Keynote Address by Mr David Gerald President and CEO, Securities Investors Association Singapore (SIAS) As Guest-of-Honour at CFO Connect Symposium 2013

Date: November 7, 2013

Mr Michael Lim Choo San, Chairman, Singapore Accountancy Commission,
Mr Chng Lay Chew, Chairman, Singapore CFO Institute Advisory Council
Distinguished guests,
Ladies and gentlemen:

1        A very good morning to you all. I am heartened to see so many CFOs coming together today to discuss issues that affect the roles you play.

2         The unpredictable economy coupled with recent changes in regulations has shed greater light on the responsibilities of senior management. Among them, the role of the CFO has been debated continually. How can he or she contribute to accommodate these changes? Is there room for expansion of his role or is he already doing more than enough?

3         My understanding of the role of a CFO is that he has a heavy portfolio that stretches well into other domains. He has to embrace the finance functions, cutting across different cultures and working practices due to globalisation of business. He is in charge of regulatory compliance, putting in place business processes and preventing onerous regulations from tripping up the organisation’s corporate strategy. He provides insights and analysis to the CEO for business decisions and overall strategy based on sound financial advice.

4         So, the role of a CFO has always been a demanding one, but swift changes in regulation, information technology and the market in general are giving new meaning to the role. In Singapore, the recent SGX Listing Rule 1207 (10) and Principle 11 of the revised Singapore Corporate Governance Code issued in May 2012 have created greater awareness on the responsibilities of Directors and the senior management. The amendments now require the Board to provide an opinion on the adequacy of internal controls, addressing financial, operational and compliance risks of their companies.

5        Principle 11 of the Code goes further and states: “The Board is responsible for the governance of risk. The Board should ensure that Management maintains a sound system of risk management and internal controls to safeguard shareholders’ interests and the company’s assets, and should determine the nature and extent of the significant risks which the Board is willing to take in achieving its strategic objectives.”

6         These new rulings bring a heightened sense of responsibility to the Board, who in turn puts the pressure on senior management to pursue a more sophisticated standard of corporate governance. Specifically, they require CFOs to provide more frequent and granular reporting with a high level of transparency on risks, performance and projections. Is this too onerous for the CFO?

7         I believe I speak for many of you here when I say that CFOs do not work alone. The role of CFOs have evolved over the years to encompass more than just number crunching and ensuring the organisation’s account stays in the black. They are strategy managers, business leaders, growth capitalists, chief stewards and as many believe, the right-hand men to the CEO.

8         Our own research shows retail investors are keen on the audit of non-financial information to help them make better-informed decisions. This information has been demonstrated to have a bearing on business and consequently shareholder value. In this vein, CFOs in the future may well be saddled with not only Corporate Sustainability Reporting, but also in future, Integrated Reporting.

9        It doesn’t stop there. The prevalence of technology in business has also seen business analytics fall into the remit of the CFO, giving him opportunities to illustrate his views not just based on numbers, but establishing a connection between data and financial output

10        In a recent survey, published in Business Times 6 Nov 2013, on the level of CFO involvement on decision making on IT projects, the survey highlighted that 50% of Singapore finance professionals are the primary decision maker, and not the chief technology officer or the chief information officer. This is the highest percentage of all the countries studied. Based on this finding, finance professionals in Singapore would also need to keep up to date with trends in technology.

11        Then, there is also risk management where he acts as the internal gatekeeper to corporate ethos. In May 2012, MAS also released its guidance on risk governance for listed Board, and in this guidance also calls for Boards to consider appointing a Chief Risk Office (CRO). While the CRO is becoming more prevalent in larger companies, the guidance does not specifically state its requirement in every listed company. In the guidance, the role of the CRO is to provide oversight and co-ordination of the company’s risk management efforts. There should be a direct report to the Board Risk Committee, and a robust communication between the Board and the CRO.

12        The reality is that CFOs are operating as de facto CROs in many companies especially in SMEs. However, in my view, involvement and influence of the CFO in many of the core tasks, like budgeting, financial reporting and performance management, may conflict with the CRO’s role in the oversight of risk management practices. Therefore, SIAS also calls on listed companies to have a separate Chief Risk Officer.

13        Last but not least, let’s not ignore an emerging function of the CFO – stakeholder communications. Good communications with stakeholders, including investors, is an important pillar of good corporate governance. It is critical in building trust and confidence in the company’s performance, a point that I know only too well in my capacity as President of SIAS.

Treading the tricky waters of stakeholder communications

14        Stakeholder communications can be a double-edged sword. They can be deployed to relay a positive message but they can just as quickly tarnish a company’s reputation. In this age of volatile economic state, investors are looking for more clarity and higher frequency of communication with regards to their investments. They want a conversation as opposed to a one-way communication channel from the company to stakeholders. Who better to address their issues than the CFO, who possesses both numerical data and overview of the company’s corporate strategy?

15        The above has been articulated in a research study on close to 700 Singapore-listed companies by CPA Australia, KPMG and the Institute. The study states that the CFOs of nearly a third of the companies are doubling up as investor relations officers. This added scope of responsibility is where the challenge for CFOs comes in. While the CFO is seen by stakeholders to be the face of the company, he has to strike the delicate balance of being the voice of reason and assuming a broader role in imparting sensitive competitive information. As CFOs, I’m sure you will agree that high quality disclosure of company information lowers cost of capital.

Investor Relations – Is it within the CFO’s scope of responsibility? 

16        With CFOs juggling so many roles, are they taking on too much? Yes, they are. Investor relations have traditionally been outside the jurisdiction of a CFO but in recent years, this has appeared to have changed. It remains arguable on whether this translates as a desirable trend. I suspect it is a cost saving measure.

17        It is perhaps more prudent for CFOs to relinquish their duties in investor relations given the competing demand for time and resources on their traditional areas of responsibility. I believe that CFOs should be allowed to concentrate fully on company finances, and not be distracted by ever increasing demands for communication by shareholders.

18        This is why I believe it may be better for the investor relations and finance functions to be distinctly managed but with both teams working closely with each other. The research study goes on to show that almost half of the companies surveyed have a dedicated investor relation officer. This is an encouraging statistic.

19        Many larger listed companies have a formal investor relations department which specialise in handling queries from investors and communicating the financial position and company strategy. With the investor relations officer playing an advisory role to the CFO on communication and compliance matters, the company tends to do better in terms of stakeholder communications. In my experience at SIAS, many thorny issues raised by shareholders could have been resolved and not allowed to blow up into a crisis, if only there had been a dedicated investor relations officer.

20        The concern of shareholders is that the role and responsibilities of the CFO today has evolved from not only the core tasks, like budgeting, financial reporting and performance management, but are taking on the role of risk management, making decision on IT purchases and performing investor relations and communication functions. Together with increased regulatory requirements on listed companies, SIAS observes a concentration risk.

21        In closing, stakeholder communications is crucial but it remains to be handled cautiously. The CFOs have much to take on in today’s context of ever changing regulations and the backdrop of economic volatility. It is in his or her best interests that he collaborates with other teams in the area of investor relations while he goes back to basics.

22        In addition, the world is embracing integrated reporting to enhance stakeholder communications. While its full advantages are yet to be seen, the current consensus is it creates a win-win situation for both the company and investors. Echoing SIAS’ mission to safeguard and champion the rights of investors, I believe the changes and trends will spell a bright future for stakeholder communications.

23        Thank you and have an engaging and productive session ahead.