The Role of a CFO in Risk Management

Volatility sets the backdrop of the current economic environment and is manifesting in many shapes and forms. Businesses face a growing number of new and emerging risks caused by geopolitical, technological, climatic, economic and people factors.

Aon’s Insight Series Conference 2019 in Melbourne brought together three CFO’s of leading companies operating in Australia to discuss the shift of risk management brought upon by the modern age and technological innovation.

The panel discussed a range of key business risks featured in Aon’s Global Risk Management Survey 2019, including accelerated rates of change in market factors, cyber-attacks, failure to attract or retain top talent and failure to innovate/meet customer needs.

Speaking on the panel were Peter Barker, CFO of Cardno, a global infrastructure, environmental, and social development company. Brendan Gill, CFO of Cleanaway, the largest waste company in Australia and David Gillespie, CFO of Jemena, an electricity and gas provider with more than $11 billion worth of major utility infrastructure. The CFOs each explained how they spend much of their time managing the dynamic of volatility and performance for their respective organisations.

The role of a CFO in risk management

The role of a CFO is so much broader today than it once was.

Each of the panellists explained how actively involved they are in their respective insurance programs, investing a great deal of time and attention in building relationships with brokers. Peter Barker of Cardno likened the role of the broker to the job of a pilot, “You never know how important they are, until the plane is in trouble”.  Having personal and trusted relationship will, in Barker’s experience, bring huge comfort, assurance and security in time of crisis.

Expanding on this critical nature of this relationship, Brendan Gill explained that there is great return to be had by investing in these relationships, and not just at renewal time. Gill described how by having regular face time with your insurer partners, you ensure that both parties have a deep understanding of the business and its needs.

All CFOs on the panel agreed that insurers and partners welcome c-suite executive be front and centre in these engagements, showing commitment, good faith and value. Insurers will always thank you for investing your senior people and their time to help them understand your business.

The importance of people in risk management

Cardno CFO, Peter Barker said that despite risk being such a critical element of his role, one of the challenges CFO’s face is keeping risk at the forefront of everyone’s minds. He said, “One of the challenges executives face is ensuring that risk management meetings are prioritised and are not cancelled or postponed for a client meeting or the issue du jour.

The CFO’s agreed that running a gap analysis of company’s risk register with your broker was a critical element of their role. While looking at the insurability of your exposures is an important activity for a CFO to carry out on a regular basis, Brendan Gill said this isn’t the only way a CFO and the leadership can manage risk. He said, “We want to differentiate ourselves in the market. Yes, it is critical to look at what risk can and should be transferred, but it is important for us and for every business to look at what can be managed by itself.”

Each of the companies on the panel operate in very different industries, but they are united by a shared belief that their people are their most valuable asset. Any business transformation must put its people at the heart of the process, whether its communicating about change, preparing them for the adoption of technological advancement or understanding unique risk factors that they face every day.

Talent attraction and retention

All of the panellists agreed that people attraction and retention is a number one metric but in today’s market there is a huge talent gap that has the potential to stifle economic growth. This risk factor is one of the reasons why CFO’s are becoming increasingly involved in talent attraction, as they understand the financial implications of talent loss in the current market.

State and Federal Government in Australia has ambitious targets for infrastructure growth, but this growth will be near impossible to attain in the current market. There simply aren’t enough engineers to meet the demand. David Gillespie believes that in lieu of a deep talent pool, businesses must look to commercial upskilling and enhancing the customer and employee experience in other ways including digital transformation.

Managing risk while executing a successful acquisition

In the past, M&A was simply a case of winners versus losers. Today, it is about integration. The panellists outlined three key recommendations for a successful acquisition:

1) select the best talent

2) communicate where you have shared values and culture

3) establish a separate integration team to lead the change – regardless if it’s a small acquisition or multimillion-dollar deal

Returning again to the importance of people and talent, the CFO’s agreed businesses should of course look to the brightest, most capable and hardworking team members, but that humility was an increasingly sought-after characteristic, especially in times of transformation. Ego’s often get in the way of good decisions. Success today is whether people are wholeheartedly committed to the journey and the shared objectives. It’s about finding the best way to integrate both people and processes.

Gillespie has found data and analytics and risk management to be a backbone to a successful acquisition.  He said, “It’s critical to have people, financial, and operational data all in one spot.”

Technology risk

The panel moved on to discuss how technology risk has changed significantly over the years. From the CFO perspective, technology risk has a critical place in their review of capital investment decisions.

The CFO’s advised those in the audience to conduct deep dive penetration testing to identify the gaps in IT systems but also in people behaviours. It is a constantly evolving landscape with the actions of hackers becoming more sophiscated, but human error poses the biggest day to day risk for most enterprises.  Barker said, “It’s great to have high end technology in place but our people are our first line of defence.”

Corporate social responsibility – the new norm

Finally, the CFO’s discussed corporate social responsibility (CSR). While global standards, regulatory requirement for reporting and community expectation have in the past been main drivers of corporate and social responsibility, the panellist feel that the days of conversation as to if and why to do it are long gone. Rather than being a question or “if”, it is now a question of “how can we deliver CSR?” While CSR is embedded into business practices and a core element of growth strategies, work is still being done in communicating about CSR with stakeholders, investors and communities.

The views and opinions expressed in this blog are those of the author(s) and do not necessarily reflect that of Aon.  We make no representations (express or implied) as to accuracy, completeness, correctness or validity of any information in this blog and accept no responsibility or liability for any errors, omissions or misstatements of whatever nature and however caused.