REDEFINING THE ROLE OF THE CFO

Viveat Susan Pinto
The Financial Express

As investigators attempt to put a finger on the quantum of fraud committed at Hyderabad-based Satyam Computer Services Ltd, it is increasingly becoming clear that nothing could have happened without the knowledge of the company’s chief financial officer (CFO) Srinivas Vadlamani, despite his assertions to the contrary. The role of the CFO in general has come under scrutiny following the Satyam episode, which brings us to the question: Does it need to undergo a transformation in the changing business order?

To most, the CFO is the number-cruncher rattling off figures concerning the company at results meets and conferences. But he also has a larger role to play, say observers, in raising finance, performing audits, understanding the income and expenditure of the company, thereby helping to put in place cost efficiency measures wherever required. “It is already very broad-based,” says S K Joshi, director (finance), Bharat Petroleum Corporation Limited (BPCL). “All listed companies adhere to Clause 49 of the Listing Agreement by the Securities and Exchange Board of India. This helps the regulator monitor corporate governance levels of these companies,” he says. Adds the CFO of a prominent Indian company, “There is a framework in place to monitor disclosures made by a company. It’s required if you want to bring about overall credibility.”

Despite this, frauds still happen. Satyam is a case in point. It was the fourth largest Indian IT services provider till a few months ago. It had bluechip clients with offices all over the world. Yet, founder and chairman Ramalinga Raju, overstated accounts by his own admission for several years. This was done ostensibly to prevent a takeover attempt by rivals since the promoters held a small percentage of the company’s shares. Poor financial performance would make the company an easy target, Raju reasoned in an open letter to the Satyam board earlier this month. Of course, all of this is in the realm of investigation at the moment.

But many observers are of the opinion that a fraud of this nature couldn’t have happened without the active collusion of members of Raju’s team, including CFO Vadlamani. It explains why besides Raju and his brother Rama Raju, who was the managing director of Satyam, even Vadlamani has been subjected to intense interrogation following their arrest recently. Says Bakul Dholakia, ex-director of the Indian Institute of Management, Ahmedabad, who is now director at the Adani Institute of Infrastructure Management, “Rules and regulations have been formed so that one can adhere to them. The issue is about enforcing them.” But the question is: who’s going to do this?

The position of the CFO like that of the chief executive officer is not a statutory one under the Companies Act, 1956. This means there are no rules and regulations under the Companies Act at least, which bind the conduct of the executives directly. It is the board of directors, which has been given express powers under the Companies Act to govern the conduct of the CEO and the CFO.

In the event of the board being compromised by either of the two, malafide conduct can be easily brushed under the carpet, leave aside it being penalised, say experts. That’s what seemed to be happening in the case of Satyam where Raju was allowed to overstate accounts for such a long time with no objection coming from any quarter, not even from external auditor PricewaterhouseCoopers. The audit firm’s motives have been questioned since the breakout of the episode, with some calling for its ban in the country.