The CFO and the Board

The CFO and the Board

“This is a commercially orientated role, involving promoting new checks and balances required for survival over growing the business long-term. "

In recent years the role of the chief financial officer has time and again come under the spotlight. Successful CFOs have emerged with strategic and operational experience that gives them greater influence in the boardroom than ever before. As organisations now shift their strategies towards driving growth, how can CFOs continue to develop the skill sets worthy of them being considered de facto deputy to the CEO?

As the role of the CFO has evolved from traditional number-crunching finance chief to second in command and driver of business growth, three essential qualities are needed:

• Commercial acumen
• Strategic thinking
• Convincing communication

Jim Wilkinson, CFO at Sportingbet plc, says: “The CFO is the custodian of the assets of a company, its recorder of past events and the cautionary voice on the board. However the role also requires the CFO to be the partner of the CEO in driving the company forward through all the levers that are available, including marketing, corporate activity and investment. This makes the CFO job particularly complicated and they have to be aware of which aspect of the role to emphasise at which time.”

Boardroom Influencer

Traditionally, the finance department has been the nerve-centre of every business. During the credit crisis, the CFO has needed to focus on the issue of working capital and liquidity. A critical part of the role has therefore been to manage the relationship with banks.

Bernard Cragg, Criticaleye Associate and Senior Independent Director at Mothercare plc, comments: “Whatever anybody says, the banks have become unreliable business partners and seek to gauge their corporate customers wherever they can. Having a CFO that is focused on managing the working capital, the forecasts and the banking relationships is completely essential.”

Ian Durant, Chairman of Capital & Counties Properties plc, says: “This is a commercially orientated role, involving promoting new checks and balances required for survival over growing the business long-term. CFOs have had to become bifocal at a tactical and strategic level with a very flexible attitude to fast changing circumstances. These CFO leadership roles in stressed organisations include helping the board understand the company’s trajectory and risks, priorities and management focus.”

Gayle Hares, CFO at IBM, agrees: “Beyond the numbers, CFOs need to identify the options available and work with the board to help it understand the impacts of these options, then develop a strategy to make the desired options a success. It’s about developing a mission in partnership with the board, putting that mission into practice, often when the inputs to that strategy are changing on a daily basis, and being able to communicate this effectively and simply to the team.”

Value Integrator

Certainly, the crisis required the CFO to bring financial relevance to an organisation, but it also highlighted the need to drive objectives and enhance value creation.

Ian Tyler, CEO of Balfour Beatty plc, says: “The first thing I always look for in a chief financial officer is their ability not to be just a chief financial officer. Crises tend to focus on immediate effects and there’s a tendency to ask who on the board takes responsibility for the perceived risks? The idea that there has to be a focus on the defensive nature of the organisation, and somehow that this is quintessentially the role of the CFO, is somewhat a caricature view of the role. The last thing you need is individuals with singular agendas. Rather, you need a management team that is aligned, integrated and maximising the totality of knowledge in that team. The more you fragment it, the less effective it will be.”

In his article, The CFO’s Journey – Becoming the Boardroom’s Value Integrator, IBM’s Sandy Khanna, VP Global Process Services, suggests that boardroom-level strategy is now as much a focus for the CFO as is the balance sheet. He says: “It no longer suffices to excel at core finance activities. CFOs – and their organisations – must and can help make their enterprises smarter by contributing to more sweeping, strategic concerns such as pricing models, supply chain policies and production levels.”

Getting interpersonal

While developments in corporate governance have arguably meant the role now involves more scorekeeping, the CFO is required to bridge the gap between corporate strategy and financial responsibility – essentially, the fulcrum between the board and the investors. In order to work with the CEO and the operators to build value-management capability into the company, a CFO’s communication skills are therefore increasingly important. Indeed, CFOs will often require even more highly-evolved interpersonal skills than the CEO, as their ability to influence both the board and investors are fundamental to their success.

Ian Durant says: “CFOs need to be prepared for the behavioural challenges of board and peer group politics and assisted to develop the skills to prepare impactful board reports and external investor relations presentations. All CFOs should have had some insolvency or directorial responsibilities. Team building skills are essential and, possibly, it ahould be recognised that the route to senior CFO should include operational responsibilities and strategic development, not just financial immersion.”

As the role of CFO has continued to expand, the finance function has taken on a larger role in influencing how the company performs and the direction that the company takes. “What is key is ensuring that the CFO is personable so people want to pass on their knowledge,” adds Gale. “You then have a good communicator who can articulate to non-financial people what the numbers mean in practice. The board needs this skill to develop the business and looks to the CFO to provide it.”

Jim adds: “As ever, communication of the state of the company is essential. Communication with banks, advisers and employees is probably more important in poor times than in better times. Externally the CFO needs to be networking to make sure they understand the mood of the investors and bankers. This allows the company to communicate the strategy and results effectively. It also allows the CFO to judge whether financing providers are likely to become more or less restrictive and what is happening to prices. In addition, financing methods not previously considered should be explored.”

In short, the CFO has much to gain from their heightened board-level exposure of the last few years. The experience will surely give them increasing influence to inform and influence board decisions as the cycle shifts from defensive plays towards growth-based strategies. Making sure they continue to develop a rounded skill-set will be essential to any CFO’s evolution. It may also allow them to step more regularly into the shoes of, and ultimately succeed, the CEO.

Our event on 9th June, The CFO and the Boardroom, will explore many of the themes covered in this newsletter and more. Please get in touch if you have any comments about the issues raised.

I hope to see you soon

Matthew

www.twitter.com/criticaleyeuk

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