A board for the times and the CFO

By in Accounting and Finance, Business Trends, Development

The CFO and board relationship

Just as all businesses have a life cycle, so does a board. Therefore, a board not in step with its own organisations lifecycle, can develop into a major weakness to overall business growth.

This makes a CFO’s relationship with their board pivotal – they are both drivers of successful operations and can also encourage the board to meet their overall strategic objectives. A CFO is in the perfect position to be both a provider of information – outlining risks, opportunities and providing forecasts – as well as provide additional support to the decision-making processes.

With this in mind, it’s essential for a CFO to understand the key elements of a good board, so that they can improve and add value to the boards functions.

Why do we need boards?

In a dynamic environment, a board can help management both operationally and strategically by creating and overseeing corporate governance and providing independence, direction, accountability, credibility and legitimacy for their stakeholders.

Boards bring skills and expertise in areas of strategy, finance, legal, marketing, technology and a specialised industry and product-related skills. They also bring diversity of thought and networks.

What are the stages of a board?

While it’s commonly known that all businesses have a lifecycle; boards must adapt and evolve through their own lifecycle to remain ahead of the game, or else they become redundant to the business and stakeholders they serve.

The common board evolution consists of the following stages:

1). Entrepreneur and business owner

2). Advisory board – flexible group of advisors

3). Formal board

4). Fully mandated formal board (chairman, executive directors, non- executive directors and shareholder representatives

When a business is smaller, you need board members who can take the business forward, when it is much larger, you need a board who will protect the shareholders’ interests. If you’re in between, it’s important to note that boards are not mutually exclusive and at this stage, a combination of those types may be necessary.

For example, while an advisory board is excellent for start-ups or early-stage high growth business to fill knowledge gaps and help with problem solving and strategy; a formal or traditional board may be more relevant during sustained growth to maturity. A board, like business can also stagnate or go into decline without the appropriate safe guards in place, and may resist a resurgence. Therefore, it’s important to have safe guards such as performance reviews, periodic evaluations and succession plans.

So, what makes an effective board?

Boards are vitally important to organisations, but I am yet to find the perfect one! However, from my experience, serving on several boards and advisory boards for different types of organisation – including large family businesses, NFP’s and international corporations – there are common characteristics that transcend each stage of a boards life cycle and in the transitional periods, which are found among the most successful businesses, including:

  • A good chairperson
  • Strong understanding of the business model
  • Clear KPI’s and quality exporting
  • Excellent policies
  • Management present periodically
  • Strategic involvement
  • Appropriate meeting duration

Overall, it’s crucial to focus on composition, skill set, and strategic direction of a board, which can drastically impact performance.

The right composition and skill set

Getting board composition right is critical and it should represent all stakeholders. A suitable mix of retirees and active business people / a balance of executives and non-executives is preferable as well as a board with a composition that embraces strength of character, diversity and independence. Other things to consider are whether to have a member versus consultant and independent board members.

The best boards have complementary skill-sets and it’s also wise to have a board member with relevant industry experience- a been there, done that person. Don’t rule out asking busy business people! Generally, I have found they want to share their knowledge and can be influential board members.

Strategic direction

If the board type lags, then it’s the wrong board for the organisation. Whatever the type, style, and size of the board, it must stay ahead of where the business is currently operating and also be constantly thinking about what is needed. However, this evolution does not necessarily mean bringing in new people over time, but instead having directors who can grow and develop ahead of the business.

 How can a CFO help?

Don’t underestimate your skill in knowing financials. In my opinion, it is the most valuable skillset – other than those relevant to the business operations itself. Furthermore, many board members do not fully understand numbers. A CFO can bring a different perspective. They understand the business, they understand the risk and they can see the future. Do not underestimate your importance.

In my experience, CFO’s hold back in proffering opinions, thinking ‘it’s not my place, I am not a board member.’ This is a big mistake. The worst characteristic a board can have is “group think” a room full of all yes or all no people. Don’t be afraid to share with the board your view.

My three tips for engaging with a board are:

  • Strive for efficiency – keep information brief.
  • Be complete, be clear in your decision and give options.
  • Don’t ask a board to make a leap of faith – lead them along, take them on a journey.

What now?

Think about your interaction with your board – is it where it should be or could be?

Are there changes requiring and you can help?

It may just be time to have a quiet word in the appropriate ear to deal with issues!

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