What the Board Expects from a Chief Financial Officer - Part III
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
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 - Below
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?
Other Lessons From the Interviews
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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.
a. Run a “no surprise, no blindside” finance operation. This will develop your credibility with the Board. It requires communication outside the boardroom and a constant reflection and understanding of what information is critical for the Board to know to fulfill their obligations.
- However, “Don’t go running your own race – bring the CEO along with you.”
- If you differ on a topic, search for a respectful and fact-based way to discuss it with your board.
b. The CFO can use the executive team to bounce ideas off of, then bring those ideas to the Board. This is especially useful when they aren’t dealing strictly in the areas of accounting, finance or treasury. Keeping teammates in the loop on essential non-confidential board items is a great method for team building.
c. The Audit Committee Chair is normally the key Board liaison for the CFO and a good sounding board for many issues the CFO would consider worthy of Board awareness.
- All board members are important to have good rapport with but the key board relationships to nurture include the Chair of the Board, Chair of the Audit Committee and Lead Outside Director if the CEO is the Board Chair.
- The foundation for each board meeting should be laid with discussions on key topics before the meeting. For the CFO these discussions will normally take place with the Audit Committee Chair. It’s not unusual for Committees to meet more frequently than the full Board. Follow up discussions after Board meetings are important to confirm what took place that requires action and make sure there is a clear understanding of what the next steps are.
7. As a Board member if you could hire for only one quality in the CFO what would that quality be? (each Director’s response is noted below – responses to the previous questions were amalgamated).
a. Integrity closely followed by Cultural Fit.
- If a CFO fails in their role – is judged to not be competent from the Board’s perspective - it’s rare that the failure point(s) showed up on the CV/resume. Lack of fit and poor communication style are the more frequent reasons for failure and much harder to evaluate or verify from a brief interview or CV/resume.
b. Integrity, intelligence and leadership. He/she is the #2 person in the company and normally a strong CEO succession candidate by default. This person represents the company to the investment community and must be a trusted advisor to the CEO and the board.
c. Integrity
d. Collaborate Leadership
The best CFOs know the business well and act as a successor to the CEO. They take on more responsibility than their job description and are deep participants in building the company’s strategy.
Other lessons from the interviews.
- Be careful what you outsource. One director told the story of a CFO who chose to outsource the Internal Audit function. The Board was skeptical. Their concern revolved around how serious the CFO was about committing resources to a key control area. Within a year the internal control function was brought back in house.
- CFOs frequently have other roles reporting to them than simply Accounting, Finance and Treasury. Examples include Legal, Operations, Human Resources and Information Technology. Depending on the CFO’s experience and nature of activities at the company, this can make sense. However, the Directors voiced a concern that the CFO has the responsibility to make sure they aren’t being spread too thin and have the competence or support to oversee these functions. The Directors voiced concerns about the Chief Technology Officer reporting to the CFO. This was deemed dangerous due to the broad impact “technology” is having on business and the plethora of technology choices. In most large companies the CIO is now reporting directly to the CEO. The need for a partnership between the CFO and CIO has never been more important.
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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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