While Chief Financial Officers (CFOs) continue to face a wide range of demands, the role of risk management for CFOs in Southeast Asia is, today, significantly more important compared to 12 months ago.
This is according to the Deloitte Southeast Asia CFO Survey 2013, where 72% of the CFOs polled are more involved in risk management from a year ago.
Traditionally, the role of the CFO is one of financial management and operational responsibilities. This evolution of roles in recent times has shifted the focus towards risk management due to the changes in the external and internal environments the organisations face.
The survey showed that constantly evolving global regulatory environment (67%) and the increasingly stringent domestic regulations for both statutory and industry-specific reporting (58%) are the biggest factors pushing the companies, and their CFOs, to pay more attention to risk management, and in particular, compliance.
Another factor for the evolving role is the internal shift in companies towards compliance and risk management with over half (54%) of the polled CFOs reporting it as a reason. Consequently, the majority of CFOs (90%) cited regulatory and industry compliance as their top area of involvement in risk management.
There is also a shift, or a desire for a shift, in how CFOs in Southeast Asia would like to spend their time. While Southeast Asia CFOs are spending more of their time in their “operator” and “steward” roles, more CFOs would like to, instead, spend their time as a “strategist” or “catalyst”. Close to half (49%) of the CFOs polled would like to only spend one day a week as a steward, allowing them to dedicate the rest of their time to be more strategic.
“While CFOs in Southeast Asia desire to play more strategic roles, the economic situation in the region does not allow for it," says Hugo Walkinshaw, Deloitte Southeast Asia CFO Program Leader. "Globally, particularly in the United States of America, while Chief Executive Officers (CEOs) expect CFOs to spend over 70% of their time as a strategist and catalyst, most CFOs still cannot achieve this due to compliance and operational issues. This reality is also evident in Southeast Asia, where market forces make it hard for CFOs to minimise their time spent in their role as a steward.”
Top stressors for Southeast Asia CFOs, according to the survey, include concerns regarding compliance, the slowing down of China’s economy and increased competition as companies see costs rising faster than revenues.
Amid the worries however, sentiments of the CFOs in the region are more optimistic (44%) this quarter, compared to the third quarter of 2013. External factors such as positive developments in their industries or markets and internal factors such as their product and services and changes in their operations, financing or assets, play a role in driving this optimism.
This optimism differs greatly between private and public companies. Approximately 80% of the optimistic private companies CFOs state internal and company-specific factors for their optimism, whereas only 50% of public CFOs note these reasons. Overall, CFOs of public companies are less optimistic than CFOs of private ones (35% vs 24%). Almost 90% of the less optimistic CFOs of public companies note external factors such as the global economic slowdown, the situation in China, US government debt, foreign currency risks, and external compliance requirements, as reasons for their pessimism.
Board involvement in risk management has also become increasingly significant in the region, with 65% of the CFOs reporting that their Boards are involved in risk matters that include compliance. While there is a large difference between the Boards’ involvement in the public sector and the private sector (88% and 44% respectively), this is a gap that, in recent years, is diminishing due to increased regulations and reporting requirements.
Majority or 90% of the polled CFOs mention regulatory and industry compliance as their number one area of involvement in risk management, but only 76% noted external statutory reporting. It is also interesting to note that 85% of respondents report that they are involved in operational risk management while approximately 81% are involved in strategic risk management. As companies strive to strengthen their internal controls, 83% of CFOs polled say they are involved in managing and improving internal controls as well as remediating control issues.
The top three risk reduction strategies are to strengthen internal controls framework (90%), continuous internal audit (77%) and the implementation or overhaul the enterprise risk system (58%).
“An effective and highly functioning Board must understand and monitor a company’s strategic, operational, financial and compliance risk exposure, and therefore risk oversight, as part of a mindset that is integrated in the culture and work of the Board," says Walkinshaw, who is also an Executive Director of Deloitte Southeast Asia Consulting. "As the primary custodian of the company’s ultimate risk capital, CFOs are in the best position to advice Boards on risk appetites, preferences and as a result possible implications.”
“It is positive to see the market sentiment among CFOs in the region on the rise. This optimism however does not come without its concerns. The trend towards a more risk focused outlook will continue to be at the forefront of CFOs’ mindsets in Southeast Asia, and we will not likely see a decline in this approach in the near future.”
The report also reveals that 33% of the CFOs polled confirmed that their risk officer reports to them compared to 34% that report to their CEO. It is also interesting to note that although compliance officers are involved in external compliance, only 23% report to the CFO compared to 36% to the CEO.