The emerging strength of the Commodity CFO

23 May 2019
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In the past five years, we at Human Capital have witnessed a considerable evolution in the role of the Commodity CFO, as roles have expanded to become much more strategically-focused, more value-focused and more forward-looking. As commodity markets become ever-more transparent, stable and liquid, and as traditional trading margins continue to be squeezed, it is becoming increasingly important that the CFO office evolves from being primarily fiduciary in nature to being much more visionary and value-creative.

Today, the energy and commodities CFO role is much more strategic and operational in the context of a commercial marketing or trading operation, as the traditional custodian and stewardship element of the role expands to incorporate much more significant commercial decision-making. In today’s world of rising geopolitical tensions, rapidly-advancing digital disruption and transformation and the acceleration towards lower-carbon economies, commodity CFOs are having to establish a clear and common understanding of company purpose and become adept in outlining how the company delivers value. That requires growing stakeholder engagement: upwards to senior management and the board, outwards to investors, policy-makers and regulators, and downwards through the organisation.

Speaking to some of the industry’s leading CFOs, it is interesting to chart how their responsibilities have grown. Christophe Salmon, Group Chief Financial Officer at Trafigura, tells us that the primary responsibilities of the CFO can now be defined as:

  • Warranting the liquidity of the company, both short-term and long-term;
  • Being the gatekeeper, taking ownership of credit risk and compliance; and,
  • Supporting business development, through the combined finance and marketing offer.

The latter has grown in importance in recent years. Christophe says: “The role of the CFO is less about being in the details of the financials, now handled by the financial controller, and more about acting as a strategic sparring partner for the CEO, challenging decisions on investment strategy, strategic risk management, balance sheet management and more.”

Similarly, David Stanton, Group CFO at AOT Energy in Switzerland, says one of the important pieces is the role of the commodity companies in arranging financing, through equity, mezzanine debt and senior debt. “Whilst the commodity firms remain unregulated, from a capital and liquidity perspective those with strong balance sheets can competitively provide not only physical solutions to their customers but also synthesize financial solutions. The CFO is very much at the heart of such initiatives,” he says.

Today, the energy and commodities CFO role is much more strategic and operational in the context of a commercial marketing or trading operation, as the traditional custodian and stewardship element of the role expands to incorporate much more significant commercial decision-making.

Strategically, commodity companies may have been less affected by disruptive technologies than other industries so far, but in the less-developed segments of the market there is potential for forward-looking businesses to develop and incorporate technology so as to reduce costs, lower market risk and take market share. Again, the commodity CFO can be central to such efforts.

We also discussed the emerging importance of the commodity CFO with Guillaume Vermersch, Group CFO at Mercuria Energy. He argues that the cutting-edge commodity CFO tightens the strategic partnership with the CEO of the organisation, adding a resilient forward-looking dimension to controls and reliable financial data analytics while integrating variables such as technology, regulation and banking and financial environment dynamics. One must also be on top of issues around the evolution of the supply chain management, as well as benchmarks and comparables both within the commodity space and also across different industries.

The growing influence of the CFO in the boardroom of trading businesses has been apparent for some time, as more and more strategic significance is attached to the role. In March, Danske Commodities, a Danish power and gas trading firm acquired by Equinor last year appointed, its finance chief as CEO, at the same time as it unveiled plans to enter the US power market.

A decade ago, CFOs just were not a part of the top-table discussions, but in the wake of the global financial crisis, we have seen them increasingly assuming seats on the board and playing an ever-more strategic role. The trend shows no sign of abating, and only serves to further highlight the need for the industry to attract the brightest financing talent at a time of intense competition.

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