January 30, 2017
CFOs: Navigating a New Reality
By
Jason Hancock,
Liam Hurley
Chief financial officers face daunting challenges in today’s business landscape. Their roles are broader and more complex than ever before while investor scrutiny is at an all-time high. We recently hosted a gathering of chief financial officers to discuss how their role has shifted, how they think about navigating in an uncertain environment, and their relationship with the board and audit committee. We were fortunate to be joined by Doug Maine, former IBM and MCI CFO and an experienced audit committee chair, who shared his perspectives on a number of these issues. Here are some highlights from the discussion.
The CFO is the new COO. Maine spoke about the decline in the number of chief operating officers, which has elevated the role of the CFO in many cases. “In many respects, the CFO is the COO without the title,” he observed. “He or she still presides over the numbers and the finance organization, but now has to be more strategic and operational. In many cases, the CFO serves as the CEO’s right hand.”
CFOs are becoming even more coveted board members in an age of activist investors. Activist investors have ramped up pressure on public companies across industries in recent years, putting more pressure on CFOs. We’ve witnessed public company CEOs and boards becoming more interested in hiring seasoned CFOs over candidates who haven’t sat in the public company CFO chair. Companies want a finance leader who brings an investor relations perspective and who will be well-equipped to help the CEO develop a strategic response to an activist shareholder campaign. In fact, experience handling shareholder activism can set a candidate apart. According to Maine, activists are not the only investors asking more questions about business strategy — well-known index funds that hold a long-term and significant ownership interest in companies are asking a lot more questions of management, and also trying to establish a dialogue with the board.
CFOs will be increasingly called upon to help translate data into insight. Companies are increasingly working to develop the best tools, methods and processes to harness and leverage their most relevant data. CFOs are often at the forefront of this effort, given their broad view into the company’s numbers. They are now expected to develop well-reasoned financial, operational and strategic insights based on vast pools of relevant data, putting even more pressure on their finance and IT organizations.
Working closely with the board is imperative. In addition to the “table stakes” efforts needed to adapt to this changing world (e.g., proper goal-setting and organizational alignment, rigorous succession planning, collaboration with other groups in the organization such as IT, and engaging the right consultants), it is critical that the CFO engage with the entire board for a comprehensive perspective on the business.
Maine also shared a few recommendations for CFOs on working with the board:
- Take advantage of the wisdom and experience of all board members, not just the audit committee. While the natural mentor for the CFO is the audit committee chair, CFOs should seek counsel in between meetings from other board members, who can act as advisers and provide confidential insight. CFOs also shouldn’t limit their interactions to board meetings. Many valuable exchanges happen informally.
- Adopt a shareholder mentality. There are so many compliance issues that CFOs have to deal with that the strategic issues can get a bit lost. Finance leaders need to think like board members and the investors they represent. What the board wants to know from the CFO is: “Where are we headed? What are the numbers telling us about the business?” Know the levers, know the early warnings and think like a long-term shareholder.
- Consider joining an outside board. Maine advocated joining an outside board to get a well-rounded education on corporate governance. While it can be difficult to secure a public company board seat without prior outside board experience, serving on private company or nonprofit boards can serve as a springboard. “Private companies and startups all need help, and you will see some fascinating business challenges from the perspective of a board member,” said Maine. “That’s invaluable experience.”
Jason Hancock leads Spencer Stuart’s global technology sector for the Technology, Media & Telecommunications Practice as well as the firm’s Boston office. He is adept at working through challenging board dynamics and succession projects and with troubled companies, and has a depth of experience working with established public companies and private equity-backed businesses. You can reach him via email and follow him on LinkedIn.
Liam Hurley is a member of Spencer Stuart’s Board Practice and works across industries and functions, with clients ranging from large publicly traded companies to small private companies and non-profits. You can reach him via email and follow him on LinkedIn.