Outside of the board, the finance director is a member of the executive team. During my days as the finance director of Nigerian Breweries, this was what I used to expect of myself: “The day my colleagues in marketing, sales, HR, etc. find it value-adding to consult me in whatever they are doing, that is the day I earn my salary.” Everything that happens in business has a financial implication; the role of the finance director is to be a business partner to such an extent that his colleagues within the executive team feel comfortable to get his perspectives on the financial implications of whatever they are trying to do. That is an important part he plays outside of the boardroom.
The other part, of course, is that he is supposed to own the whole strategic planning process supporting the CEO. The strategy of the business as per that group process should be owned by the finance director in terms of helping the executive team to understand the externals (like the economic environment) and how they can impact on the business; helping the team to define the risks that they need to be aware of and how they can impact on the business; being the one who helps to challenge the strategic objectives that are being set in terms of whether they make sense or they stretch the business enough; being the one who also challenges the strategic priorities that will help to deliver those objectives. If someone in sales says, “I can sell 200, 000 crates of eggs,” the finance director is the one to say, “Wait a minute, you are currently at 100,000, and now you are talking of 200,000. What levers are you going to press to move from 100,000 to 200,000? What will it cost you to do that?”
Basically, he is the one who is challenging, to ensure that the strategies are robust enough, the priorities well defined and the risks that all these entail highlighted and well discussed.
When it comes to the whole governance area on the board, in terms of internal control, the finance director is a very key player in reassuring the board that the internal control systems they put in place are robust enough to address the operational risks and other risks that the business may be facing. Even though a board may have internal audit team, the finance director is the key person responsible for the internal controls and risk management. He doesn’t relate to just financial risks but also operational risks. He has an important role to play there in reassuring the board in that respect.
The financial results presented are indeed owned by the board, but the finance director is responsible for the integrity of the numbers. Where the wrong numbers have been presented and the stakeholders misled, the finance director has got a major problem in that respect. He is the one who is supposed to be reporting to the board on the financial results of the business and ensuring that those numbers make sense. Even as the audit committee is assuring to the board and shareholders on effectiveness of internal control, the finance director is basically the man who is on the spot.
I see him providing a very huge input in terms of the way strategy is built, in terms of managing the strategic processes outside of the boardroom. I see him as a business partner to his other colleagues on the board because everything they do has financial implications; I consider him responsible for the internal control processes and ensuring that operational risks are well managed.
FINANCIAL REPORTS
The financial report starts from the moment of putting together the strategy. Being the man who is managing the strategic planning process, the finance director works with the CEO and the executive team to come up with plans that define what the business is going to be doing over the next three to five years, what strategic priorities they will pursue, what key actions they need to take, what risks they are going to be working on to mitigate, and what the financial implications of all these are. The outcome of this process is presented to the board. The finance director then guides the executive team, say, on a monthly basis. As the finance director gathers all the information, he reports what has been the outcome for the month—the turnover, the costs incurred, the operating results, what has happened to the balance sheet, the cash flow. All those are gathered from the systems, compared with the budget the board has approved, and the finance director has to provide explanations for the variances. Why have we not achieved? Or why have we overachieved? Those variances are debated by the executives. They are also present to the board. If he hasn’t had a robust process of putting together the strategy and the annual budget, it becomes very difficult to explain why the actuals are different from the budget. The finance director should be able to defend the assumptions that underpin the budget, especially if they have changed.
(Culled from the bestselling, ‘50 NIGERIA’S BOARDROOM LEADERS—Lessons On Corporate Governance and Strategy.’ Enquiries on getting your copy 08055001923)