By Mark Archer
The CFO is one of a company’s key leaders interacting with the Board of Directors, second only in importance to the Chief Executive Officer. A good working relationship between the Board and the CFO is critical to your company’s success. The foundation of that relationship should be built on mutual trust and respect.
As a CFO, you’ll likely interface with the Board in multiple ways:
- Audit Committee Chair. Keep him or her abreast of issues the Company does or may potentially face.
- Audit Committee- All publicly filed financial documents will be reviewed and approved by the committee.
- Strategy discussions with the Board as a whole.
- Corporate liquidity and capital acquisition strategies.
- Financial analysis of any major purchases or transaction, such as an acquisition.
- Selection and oversight of the Company’s independent auditors and review of quarterly reports and annual audits.
In publicly traded companies, the Board plays an important fiduciary role for the many shareholders and meetings tend to be more formal.
Appropriate corporate governance is strictly followed. My experience with venture capital or private equity backed companies, where the VC’s or PE firm often have a controlling interest, is that the Board meetings are more informal with a greater focus on operational execution.
Let me suggest three key strategies to help build solid bonds with your Board of Directors.
Communicate Proactively and Transparently
In all companies, things change and headwinds happen. Expectations previously set by management might not be met and deadlines the business is depending on may be missed. This is just normal course in any business. But if changes are material, it’s important to update the Board as quickly as possible. It’s best they hear it from the management team first, and not from someone outside the company. Even if you don’t have all the facts or don’t have a fully thought through correction strategy, get out in front of it with the Board early.
Transparency is critical in maintaining trust between management and the Board. When problems arise, many Chief Executive Officers will see the issue as easily solvable. The Board will depend on the CFO to give a very clear, unbiased, and comprehensive presentation of the risks and opportunities involved, their likely impact, and any mitigating actions which need to be taken.
As an example, in one company I worked with, we were having significant supply chain logistics problems. It was left to me, as the company’s CFO, to educate the Board about the underlying problems and give an assessment of the time it would take to fully implement a solution.
Educate and Inform
It’s easy to forget that your Board members have only a general feel for your business and have little knowledge of what’s really going on inside the company on a day-to-day basis.
When a change in strategy is being contemplated or when a critical decision is to be made, the Board will be asked to offer their viewpoint and often times approve the new direction to be taken. To do so, it’s important they have sufficient historical context to meaningfully participate in the discussion and provide their perspective. The CFO plays an important role here, communicating to the Board how the business is performing at a granular-enough level that the Board understands the critical issue facing the company and will be able to provide the requested guidance or approval.
Many years ago, when I was CFO at Jamba Juice, we faced an unanticipated spike in our cost of sales. Several of the VCs asked to meet with me personally to drill down into the numbers to understand what had happened. Armed with that information, they were able to provide coaching to the Chief Executive Officer on how to best resolve the problem.
Practice Meaningful Engagement
Collectively, your Board is a valuable resource, but the individuals on the Board can also be of great support. Board members typically bring years of experience to the table and often have faced the same sort of challenges you may be dealing with. Reaching out to Board member via one-on-one discussions to ask for advice or their perspective can be very useful. And in my experience, Board members love to be asked to help!
Another tip is to not limit your questions to just the issues you’re dealing with. Ask a Board member how he or she feels the Company is doing and what potential risks they see in the future. An added benefit of doing this is that you’ll get to know each other and understand each other better, which in turn will help you better prepare for the next Board meeting.
Finally, I also want to touch on the important relationship between the CFO and the Audit Committee Chair. A strong trusting relationship with the Audit Committee Chair allows for an open dialogue about audit-raised issues, from someone that shares the same financial perspective of the business. These conversations can also cover topics outside the typical Audit Committee charter, such as about the organization as a whole, even the most sensitive matters. This can be very valuable to the company.
For more information on this topic, watch our recent roundtable on “Maximizing the Performance of the Board Audit Committee”:
FLG Partners receives a substantial share of our referrals from Board members and the firm has a longstanding Board advisory practice. If you need assistance, please get in touch. We’re happy to help.