lake Palace for dinner. This is an enchanting palace hotel with open courtyards, murals and mosaics, and seems to float on the lake. Following cocktails and Mediterranean tapas at the lounge bar, we took the stairs to the rooftop for a view of the illuminated City Palace. Back in the lily pond courtyard, we tucked into a traditional Rajasthani meal enlivened by live instrumental music. GETTING THERE: Udaipur has daily flights from Delhi and
Mumbai. WHERE TO STAY: Taj Lake Palace, Shiv Niwas Palace Hotel and Fatehprakash Palace Hotel are recommended for those who want to stay in a real palace. Oberoi’s Udai Vilas and the Leela Palace are highly recommended for a contemporary but character-rich ambience J U LY 2 0 1 1
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not just
the last word
Money makes the world go round… All good things – luxury travel, expensive watches, fast cars, cruise-liners and high fashion as examples – are made possible by money. CFOs have reason to watch this ‘first world’ of products and services and feel like they ‘make it happen’ – in one form or another. But as we were writing this issue of CFO India, in the midst of the Mumbai bomb blasts, one more reality came home to roost. The abhorrent underbelly of society - the ‘third world’ of products and services i.e. drugs, human trafficking, illicit liquor, contract killings and terror to name a few – are equally propelled by what we do.
HERE’S WHY THIS IS POSSIBLY TRUE. Each of these ‘businesses’ – the ugliest end of the spectrum of wealth creation – is funded by money that is outside the formal system i.e. black money or the ‘output of corruption’. This money is the result of actions that people like you and I choose to ignore or, even worse, are party to. In a previous era, it was moral superiority or a bookish need to claim ‘governance and compliance’ that drove corporations and therefore its custodians to be ‘non-corrupt’. There was no larger felt need or responsibility. The situation could not be farther from the truth today. Every penny that leaks out under your watch could be going towards funding any one of the ‘businesses’. The seamlessness of resource flows and the blurring of geographic as well as sectoral boundaries has led to a situation where willy-nilly you could be feeding a drug warlord or a terror mastermind. Shocking implications for unwitting oversight.
SO WHAT IS COMING IN THE WAY OF US BEING MORE RESPONSIVE AND RESPONSIBLE? Clearly the biggest players in this are the BFSI 64
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and real estate sectors. The former is so because it has oversight of all sorts of money flows and the latter in its capacity as an ample contributor to the socalled black economy. But both seem to be bound into positions that come in the way of cleaning up the system. In a recent instance, the Government’s efforts to set up the National Intelligence Grid (to fight terror on the basis of an improved information network) have been partly negated by the BFSI sector’s reluctance to share information on financial transactions. This, on account of safeguarding the privacy of its customers. The real estate sector has unaccounted money at its very foundation. It can hardly battle black money. But the onus does not end with them alone. Frankly, every act of petty corruption has the potential to contribute to this frightening underbelly; as does the luxury of using arguments like privacy to shy away from a larger responsibility. CFOs have highly sophisticated MIS at their fingertips to watch over money flows and assist the larger cause of a ‘corruption-free’ society. It is time for each of us to become diligently conscious of what we might be helping create each time we hesitate to clean up the mess – however small. It’s time to get started. What do you think?
Anuradha Das Mathur, Publisher CFO India
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