SuperChat with SuperCFO – Sandeep Kumar Sarawgi

This week on SuperChat with SuperCFO, we are delighted to present a tete a tete with Sandeep Kumar Sarawgi, who is the Chief Finance and Risk Officer at Antwerp Diamond Bank N V, Mumbai Branch. Winner of the first CFONEXT100 Award for 2012. This is an annual award conducted by the prestigious CFO Institute of India to recognise leaders in the field of finance and accounts.

In this freewheeling SuperChat Sandeep sheds light on his personal facet; his likes and dislikes, his role model, who inspired him to be where he is today and many more such interesting trivia.

For more on the SuperChat with our SuperCFO, Sandeep, please read on……

Education: Fellow Chartered Accountant (FCA); Bachelor of Commerce (B.Com.)

Companies worked with: In his 21 plus years career, Sandeep has been associated in senior leadership roles with various companies including Antwerp Diamond Bank N.V., ICICI Bank Limited, Bombay Stock Exchange Limited, E-City Ventures (Fun Republic), Intelenet Global Services Limited (now called Serco Global), IDBI Bank Limited, ICICI Securities / ICICI Securities Primary Dealership Limited and Arthur Andersen & Co.

SuperCFO: What particular skills or talents are most essential to be effective in your job apart from formal training?

Sandeep Kumar Sarawgi:

Ability to read situations, communication, handling pressure, planning and execution, people management.

SuperCFO: Who is your role model and why?

Sandeep Kumar Sarawgi:

Gautam Buddha – the way he forgave self interest and gave his life for the good of others.

SuperCFO: What has been your biggest achievement professionally?

Sandeep Kumar Sarawgi:

1. Ability to interact with top management through various corporate lifecycles of start ups, expansion, transformation, consolidation and shareholding changes.

2. Have successfully managed various corporate avatars: standalone companies, joint ventures, subsidiaries, associates, Trust structures, SPVs, AOPs, branch of a foreign company etc.

SuperCFO: Who are the 3 Corporate Honchos you admire a lot and why?

Sandeep Kumar Sarawgi:

1. Azim Premji: for his philanthrophy.

2. Ratan Tata: for sticking to retiring himself.

3. Steve Jobs: for being foolish and hungry.

SuperCFO: Which are the 3 companies you admire a lot and why?

Sandeep Kumar Sarawgi:

1. Apple – for reinventing itself.

2. Air Asia – for employee focused leadership.

3. Mercedes – for sustainability of brand through such a large geography in the world.

SuperCFO: Assume that you are indulging in role play. If you were given the position of the Finance Minister of your country, what would your top priority agenda items be?

Sandeep Kumar Sarawgi:

Increase the direct income tax base, which is pathetically low: there can’t be only 42,000 assesses with over Rs.1 crore of income. As head of the tax administration, to have a fair tax system, is a primary responsibility. Also, tackling black money economy.

SuperCFO: What would you advise aspiring CFOs on dos and don’ts to become a successful CFO?

Sandeep Kumar Sarawgi:

Do’s: Always have a long term and a macro outlook. Focus only on short term goals may lead to compromising situations.
Dont’s: CFOs should be principles and value based and should be able to challenge – people rely on them for the monetary results – don’t let them down.

SuperCFO: What are your 3 “Must Ask” questions in an interview?

Sandeep Kumar Sarawgi:

1. What is your career outlook?

2. How would you handle a particular situation?

3. Why are you looking for a change and why do you think that this is a good match for both?

SuperCFO: Which is one accounting software that has impressed you and why?

Sandeep Kumar Sarawgi:

SAP – it constantly upgrades itself to handle ERP data and information challenges.

SuperCFO: How do you manage talent within your team?

Sandeep Kumar Sarawgi:

By being honest, transparent and straight forward. I hate politics and dislike who cut others throats to move forward.

SuperCFO: Are you a gizmo freak? What is your favorite gadget?

Sandeep Kumar Sarawgi:

Not much – am a practical, need based person. I don’t make the gadgets into status carriers.

SuperCFO: What is your favorite piece of literature?

Sandeep Kumar Sarawgi:

Ghazals – I like the depth of thought expressed in few verses.

SuperCFO: Any sport that you are passionate about?

Sandeep Kumar Sarawgi:

Cricket – but due to the commercial aspects spoiling the game, I have become a diluted diehard fan.

SuperCFO: Describe some of the activities that you undertake to de stress yourself?

Sandeep Kumar Sarawgi:

Watching movies, listening to music and to top it all, spending quality time with my young daughter.

SuperCFO: What has been your favorite vacation destination and why?

Sandeep Kumar Sarawgi:

Switzerland – it is post card, picture perfect.

Evaluating Board Effectiveness

Board CommitteesThe Board should undertake a formal and rigorous annual evaluation of its own performance and that of its committees and individual directors. The Board should state in the Annual Report how performance evaluation of the Board, its committees and its individual directors has been conducted.

The following is an illustrative list of few questions one may consider to evaluate the effectiveness of the Board. The evaluation process should be strictly used constructively, as a mechanism to improve board effectiveness, maximize strengths and tackle weaknesses.

Evaluate Board Effectiveness

  • How well has the board performed against any performance objectives that have been set?
  • What has been the board’s contribution to the testing and development of strategy?
  • What has been the board’s contribution to ensuring robust and effective risk management?
  • Is the composition of the board and its committees appropriate, with the right mix of knowledge and skills to maximize performance in the light of future strategy?    Are inside and outside the board relationships working effectively?
  • How has the board responded to any problems or crises that have emerged and could or should these have been foreseen?
  • Are the matters specifically reserved for the board the right ones?
  • How well does the board communicate with the management team, company employees and others?   How effectively does it use mechanisms such as the AGM and the annual report?
  • Is the board as a whole up to date with latest developments in the regulatory environment and the market?
  • How effective are the board’s committees? [Specific questions on the performance of each committee should be included such as, for example, their role, their composition and their interaction with the board.

 

Board Committees – Important step towards Good Governance

Board Committees An important step towards Good Governance is to have well appointed Board Committees. While various regulations have extensive references and guidelines, here is a quick snapshot of the must-haves.

Note that a well governed Board functions efficiently with well appointed Committees. Key Board Committees are:

  • Nomination Committee
  • Audit Committee
  • Remuneration (Compensation) Committee

Nomination Committee

i. Companies may have a Nomination Committee comprising of majority of Independent Directors, including its Chairman. This Committee should consider:

  • Proposals  for  searching,  evaluating,  and  recommending appropriate Independent Directors and Non-Executive Directors [NEDs], based on an objective and transparent set of guidelines which should be disclosed and should, inter-alia, include the criteria for determining qualifications, positive attributes, independence of a director and availability of time with him or her to devote to the job;
  • Determining processes for evaluating the skill, knowledge, experience and effectiveness of individual directors as well as the Board as a whole.

ii. The Nomination Committee should also evaluate and recommend the appointment of Executive Directors.

iii. With a view to enable the Board to take proper and reasoned decisions, Nomination Committee should ensure that the Board comprises of a balanced combination of Executive Directors and Non-Executive Directors.

iv. A separate section in the Annual Report should outline the guidelines being followed by the Nomination Committee and the role and work done by it during the year under consideration.

Audit Committee

The Audit Committee should have at least three-members, with majority being Independent Directors & the Chairman of the Committee should be an Independent Director. All the members of the audit committee should have knowledge of financial management, audit and accounts.

The Audit Committee should have the power to –

  • have independent back office support and other resources from the company;
  • have access to information contained in the records of the company; and
  • obtain professional advice from external sources.

The Audit Committee should also have the facility of having separate discussions with both internal and external auditors as well as the management.

The Audit Committee should have the responsibility to –

  • monitor the integrity of the financial statements of the company;
  • review the company’s internal financial controls, internal audit function and risk management systems;
  • make recommendations in relation to the appointment, reappointment and removal of the external auditor and to approve the remuneration and terms of engagement of the external auditor;
  • review and monitor the external auditor’s independence and objectivity and the effectiveness of the audit process

The Audit Committee should also monitor and approve all Related Party Transactions including any modification/amendment in any such transaction.

Remuneration (Compensation) Committee

The Remuneration Committee should comprise of at least three members, majority of which should be Non Executive Directors & at least one Independent Director.

  • The Committee should have the responsibility of determining remuneration for all executive directors and the executive chairman.
  • The Committee should also determine principles, criteria and the basis of remuneration policy of the company which should be disclosed to the shareholders, with their comments, if any.
  • The Committee should also recommend and monitor the level and structure of pay for senior management
  • The Committee should make available its terms of reference, its role, the authority delegated to it by the Board, and what it has done for the year under review to the shareholders in the Annual Report.

Tips for cost efficiency

Plug those leakages to achieve cost efficiency and savings.

tips-for-cost-efficiencyCost Savings is very important for enhancing Profitability and could be achieved by plugging various leakages in your cost structure while delivering significant results to your bottom-line, without having to implement any cost reduction measures.
Ask yourself below questions to know if you are monitoring your costs well:

1.   Rentals: Did you measure the office you took on rent?

Did you know thatYou could have negotiated good rate per sq. feet, but what if the landlord is charging you for more area than what the actual office space is?

2.  Manpower Cost: Do you evaluate various activities performed by your staff to check if there is any scope for improving efficiency, or eliminating unwanted tasks or automating mechanical processes?

Did you know that: By undertaking Time & Motion study, by evaluating in detail what each one does the whole day, by implementing certain productivity tools and/or by realigning job responsibilities, you could improve employee productivity multi-folds, thereby eliminating the need to hire more and containing manpower costs? Such measures also help in improving accuracy levels.

3. Cafeteria Services: Have you ever compared your guest/employee attendance vs. the plate count provided by your cafeteria services provider?

Did you know that: While you may have negotiated best per plate rate with your cafeteria services provider, you may be charged for unwanted extra plates?

4.   Internet Cost: Are you paying for internet for allowing free movie downloads to your employees during office hours?

Did you know that: With smart internet usage policy, where you could permit personal use of internet after office hours, you could free up a lot of internet traffic, thereby reducing internet bandwidth requirement and corresponding cost.

5.    Car Hire / Conveyance Cost: A lot of employee friendly companies provide door-to-door transportation services to their employees. Are you checking if the car hire company is taking the best route from “distance travelled” perspective OR is he charging you based on the longest route?

Did you know that: There have also been instances of employees producing fake/manipulated bills for car fuel / conveyance cost. Thorough cross checking, strong expense approval process and strict disciplinary action reduces this substantially.

6.   Business Development Costs: How do you know that the Restaurant/Entertainment bills that Business Head just produced are not for his family outing?

Did you know that: There could be leakages in costs and sometimes unwanted costs are incurred if Sales & Business Development teams are not monitored closely and vouchers not checked thoroughly? Companies have implemented simple control measures like asking for the restaurant bill and not just the credit card statement to check the number of guests entertained AND checking if those expenses were incurred on a working day or a holiday.

7.   Telephone Costs: Do you monitor long distance calls made by employees through the company phone number? Do you monitor roaming call costs?

Did you know that: By giving a Calling Card and by monitoring key long distance phone numbers, you could reduce your telephone cost substantially? This also reduces personal calls being charged to company account.

8.  Lawyers Bill: Do you ask for cost estimate from your lawyer, before asking him to work on any matter?

Did you know that: Most lawyers work on time & effort basis? They would charge you even for the telephone call you had with them explaining the matter on hand, as well as for correcting the mistakes made in the first draft document prepared by them. You may have negotiated hourly rates, but always ask them to stick within a budget and minutely review their time sheets to check what you are being billed for.

9.  Banking: Do you have a separate working capital (overdraft) account and a separate current account? Are you efficiently moving money across your various non-interest bearing current bank accounts to your interest bearing Working Capital (OD) account?

Did you know that: By setting-up auto sweep or other manual methods, and ensuring that funds from your current account are moved to your Overdraft (OD) account on daily basis, you could save a lot of interest cost in your OD account?

10. Interest Cost: Are you monitoring the interest rate charged by your bank on the loan you took from them some time back OR do you just pay whatever the bank charges you as interest?

Did you know that: You could miss out on interest cost savings just because your bank did not reduce the interest rate on your loan, while lending rates would have reduced?

Did you know that: If you have been servicing your loan well, and if you feel you are being charged higher interest rate, as compared to what another bank is offering, you could go back and renegotiate your interest rates with your bank? Remember, banks too need good clients.

Other Forms of Restructuring

There are other kinds of restructuring which are self explanatory:

Changes in top management

This means the changes in the top and the operating management in the company. This begins with the change in the CEO and Managing Director level changes to bring in the change driver commensurate with the need of the hour. The “person of the moment” is seen as a key driver of policy changes and mover and shaker by the promoter management and by the market. The team to work under the top person is many times left to his or her discretion. By and large the person brings along a tested team which perhaps has seen a good turnaround elsewhere which does not mean success is guaranteed, but that which could be tried out in the new place. This includes at the Board/operating level and may include heads of profit centers, HR, Marketing and other critical positions. Finance is usually a closely guarded level and the top management may like to bring in someone from within the loyal group of professionals.

Retention of key management team

There are also instances when some people are considered indispensable and their retention in the company is absolutely required. Such persons are retained in the company by paying the stay on bonus in cash or in the form of stock options. This will give significant motivation to persons for continuing in the organization and be a part of the changing environment.

Moving of operations such as manufacturing to lower-cost locations

In late 80’s and early 90’s the set up in various companies used to be “fractured infrastructure”. The Corporate Office set up will have Marketing, Procurement, Finance, HR apart from the usual corner office paraphernalia. The plant correspondingly would have the functions such as Sales, Purchase and stores, Accounts, Industrial relations, etc performing some parallel or even overlapping functions. Leaving a small set up for the Corporate office, MD and associated functions, it was found to be productivity and cost effective by combining functions in one location for cost saving, better plant management and effective customer and plant relations. Moving plant locations have also been done in the past to improve proximity to the raw-material and customer market, better availability of power etc.

Conclusion:

Restructuring is a process and involves careful planning and application. The company can phase the restructuring process say over a period spanning 6 months to one year giving time for observing the impact of the restructure across the entire business. The costs and productivity being important, it is also necessary to keep the interest levels of customers and motivation of employees alive. Many restructuring has resulted in panic among these sections resulting in the flight of customers and key employees. The new of restructuring will therefore need to be timed out and suitably explained as it happens.

Other Forms of Restructuring

 

There are other kinds of restructuring which are self explanatory:

Changes in top management

This means the changes in the top and the operating management in the company. This begins with the change in the CEO and Managing Director level changes to bring in the change driver commensurate with the need of the hour. The “person of the moment” is seen as a key driver of policy changes and mover and shaker by the promoter management and by the market. The team to work under the top person is many times left to his or her discretion. By and large the person brings along a tested team which perhaps has seen a good turnaround elsewhere which does not mean success is guaranteed, but that which could be tried out in the new place. This includes at the Board/operating level and may include heads of profit centers, HR, Marketing and other critical positions. Finance is usually a closely guarded level and the top management may like to bring in someone from within the loyal group of professionals.

Retention of key management team

There are also instances when some people are considered indispensable and their retention in the company is absolutely required. Such persons are retained in the company by paying the stay on bonus in cash or in the form of stock options. This will give significant motivation to persons for continuing in the organization and be a part of the changing environment.

Moving of operations such as manufacturing to lower-cost locations

In late 80’s and early 90’s the set up in various companies used to be “fractured infrastructure”. The Corporate Office set up will have Marketing, Procurement, Finance, HR apart from the usual corner office paraphernalia. The plant correspondingly would have the functions such as Sales, Purchase and stores, Accounts, Industrial relations, etc performing some parallel or even overlapping functions. Leaving a small set up for the Corporate office, MD and associated functions, it was found to be productivity and cost effective by combining functions in one location for cost saving, better plant management and effective customer and plant relations. Moving plant locations have also been done in the past to improve proximity to the raw-material and customer market, better availability of power etc.

Conclusion:

Restructuring is a process and involves careful planning and application. The company can phase the restructuring process say over a period spanning 6 months to one year giving time for observing the impact of the restructure across the entire business. The costs and productivity being important, it is also necessary to keep the interest levels of customers and motivation of employees alive. Many restructuring has resulted in panic among these sections resulting in the flight of customers and key employees. The new of restructuring will therefore need to be timed out and suitably explained as it happens.

Equity Restructuring

Here is an interesting restructuring process. Equity restructuring in its broadest sense may mean any transaction between the Company and its shareholders, such as issue of rights and bonus shares, issue of preference shares, IPOs, PE/VC funds, dividend on shares, stock split, spin-off, that affects any class of share holder or the share price. The issue of rights and bonus shares involves change in the capital structure either for cash or through capitalization of reserves in case of rights and bonus shares respectively. The right to equity dividend may get altered with the preference capital coming in where the preference shareholders will get priority over the equity shareholders with reference to payment of dividend and repayment of capital. Similarly share splits and spin offs radically restructure the capital base of the company and also may provide opportunity for holding shares in other companies.

One of the kinds of capital restructuring is capital reduction schemes made by certain companies in the past under section 100 of the Companies Act 1956. This interalia includes among other things setting off the carry forward losses that the companies may be carrying in the balance sheet against any share /stock premium or unused specific reserves in the balance sheet in order to present a correct picture of the net worth of the company. While the bankers may in any case be adopting this practice, it is for the shareholders to get a correct feel of the real financials companies in the past have resorted to this practice. Several companies have done this in the past. It is however a very involved process which includes certain court procedures.

Companies that have smaller debt compared to their net-worth are underleveraged or have a low gearing ratio. Such companies are either cash rich and have limited or no external debt needs for their operations. Such companies may also not have any major growth plans for which they will need the money. These are conservative corporates who are shy of borrowing for various fears of parting with their assets as security, or providing a berth on the Board for directorship for an external person or predominantly family run concerns. Such companies may adopt a strategy of buy back of shares. This means there will be fewer stockholders to satisfy and pay dividends to. Converse to the situation is where the company has profitable projects in the near future. There is thus an opportunity for raising debts by leveraging equity. There are certain debts like institutional debt with convertibility clause and issue of convertible debentures/preference shares that will affect the equity base of the companies.