A CFO is nothing but a leader who knows the way, goes the way and shows the way to his employees when there is a situation of any crisis.
Covid19 pandemic is one such situation in which CFOs are doing their best to turn the crisis into an opportunity to ensure business continuity. With wide-ranging and severe impacts upon financial markets, the expectations from the top management have also increased. The role of CFOs in almost every company is of critical importance right now. There is an urgent need to preserve financial stability. They have a major role to play during this financial crisis since they are the leaders of the companies who directly contribute to the organization’s financial health. It is therefore very essential that any information from all departments of the organization flow into the CFOs office on a timely basis. The current status of the country highlights that there has been high volatility in financial markets along with the increase in credit spread in debt markets. The biggest crisis is that of asset liquidity and the financial stress that results from it. Therefore analyzing each and every asset of the company has topped their priority list.
What is the situation like?
The impact of this situation can lead to many uncertain scenarios. As a leader, CFOs are taking a variety of proactive cash management measures in the wake of this economic turbulence. They are setting up the first line of defense and anticipating the risks and formulating certain policies to outgrow in these difficult times and also successfully delivering applicable information and at the same time creating a task force to manage the situation and guide the business decisions helping the businesses sail through. But as the situation develops, more action may be required by banks, regulators, and governments, which would necessitate quick coordination at the national and international levels.
A Gartner, Inc. survey of 192 CFOs and finance executives on April 6, 2020 revealed that “57% of large firms with access to credit lines are actively drawing down upon them, while smaller firm CFOs are more often having to take more aggressive measures, including delaying rent and payments to vendors.”
Some important steps
- Re-looking at the pay arrangements of the employees is also an area that is being looked upon. They are continuously focusing on designing these compensation plans along with the aligned strategies that have become really important for businesses today.
- Cutting down costs, conserving financial resources has always been the key component of their job. Along with that re-strategizing, re-evaluating the investments to stabilize and strengthen the balance sheet has become the need of the hour.
- To avoid any further discrepancies, the CFOs are highly prioritizing the risk of defaults, cash flows, and rescheduling the non-critical capital expenditure. With this optimizing the cash reserves as the magnitude and time span of the catastrophe remains uncertain.
- Talking about certain govt. initiatives that have proved to be a ray of hope for the country, such as moratorium by the RBI, relaxations in taxation related timelines and additional stimulus has given us a framework on how things should be managed. It has eased liquidity channels by announcing cuts in repo and reverse repo rates, reducing Cash Reserve Requirements (CRR) and planning Targeted Long-Term Repos Operations (TLTROs).
These measures are expected to:
1. Improve liquidity in corporate bond market and commercial paper market especially in the higher rated category
2. Stabilize the widening of spreads in government securities
3. Ease liquidity stress of corporates by reducing provisioning requirements
Another way of bringing back the continuity of businesses is by adapting the situation to the earliest. Since working remotely has become a part of the new normal for every industry across the globe, there is a great focus on the digitization of processes to ensure accurate reporting and informed decisions. In fact, it is advised that this should permanently be incorporated in the culture of the organizations and must keep this practice alive even after the crisis is over. Also communicating regularly with the board of directors and investors has helped retain a sheer amount of trust and confidence.
No doubt, the CFOs are putting their best foot forward in taking certain measures to tighten the roots of the company while planning for the next normal.