The role of CFOs and the finance function have to be tailored to the unique circumstances of an organisation. It is essential to take into account a wide range of factors including industry sector, organisational size, ownership and geography. 

In Vietnam, with an increasing number of state corporations and enterprises being equitised, the structure of these companies are changing, including within the finance function. Changes in ownership and who an organisation is accountable to have major implications for CFOs’ role.  The precise impact will depend on who the investors are, the degree to which the state maintains control and the level of competition to obtain private equity capital.  Where new investors have a wide choice they will be more attracted to corporations who have a highly respected CFOs known for his or her integrity.

Clearly CFOs will be heavily involved in the various processes required to go public.  Corporate strategy is likely to be adapted as part of the equitisation process, and CFOs need to be instrumental in the formulation of new strategies.  CFOs’ area of expertise is the financial viability of strategic proposals and ensuring corporate aspirations are realistic. Asking challenging questions that others are unwilling to answer can often fall to them.  Once there is an agreed strategy CFOs will need to play a part in communicating this well to investors in order to retain confidence. Where ownership and strategies change, CFOs will need to ensure management information and performance measurement systems are aligned to fit the new direction. 

For example, if the new strategy calls for innovation then overly bureaucratic financial systems that stifle innovation will not be fit for purpose. If new financial reporting and compliance requirements result from equitisation, this will place additional demands on the financial team. All this must be achieved whilst day-to-day functions, like transaction processing, accounting and financial controls, continue to be carried out to consistently high standards. It can be easy for these to be overlooked in the midst of big changes, which can have negative consequences.

Figures show that there were almost 400 M&As in Vietnam over the past year. However, many businesses have failed to integrate. This is a big challenge. Global research suggests that the acquisitions often do not add value for investors, particularly for the acquiring company.  Perhaps first and foremost  CFOs’ role is to ensure that the price is right.

Many of the points made in respect of equitisation are also likely to apply in the case of M&As. Often the key problem for organisations involved in M&As are uncertainties created for staff.  This can cause low morale and have a negative impact on productivity and quality of service.  There are three key things to consider. Firstly, decisions need to be made quickly in order to reduce uncertainty, such as new job roles and responsibilities should be established as soon as possible.  Secondly, prioritisation is essential. There is always too much to do in M&As and it is easy to get distracted. Thirdly, there should be constant communication with staff using multiple channels such as staff meetings, email and intranet. This should happen even if there is nothing much to communicate otherwise the vacuum will be filled by rumour. 

CFOs must also be instrumental in cultural transition. Many M&As involve consolidating numbers for the two entities - where this happens communicating joint performance is critical to help staff realise they are now one team.

Performance management systems like target setting, key performance indicators and rewards are all shaped by the culture of the existing organisations. CFOs, who have a key role to play in this area, can help shape the new culture. It is important to be realistic, CFOs can only do so much. Company culture is not easy to manage and does not change overnight. Moreover, if the M&A was not right from the beginning, or if the rest of the team do not play their parts, no CFO can turn things round alone.

However, CFOs can definitely play a part in clarifying a company’s vision and direction.  As part of the executive team CFOs will contribute to discussions of company direction - and if the subject is not being discussed CFOs can take the lead in making sure it is.  CFOs  are well placed to see what is going on in the business as a whole, and what the current trajectory of the enterprise is, because most decisions and actions have financial implications.  This knowledge and in-depth understanding can be used to clarify the vision and direction. 

It is also important for CFOs to be good listeners and work with other executives to formulate a consensus view.  It is not enough for this view to be understood by top management, there is a need to communicate the vision and direction to the rest of the organisation and stakeholders as well.

But, at this moment, most small- and medium-sized enterprises (SMEs) in Vietnam have not yet recognised the important role of finance departments. Part of the problem may be a lack of suitably qualified candidates, meaning that even if SMEs want to employ professionals they are unable to find them.

ICAEW’s research suggests that there are many ways in which firms organise how finance activities are carried out.  Sometimes effective strategy and financial management can be carried out by line managers, whilst drawing on external financial advice and services. This may well be the only viable solution for smaller organisations.

As organisations grow, however, there is generally an expectation that they will develop professional finance departments.  Not meeting this expectation can even reduce access to capital and create concerns for regulators. 

Moreover, in locations where an accounting career attracts high-quality individuals - and where professional training is of a high standard - organisations will be missing out if they do not look to employ such talent.  High calibre, professional accountants will help organisations develop efficient capital structures, manage cash flow effectively and make better decisions. Professional accountants can also promote and uphold high ethical standards.

So, what can CFOs in Vietnam do to meet the international standards of financial practices? CFOs need to understand what is expected.  This is no easy task because of the broad range of financial practices that have to be mastered, debates about which practices are most appropriate and the constant evolution of standards and expectations.

Learning on the job, employing staff with international experience, discussions with peers and international counterparts, attending seminars led by international speakers such as those organised by ICAEW, utilising advice from international advisory firms and reading widely will all be helpful.   

Implementing appropriate practices requires careful thought, weighing up the pros and cons of various approaches and perseverance. For example the approach to budgeting has been debated for many years. Some organisations prefer a fixed, annual budget with rewards for meeting it and reprimands for not. This can provide clear objectives, strong motivation and tight financial controls. However, others suggest this approach leads to gaming, sub-optimal decision-making and the rejection of profitable opportunities.  Therefore, they prefer rolling forecasts with rewards tied to relative performance which can take into account changes in circumstances throughout the year.  Changing from one system to another would have major implications for staff across the organisation concerned and is likely to be resisted. Therefore, effective implementation of new approaches takes time.

Certainly, there are no one-size-fits-all solutions, high calibre CFOs and effective finance functions will carefully analyse the unique circumstances they face, develop tailored solutions and adapt as circumstances change.

Source: VIR.