What the Board Expects from a Chief Financial Officer - Part II

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.

We asked the following 7 questions to the four Directors and split their insightful answers into the following 3 Parts:

Part I

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 - Below

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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3. Are there characteristics you have seen in CFOs that are particularly useful from a Board of Directors perspective? (Allows the Board to perform their duties more effectively).

a. The ability to explain business variations (budget/forecasts vs actuals) in simple terms. Board members frequently don’t have the industry or deep financial backgrounds, so this piece is critical. Explain things in non-industry terms with minimal financial jargon.

- Being quick on their feet with answers that get right to the point and create confidence that the CFO is in command of their role. Being quick on your feet, doesn’t mean being quick to answer. It’s OK to reflect on the question and take some time to provide a well thought out answer. Beating around the bush while not getting to an answer is not a good look on a CFO.

  • One of the Board members used this question as a component in assessing the competency of the CFO: “How often does the CEO have to step in to provide ‘interpretation’ of the CFO’s response?” Know your stuff and share it confidently.

- The ability to stand alongside the CEO when speaking with the Banks, Investors and when reporting results. High reputation value is created with stakeholders when the CEO and CFO are observed working alongside one another. Proof of this is when the CEO invites the CFO to comment or answer questions addressed to the CEO.

  • Respect of the investment community is earned by….
  1. …possessing a sound understanding of the topics the CFO is asked to address
  2. … being believable and sincere in their responses

- Synthesize and distill key information the Board needs to be aware of. Be mindful that Board members have limited time to commit to their service for your company. Use their time wisely.

  • One Director commented that if they receive a 275-page Board deck “it better have a very good summary on top of it.” A CFO must be capable of providing Board relevant information in bite size, easy to understand pieces.

- Pre-Quarterly earnings release calls with information handed out early and highlighted to provide an executive summary of critical accounting changes, judgments and other areas of concern. This leads to better discussions and call preparation for all parties.
- Be on top of the numbers

b. Have a curious nature that leads to a thorough understandiness

- Examples included:

  • Put a perspective on risk and the Enterprise Risk Management process; making sure it isn’t just a paper exercise but is peering around all the corners for emerging risks.
  • Have a clear vision of where you are taking the business before recommending technology. If you can’t articulate an ROI, go back to the drawing board.
  • Artificial intelligence and digital transformation are a means to help us do our jobs better and require a deep understanding of the business to be effectively selected and implemented.

c. Personal characteristics

- Egoless
- Excellent Listener
- Strong Relationship Builder. Example – provide early notice of new issues and search out input from others to resolve them
- Continuous Learner

4. Are there any backgrounds (experience or formal training) that seem to develop more capable CFOs than other backgrounds?

a. A finance/accounting background is best suited. However, business people (presidents and CIO’s) have transitioned to the CFO role quite well. The quicker path is a formal education in the finance area (MBA or CPA also helpful).

- A formal academic degree in finance is a minimum threshold.
- Audit experience can be very helpful when dealing with the auditors and managing the changing landscape in accounting.

b. Experience in an operating business and operating role can boost general understanding and communication skills.

- Having experience in strategic planning and implementation can be a big plus in bringing value to the Board.

c. Continuing education and networking is important to make sure skills stay fresh and current. Some of the tips passed on included:

- External auditors frequently provide on-going development programs on CFO-centric topics and changing rules.

- Joining CFO groups locally and attending meetings to help with continuous education.

- There are programs which introduce strategy and leadership such as Harvard’s Sloan executive education that help individuals think more broadly.

Note: Cyber security is a front-page issue facing most Boards – CFOs who can competently address this risk increase their value to the Board. That said, no consensus was reached on whether the Chief Information Security Officer should report through the CFO role or through a different channel.

Conversely, are there backgrounds that have proven not to be well suited for the CFO role?

a. Not broad enough in the role; too centered on one aspect. For example; spending an excessive amount of time on accounting, leaving other key roles like finance, treasury and leadership to whither.

b. Derailment occurs when there isn’t a cultural fit between the company and the CFO. If you are “wearing ‘Christian Dior’ on the machine shop floor” take time to consider if the company is a fit for you.

c. A CFO that isn’t a team player ends up being shut out of the information loop; which is a terminal illness for the position.

  • A CFO that has a vastly different opinion on strategy and operations than the rest of the executive team can create more chaos than the business can afford.

d. In one instance the Board recognized the CFO wasn’t performing for them. The CFO was quiet and not engaging at Board meetings but had good reviews from the CEO. They sent the CFO to a top-notch executive leadership course that included Board training. The CFO came back from the course with confidence and an engaging style that served the Board (and the CFO) well.

e. Non math-based backgrounds may be more difficult to succeed in a CFO role. A CFO needs to understand the financial aspects of the company very well. When you visit Wall Street and meet with financially minded bankers or investment companies, their personality traits are far different from advertising people (even their clothing choices…). The passion and personality of the individual needs to fit the role.

5. Is there a “good way” or “right way” for a CFO to publicly oppose a decision made by the CEO or the Board?

a. The Board expects significant differences and conflicts between the CFO and CEO to have been worked through before the Board meets. Board meetings are too valuable to use as a forum to “air dirty laundry”. So, having this come up at a Board meeting would require unusual and unique circumstances.

Work through all significant issues with the CEO before a Board meeting begins.

b. If the CFO hasn’t earned Board credibility and trustworthiness, any type of public opposition with the CEO or executive team is risky. Lesson: Clearly understand how you are building credibility and trust with your Board, the leadership team and staff. If you aren’t sure, ask them.

Here are some more tips:

  • The CFO must be open with the Board when asked any question
  • Come to meetings, calls and other interactions prepared
  • Follow up promptly on all requests
  • Have a “No Surprises” mind set across all your departments. Being in front of issues is the best way to reduce their momentum and potential impact to the business.

c. Opposition must be fact based and delivered in a respectful way. Anything less subjects the business to unwarranted distractions and jeopardizes the credibility and trustworthiness of the CFO.

Director comments:

  • Opinions unsupported by facts can leave deep fissures in the business
  • “Sharp knives leave deep wounds.”

d. The key Board contact for the CFO is normally the Chair of the Audit Committee. If issues are not getting resolved a discussion with the Chair of the Audit Committee would be appropriate, including an invitation to the CEO to participate.

Here is a Story one of the Directors told us of lost confidence in the CFO. The CFO had a disagreement on how to resolve an issue the audit committee was working on. Rather than working on a compromise solution with the audit committee, the CFO went directly to the Chairman of the Board, requesting the issue be brought directly to the Board for discussion rather than accept a recommendation from the Audit committee. This course of action caused the CFO to lose the confidence of the Audit Committee making their role on the Audit Committee ineffective.

e. For “Whistlebloweresque” issues, first, make sure there is a functioning Whistleblower policy in place and second, consider using it.

f. General Director comments:

- Be true to yourself.
- Choose your battles carefully. Only go to the mat on very significant or law-breaking items, not each issue you don’t agree with.
- Cultivate relationships with the Board in an appropriate manner.
- Work closely with your CEO so issues don’t turn into surprises.
- Behave and respond in a manner that will build Board credibility and trust.

g. One Director broke this question into 2 types of disagreements:

- Large strategic decisions or big questions for the Board: “I believe in open communications, so the CFO needs to have first told the CEO his/her position and internally come to an agreement or moved the issue forward before coming to the Board. I have seen only once in 15 years of Board experience where a CEO felt very strongly that the Board hear the CFO’s position which opposed the rest of management and the CEO. The Board respected his perspective and the time he presented. It was not viewed poorly, although kind of awkward that it wasn’t resolved or presented together with the CEO.”

- Everyday interactions: No one should hide their views in the Board room. “I have also seen open debate where professional people have disagreed ALL the time. Opening the disagreement with ‘I have a different perspective’ and some background on why you disagree is helpful and more accepting to everyone but gets the opposing point on the table.”

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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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