What the Board Expects from a Chief Financial Officer - Part I
Interactions with the Board of Directors can be intimidating for a first time CFO, or even an experienced CFO being introduced to a new Board. To help navigate the critical relationship between the CFO and their Board we interviewed four seasoned public company directors to learn what they expect of the CFO.
We asked the following 7 questions to the four Directors and split their insightful answers into the following 3 Parts:
Part I - Below
1. What are the key roles the Board expects out of the CFO in their role as a member of the leadership team?
2. What are the primary roles the CFO plays in serving the Board?
Part II
3. Are there characteristics you have seen in CFOs that are particularly useful from a Board of Directors perspective?
4. Are there any backgrounds (experience or formal training) that seem to develop more capable CFOs than other backgrounds?
5. Is there a “good way” or “right way” for a CFO to publicly oppose a decision made by the CEO or the Board?
Part III
6. How should the CFO communicate with the Board? On one extreme - should conversations be led by the Board and the CFO brought in as needed/instructed. On the other extreme should the CFO have full access to the Board on whatever subject they believe is worth the Boards time.
7. As a Board member if you could hire for only one quality in the CFO what would that quality be?
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1. What are the key roles the Board expects out of the CFO in their role as a member of the leadership team?
a. Deliver financial results that have Integrity and are free of material errors
- Deliver reliable, relevant data that decisions can be made from
- Make sound investments in systems that fit the business
- The Ante – Strong skills in Accounting, Finance, Treasury and Internal Controls
b. Relationships and Team building
- Build strong teams in accounting, finance and treasury and other areas of responsibility
- Be a Cultural Fit – the CFO shares the same core beliefs, attitudes and behaviors embodied by the company. As an example, “Wearing Christian Dior on the machine shop floor may indicate you are a poor cultural fit.”
- Build a strong relationship with the Auditors, Bankers and other service providers to the CFO suite
- Support internal audit (as opposed to tolerate it)
- Support is defined as allocating enough resources to Internal Audit so key risks are identified and solutions implemented to reduce and monitor them.
c. Leadership and Strategy
- Display a leadership role in managing the external auditor relationship and as the executive member of the audit committee. Risk management and cyber security were highlighted as key areas requiring CFO leadership in today’s fast paced, digital world.
- Participate in developing and executing the strategy for the company. This includes the operating strategy and the financial plan required to achieve it. The CFO is frequently a logical choice as successor to the CEO. To be considered for the CEO role they must show leadership in both operations and strategy.
- The CFO must be comfortable being the company representative to external interests – managing the Street, the investors and the bankers.
- Independent Thinking – The CFO must have the confidence and conviction to challenge the leadership. Board members expect the CFO to play the devil’s advocate within the management ranks, making sure significant projects and issues get properly vetted before being brought to the Board.
- M&A leadership, including owning the financial model that rationalizes large capital or human investment.
d. Business Acumen
- Have the ability to relate the financials to the operations. This is especially important when the commercial executives are not in the room during the Board meetings. Being accurate with this understanding and showing alignment with the team is also important.
- Sound understanding of the business – a CFO shouldn’t have the attitude every business looks the same or they risk missing important nuances that could be significant to the success of their company.
e. Partner with the CEO - The CFO performs their duties in a complementary role to the CEO
f. Do your job and do it well!
2. What are the primary roles the CFO plays in serving the Board?
a. Corporate Reporting
- Inform the Board of financial performance and the capital needs of the business
- Gatekeeper/Protector of the company’s resources
- The CFO role is a “No surprises” Role
- Know thy Balance Sheet. For example – a surprise glut of inventory indicates the CFO was not staying on top of the business
- Accurate, clear financial presentations with no surprises or key unknowns
- MD&A and footnotes indicate the CFO understands the business and knows how to communicate important concepts
- Shares the responsibility of covering financial results. The balance sheet and cash flow statements are the domain of the CFO – the income statement is shared between operating executives and the CFO
- Well-articulated financial acumen on corporate matters
b. Other
- Has the potential to succeed the CEO – either in emergency or long-term situation
- General roles: Investor relations, financial reporting and contact for the audit committee
- The CFO is typically the executive lead on the audit committee but also must be able to act independently from the management team in this role
- Voice of reason – When all opinions have been heard the Board wants to know where the CFO sits
- Key participant in strategic discussions and plan implementation
c. Personal and professional traits that support these primary roles
- “A view to the future.” More than an historical perspective is needed. The CFO should know the near and real term issues that need addressing “Eye on what is coming down the pike or is likely to happen”
- Capable of Building strong teams
- Excellent “Soft skills”, be present, sociable and informal with the Board
Here is Part II of What the Board Expects from a Chief Financial Officer
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We are indebted to our panel of Directors who shared their time and experience participating in our interviews. Thank you, Christiana Smith Chi, Linda Goodspeed, Gary Mize and Ian Wilton. All have experienced successful careers with leading companies that paved the way for their appointments to Public Company Boards.
To learn more about them click on their names below.
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