How chartered accountants can lead the business

This post is a transcript(non verbatim) on best efforts basis of the webcast available at (http://spotforge.net/live/icai300812/). Copyright not claimed-I guess it vests with ICAI. Please do not quote without approval from ICAI and the speaker.  The talk was by CA. Sunil O. Khandelwal,Chief Financial Officer, Alok Industries Limited. He is also Chairman, CMII. The topic of the webcast was  Skills of CA- CFO  CA- CEO ;  CA- Entrepreneur. He has 23 years of experience in the same company(Alok) and has grown to become CFO, yet humbly says that does not claim to have learnt his job fully. Without much ado, let us read the tips below. Caution they said is 2hrs training will not make someone a CEO/CFO etc(not even management books do so!), but guidance on what to imbibe.

1. Charming Futuristic Optimistic(CFO)-if CFO does not have a smile on face giving confidence to top management and others, while working on problems in mind. Ideally, crisis should come and go without people getting alarmed, don't show off-true quality of CFO is to give comfort, act on time.
2. Caring for organization/Company's full ownership-feel as if you are the owner of the company-give your 100% commitment. Leadership is the 'mindset' not the designation. Organization always watches you how sincere/committed you are, then only advances you.
3. First few years of the career should go to build your knowledge base/understanding of the company. He has 23 years of experience in the same company, and everyday learns something new/new way of doing the same company like raising funds etc.
4. What is finance-some feel nothing but giving projections about the company-revenue/profits/cash flows. But unless you know the ABCD of balance sheet/critical aspects, how will you project it? So do not resist doing job of accountant. Don't be hurry to become CEO/CFO on Day1. Take whatever comes your way, show your capability by being meticulous and giving suggestions on controlling cost/areas of improvement, by using your knowledge of the company.
5. CFO should be champion of Finance Operations-oath to organization that I will meet all the financial obligations of organization in time and at lowest cost.
6.  He learnt and grew along with the company for IPO/project finance/QIP/overseas M&A/FCCB  etc, but still feels he has a long way to go in learning. Accountant(first 4-5yrs), then taxation/finance/audit role expanded, then as company grew scope shifted to raising finance. As the company grew, they further began to specialize, so delegation is the new skillset needed.Job of leader create everyone in organization capable of becoming CFO.
7. Championing Financial Information and compliance-setting up SAP/Oracle, accounting systems etc. When asked about SAP implementation, he said that his only decision was deciding to go ahead with SAP, and praised his implementation team for doing it seamlessly[he did not even need to get involved hands on].
8. One of the major job of CFO is ensuring covenants met on time. Also, interacting with equity research/bankers and keeping them updated about the company. CFO represents company to all stakeholders-bank, auditors, consultants, media, investors, Govt, internal, public at large, and therefore strong hand in communications/marketing/website. 
9. The definition of CFO that he has learnt in the last one year is Champion of Full Operations of the Company. Not only having full knowledge of operations but also getting Contribution From Operations. Hence, not only monitoring/review system but also making it profitable using our financial acumen/knowledge. Focus of production guy is quality products, marketing is what sells but CFO focus is truly finance/costs and can advice functions accordingly. Also, not only raising working capital for the company but also reducing working capital cycle/ensuring that it is effectively used.
10. Ensure FCF(Free Cash Flow=Cash Flow from Operations-Working Capital Increase-Capex) positiveness, which bankers and investors like. Make people aware about importance of capital/return on capital. Functions may like capital rich model(buffer stocks, excess capacity, product variety), but Finance must step in.
11. Be aware about business environment, to effectively strategize. Importance of R&D(not just Apple/Pharma company)-so CFO needs to have eye on future-innovation.
12. Making business sustainable In good environment(high demand, low cost) its easy, but under any circumstances(SCM bottlenecks, demand low, cost high, less funds, FX risks), how to make business model sustainable->effective external risk management and manage internal risks-actively participate and take ownership. Sustainable cash flow(ensuing from profitable operations) is must. Even if operations temporarily loss making, still manage cash flow by managing working capital(stretching creditors, liquidating debtors/inventory). Conversely, ensure that additional sales not from increasing debtors/inventory of company-which leads to negative FCF.
13. Has to be effective HR guy, not only within division but beyond, to inculcate that vision etc even till the shop floor also. So use experience to suggest HR practices like ESOPs/profit sharing/target linked incentives etc, for financial impact. Also, quality initiatives-ISO/process engineering. "If you don't drive the business, you will be driven out of the business"
14. While answering audience Q&A -About decision making, interesting practice in Alok that of 8 member management committe(including promoters etc), atleast 5 of 8 have to agree else proposal is withdrawn. About cost reduction, advices that sustainable suppliers also needed, so negotiate as per supplier need(immediate payment cash discount, help supplier open L/C with bank, volume discounts, reduce cost of sourcing by inventory management etc, keeping them informed proactively if payment details, e-bidding for pre qualified bidders). When asked about a difficulty faced, said that everyday is a challenge to win the battle, especially for highly geared company(!), for example he said that stock hammered down 30% in past few days and they have to face those stakeholders openly & confidently.When asked about life of CFO, joked that his wife is his second wife(job is first wife!). If his company is doing well, his family will be proud. Rajkumar Adukia said that for those mobile, the world is their playground. Family needs to be taken care but ideally tell them 'I am there for you but priorities are XXX'-he had missed moments but has no regrets as family is ok-if he's not in office he's at home-no social life partying etc.

Wellknown consultant CA RajKumar Adukia advised on how a CA can become a business leader, focusing on mindset(can-do, fire in the belly). He also said that inquiring attitude(to add value to that activity/reduce its cost) via professional skepticism, is the best learning from the CA course. CA should play role of doctor(solution giver) not of policeman! Use sound technical knowledge, ability to meet deadlines(honed under articleship training) while working under pressure, and good analytical ability to add value.  Five minimum qualities for professional as per him acronym KILL P

1. Knowledge A professional should not have any boundary for knowledge(keep learning till we retire in profession) and achievement(strive till the last breath despite limitations ). Else, even senior people(say President Finance) may not be functional leaders if they need to ask VP/Sr Mgr for each and every new thing/amendment! Have inquiring attitude of general knowledge/learning. He also advices seminars, post qualification courses etc.
2. Interact with persons smarter than oneself
3. Listening very attentively when we are in meeting/GD, and THEN give our response. He observes that even practising CAs listen to clients for 5mins, quote a fee, and then when complexity unfolded fully, they regret that should have quoted more. 
4. Learn from mistakes of others Many success stories of CEOs who are CAs vs those who have not excelled, try to compare and contrast. Books/Code of Ethics are also a good way.
5. Making presence felt by writing/speaking etc, on burning issues/analysis etc. Rajkumar Adukia himself is himself an expert on this-just see his website! Also, one needs executive presence to be able to assume leadership roles one day. Developing and learning soft skills(presentations in branches/chapters/study circles, joining Toastmasters)

Warren Buffet's investment partnerships cannot be born in India as LLP even now

Warren Buffet built his initial reputation and winnings through an investment partnership, where friends/relatives/acquaintances invested their capital in partnership with his acumen! It was a win-win for both parties in the end. However, in India, thanks to the legal and regulatory issues, this is next to impossible. Recently, a friend was thinking of setting up his own investment partnership in which he wanted auditable returns, favourable tax treatment, ease of entry/exit of investors, and least administrative cost. But after reading this excellent article http://capitalmind.in/2011/06/creating-a-hedge-fund-in-india/ I realized that that would be next to impossible. Since that article did not cover LLPs in depth, I decided to do so. This would cover questions like structuring investment partnership as LLP etc

1. What do I mean by investment partnership? As commonly understood, investment partnership happens where investor funds are pooled in a common strategy, without any investor specific customization within the fund. For example, 10 friends entrust Rs 5 lakhs each to their common friend Mr X to invest in special situations. This would be an investment partnership, as funds are pooled. 
2. Which regulations govern this? The securities regulator SEBI governs portfolio managers(discretionary and otherwise), mandating minimum investment limit(Rs 25 lakhs), restrictions on fee methodology(water mark etc). Even for those who feel they are not covered by that restriction due to 'not being companies etc', the SEBI Alternate Investment Regulations 2012 cover this  ―Alternative Investment Fund‖ means any fund established or incorporated in India in the form of a trust or a company or a limited liability partnership or a body corporate which,-(i) is a privately pooled investment vehicle which collects funds from investors, whether Indian or foreign, for investing it in accordance with a defined investment policy for the benefit of its investors; and (ii) is not covered under the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, Securities and  Exchange Board of India (Collective Investment Schemes) Regulations, 1999 or any other regulations of the Board to regulate fund management activities: Since the partnership will be an investments company by its very nature(http://india-financing.com/Question_of_Definition-What_Exactly_is_an_NBFC.pdf), RBI regulations of registration etc will apply http://www.rbi.org.in/scripts/FAQView.aspx?Id=71
3.  RBI regulations apply to NBFCs(non banking financial COMPANIES) and not to firms, why should the LLP be subject to this? Section 14 of the LLP Act 2008 states that On registration, a limited liability partnership shall, by its name, be capable of.....(d)  doing and suffering such other acts and things as bodies corporate may lawfully do and suffer. Section 2(d) of the LLP Act2008 defines body corporate.... “body corporate” means a company as defined in section 3 of the Companies Act, 1956 (1 of 1956) and includes..Therefore, since LLP is a body corporate under the Act and subject to other acts applicable to body corporates, the RBI NBFC norms will apply to it to the same extent that they would apply to companies. 
4. Are any minimum qualifications needed? After reading the SEBI AIF Regulations at the link below, I realized that this would be a difficult http://www.sebi.gov.in/cms/sebi_data/attachdocs/1337601524196.pdf the key investment team of the Manager of Alternative Investment Fund has adequate experience, with at least one key personnel having not less than five years experience in advising or managing pools of capital or in fund or asset or wealth or portfolio management or in the business of buying, selling and dealing of securities or other financial assets and has relevant professional qualification; 
5.   The requirement of three regulators? Renowned lawyer Mr Sandeep Parekh opines that both RBI and SEBI will need to give approval, apart from the administrative approval from Companies/LLP regulator.  "It's a three-stage process for RBI-regulated entities like non-banking finance companies (NBFCs). The first step would be to incorporate; this is done by the Registrar of Companies. Second, they have to obtain a licence to operate as NBFC and for which it must apply to RBI; and thirdly, if an NBFC intends to provide investment advisory services it will likely need permission first from RBI and then from Sebi," said Sandeep Parekh, founder of Finsec Law Advisors. "This would obviate turf wars between financial regulators," he said. http://articles.economictimes.indiatimes.com/2012-10-02/news/34218105_1_sebi-board-capital-market-regulator-corporates In practice, some friends inform me that the LLP/companies registrars seek NOC from RBI even before first step! 

Conclusion:-Given the capital, annual fees and experience requirements, such a venture would be stillborn in India if intended to be run legally.