The stock market has more than halved in ten months, market capitalisation is down by 80%, borrowing in the overseas markets could be at 21 to 26%, quite close to the domestic market, demand slackening and inventories are on rise, net profit plunges, borrowers are at the door wanting to rework debt commitments and the ever faithful private equity investor does not want to honour the term-sheet promise. This would have sounded like a part of a nightmare that the chief executive had a year ago, and would have been scoffed at as one.

But, now, this is the reality that the chief executive officer and the chief financial officer are facing. Not to mention that the role of the CFO in handling this crisis is of immense important. India Inc.?s CFO has shaken off the bean counter accountant?s role and has been a part of the corporate building process. Now, this role will be tested. And here, the need to bring in balance between the right brained emotion and left brained logic, to get the best of the several tradeoffs that will be thrown up in these circumstances, is seen as paramount. ?The CFO will now have to become the real partner to the CEO and bring in the ability to scrutinise operational aspects with a fine tooth comb and also manage the funds,? says Prabal Banerji group CFO with the Hinduja Group.

The challenges

The challenges lie in raising resources, working capital management and also the capital expansion related matters, says Banerji. This, more or less covers all the operational aspects of a business and also fulfilling of its vision.

In times like this, the immediate reaction of the management is to pull-back and simply start a cost cutting and curtailing expansion, says Lalit Jain an analyst with an overseas investment institution. While much of this could be required, quite a lot may not be, he adds. The CFO therefore has to become the balancing factor by working out the nitty-gritty and then sit with the CEO and even the Board to give solutions that forward the vision in a pragmatic manner.

Clearly, with the paucity of funds and the high cost at the moment that will drive capital expansion plans. Delaying plans just because costs have risen might not be the only way out. ?Say, earlier you had a return on equity of 20% and your weighted average cost of capital (WACC) was 10%, you had a margin of 10%. Now, with the cost of capital rising to 15%, you still have a margin,? says Banerji.

In this case he recommends not halting the project as the cost of postponement and not reaching the market could be higher when compared with the cost of going ahead. ?Of course, if the WACC goes way beyond then there is surely a cause for not being attached with the project,? he adds.

The soft side

The point is that the CFO now has to take on the role of a mediator and a link between the vision and current reality and both cannot be compromised. ?A greater understanding of people and communication styles becomes extremely important in this scenario,? says a CFO with a leading multinational, not wanting to be named.

Understanding of team leaders and stake-holders becomes extremely critical and then communicating with them in a manner that they get the message is the way out, he adds. ?If you have a CEO who is a dreamer and visionary of sorts, this person must be acclamatised with the real dynamics and in a way that the vision is not hampered with. It?s a tough call and this is what leadership is all about,? he adds. There could be a converse circumstance as well where the CEO and the Board are extremely cost conscious and would like to miss out on the opportunity that the slowdown offers.

Innovation is also another critical tool that the CFO can use to come up with solutions. Number crunching is just beginning, at best a means, and not the end. Today?s CFO would require to enrol all the stake holders in the decision making process and come up with innovative solutions that generate the results.

?At the moment there is a lot of insecurity around the market place and people have become risk averse and would rather not take the risk and forego business even in peak season time,? says Mandar Gupte, CFO with Universal Music in India.

This is the time when interaction, open communication and discussing innovation with stakeholders could enable the company to move forward and not be a part of the slowdown.

Image management catalyst

Tough times call for tough measures, but the manner in which the measures are taken is also important. The recent example when Jet Airways employees struck work and they were reinstated later, talks a lot about the manner in which tough measures were taken. ?Agreed, the decision to retrench employees was a pure business decision but the manner in conveying this, was a shocker,? says Jain. This has created a colossal damage to the company and will be remembered for a long time to come.

It is here that the CFO as a leader in the organisation has a large role to play. The CFO will have to work closely with other functional areas as well. Cutting bonuses, salaries, perks and benefits can hurt employee morale. And sometimes, the human resources department is not equipped enough to convey the message across to the team.

Even while dealing with the analyst and investor community, the CFOs role gets extremely important. The trade-off here is how much of bad news to disclose and how much to withhold, without creating much damage to the stock price.

?We always like companies that are honest and forthright and without any vested interest, except that of enhancing shareholder value,? says Rakesh Shetty an analyst.

Such companies get premium valuations when the market improves. Moreover, a CLSA Equities research report published after the first quarter results clearly mentioned that India?s premium valuation amongst peer group in the emerging markets was because of its reliable reporting. And that window dressing would cost these companies to lose out on the premium. Yes, there would be pressure to maintain earnings numbers every quarter, but doing that at the expense of scruples, could be an extremely costly offer .

Sounds like the chief financial officer has a huge role cut out now, but then as Banerji would put it, ?These are also the best times because this is a time to really get lean and work on bringing efficiencies in.?