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Mastering Uncertainty: A Key Risk Tool for Finance Executives

  • By Ira Apfel
  • Published: 8/24/2016

an16-spkr_portrait_mousavizadeA highly regarded global thinker, Nader Mousavizadeh advises some of the world’s leading corporations, investors and organizations. Frequently quoted in The Financial Times, The New York Times, and Reuters and a former Special Assistant to United Nations Secretary General Kofi Annan, Mousavizadeh is the perfect person to speak about global risk and uncertainty at the AFP Annual Conference in October. Learn more about this session here and be sure to register for the AFP Annual Conference by September 16 to save $200.

Mousavizadeh recently spoke with AFP:

AFP: The topic of your session is “Navigating Today’s Global Market and Mastering Uncertainty.” Is it even possible to master uncertainty?

Nader Mousavizadeh: Well, the way I would think about this is that we have found ourselves in the financial crisis as risk managers, treasurers, CFOs, businesspeople generally with a degree of uncertainty that we weren’t familiar with and that we really weren’t equipped for by its very nature. I think there’s a certain degree of nostalgia for a world of certainty and predictability which is certainly may be false nostalgia. I mean, business was never totally predictable and there are always X factors coming in and volatility of various kinds. So, even if there is a bit of false nostalgia for a world of certainty that may not have existed, what is essential to understand I think is that that kind of certainty and that kind of predictability is just not coming back.

So, when you say the treasurers are hoarding for this reason, my answer to them would be, well, actually, if you’re thinking of your competitive position in the marketplace and you’re thinking about your cash position and you’re thinking about how to deploy it best for shareholders as a kind of way of thinking about your planning, you need to get more comfortable with uncertainty because it’s not going away. You need to find a way to deploy capital and make investments and invest in your business through the uncertainty rather than wait for it to end because it’s not going to end. What does that then mean? How do you master it?

And I think it requires forms of diligence that lots of companies are really very unfamiliar with and don’t really have the disciplines for. And what I mean by that is we are used to doing financial diligence, tax diligence, various forms of regulatory diligence, obviously competitive diligence, but really what we need to do more of as global businesses is what I call macro diligence which is the kind of diligence that looks at the broader economic and political landscape within markets, within regions, and within the overall landscape, because what that does then is give you a sense of again the range of possible events and the range of context that you will want to operate in, whether you’re trying to sell your goods in China, whether you’re producing in China or Nigeria or Indonesia or Brazil or what have you. And that kind of macro diligence is just a new form of mismanagement and a new form of diligence that is going to be essential to mastering this uncertainty, which as I said at the structural matter for political and economic reasons, it’s here to stay.

AFP: How can the treasury and finance department create a macro-diligence perspective or some kind of tools to really conduct macro diligence?

Nader Mousavizadeh: Well, I think it’s a mixture of things. I think it’s partly a shift in mindset about where do my risks and challenges come from. They don’t just come from my suppliers or from my competitors or from the work or talent or from other factors but they come from a much broader array of sources. I can get hit with a regulatory change and really transforms my business.

So, how do you position yourself? I think it is starting with that mindset that accepts that the risks and opportunities come from a much wider range of sources, it’s a set of capability inside the CFO’s office, inside treasury’s office, inside the strategic planning and CEO’s office where you both recruit to your teams, and I think [indiscernible] to their boards people who have really lived the world of this intersection of policy and markets. And that can be people who’ve been obviously at government service, it can be people who have come in and out of government, and I think just have a kind of native understanding of that intersection because they will be better at both giving you a heads-up on change that may come but as importantly and to my point about uncertainty being with us, even when you can’t predict it and it comes at you in a surprising way at a surprising speed in a surprising time, what have you done to strengthen your business for that and make it more resilient?

That means in individual markets having a much greater understanding of the specific macro environment, so don’t assume that China, India, Indonesia, and France are broadly going to be the same market for your goods even though you’re selling the same goods. You’re just going to be vulnerable to a wider array of macro factors within each of these countries and certainly across through a range of them. So, understanding individual markets better and understanding visual markets better and really understanding how political and policy pressures can affect economic conditions, how can your tax position in a country change, how can your fiscal position in a country change, how can the ability to operates change. These are all political practice that can’t just be understood with traditional management.

AFP: Do you find that macro diligence is still in its infancy? And if so, have you seen it grow up a little bit or is it still very, very, very new to almost every organization out there?

Nader Mousavizadeh: I think it’s still in its infancy. I think what you’re finding out there is that today in 2016 versus having this discussion in certainly 10 years ago, 2006, or even in 2010 or 2012 where I think you have certainly at the board level and the CEO level increasing investors are asking boards and the CEOs about these factors and how they are managing they’re companies against this. So, I think that has imposed some greater appreciation of how important this is. But I think to a large extent still, it then gets parked over in investor relations and let’s get people who can figure out how to answer the questions so we can get through our quarterly call, which is a different thing than actually saying how do we really plan our business around this and how do we deploy our global footprint in a different way. That I think is very much in its infancy still.

AFP: What do you think would be a timeline for growth? Does it need to mature to the point where it’s, so to speak, adult-like in a year or two, or do you think it’s just always going to be this kind of changing continuum?

Nader Mousavizadeh: No, I think you can see within organizations that there are some that are at the frontend of this and others I think will follow, where it just becomes this form of diligence and this form of awareness becomes more ingrained so that when you’re doing your quarterly budget or your strategic planning or looking at acquisitions or looking at global expansion, looking at what kind of talent you hire, that it becomes more integrated into that process, “What have we, in all these processes done to integrate this understanding of macro volatility, are we hiring the right people, are we engaging with government authorities in the right way, how we assume certain things about geographical stability” -- you know, will Britain stay in Europe, will it not -- did we do the right amount of risk management against that, could you see China fall out with its Asian neighbors in a much more traumatic way which will make your operations in Asia look very different.

I mean, how much are you planning against that. I think that is something that we’re seeing more and more organizations -- and this is not easy to do and it doesn’t give you a panacea. But to have it be I think part of the core decision-making process, I think increasingly it’s becoming an obligation. And boards I think will fairly soon get to a point where if they haven’t had some kind of process within treasury and finance department, someone is going to ask them are they doing their jobs properly.

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