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Directors with finance expertise often form bonds with the CFO.
CFO Staff, CFO Europe Magazine
November 5, 2007
Even the best of us can use some coaching. In the CFO suite, that often comes from the finance expert serving on the company's board of directors.
With 17 years' experience as a CFO, Earl Fry, finance chief of California-based Informatica, acts as mentor to his compatriots at the two companies on whose boards he sits. In dealing with Central Pacific Financial's Dean Hirata and Xactly's Steve Wong, says Fry, part of his responsibility is to help "develop their skills through an open relationship and offer them a non-threatening arena" for testing ideas.
"It's comforting to deal with someone who's in the same shoes and faces very similar issues," says Hirata, who is also vice chairman of Central Pacific Financial, a bank holding company.
Fry must often direct his attention to special needs that require the help of a director with finance experience. As a director of Xactly, for example, he provided Wong with an alternative viewpoint during a recent round of venture-capital negotiations. "I was able to help the CFO by [telling him] what kind of input he needed to get from the venture firms, and explaining how I would deal with venture firms," Fry recalls. "Since most of the other board members were from venture-capital firms, they might not have been as objective." The financing round closed successfully in April, he says.
In addition to formal communications — Fry is on Central Pacific Financial's audit committee — he uses impromptu phone calls and casual lunch and dinner meetings to keep in touch with Wong and Hirata.
Lorraine Hack, a financial officer recruiting specialist at Heidrick & Struggles and a former CFO, thinks that the development of a coaching relationship between a board-member CFO and the company's finance chief is among the better outcomes of new regulatory requirements such as Sarbanes-Oxley. The requirement for boards to seek outside finance experts, who are often finance chiefs at other companies, introduces another finance voice for management to consider. In that light, a rapport between the company CFO and the finance-trained director is "absolutely essential," she says.
Hack prefers that approach to the model in which a strong-willed outside director clashes with the management's finance leader — a relationship most companies would rather avoid. Of course, directors have a responsibility "to play devil's advocate and probe and push management on issues," she acknowledges. "But there's really no downside to having a good relationship between a board member and the CFO." (Informatica's Fry says there is occasionally a difference of opinion at the two companies he serves, but that he tries not to forget that "it is management that is running the company.")
Beyond major disagreements on issues, says Hack, the greatest barrier to achieving the kind of informal, collegial relationships she recommends is simply a lack of time — board members and management are often too busy to develop close working relationships.
Nonetheless, most corporate finance chiefs say they benefit greatly from the presence of a CFO on the board. Jean-Yves Dexmier, CFO of California software provider Openwave Systems, joined the board of nearby online tech company LookSmart, in April. He and LookSmart CFO and COO John Simonelli have been meeting for breakfast about once a month, tossing around business ideas, catching up on sports and discussing their families.
"In the past, LookSmart's audit-committee chairs have been the de facto finance experts" — and only that, says Simonelli. But Dexmier's approach, Simonelli adds, "leads to better discussions at the board level because we've already hashed things out and arrived at an appropriate conclusion."
After seven years on the board of another Californian software firm, Symantec, Google CFO George Reyes has grown so close to Symantec CFO James Beer that they can almost finish each other's sentences. Reyes also has been a director of BEA Systems for four years, although he doesn't have quite that intimate a relationship yet with the San Jose software company's CFO, Mark Dentinger. But Reyes, who will remain on the two boards when he retires from Google later this year, is aiming to build the same kind of closeness at BEA. "Although there are different disciplines within each company board," he says, "in the end, we come together to provide the counsel and advice the companies need."
Advantages Both Ways
Finance chiefs serving on other boards sometimes bring home useful lessons as well. Through his board seat at Xactly, for example, Earl Fry gained deeper insight into the on-demand software business, which helped Informatica in its launch of a software operation in 2006. The board relationship, he says, "gave me a broader view of the software industry and of financial services-specific business needs."
For finance chiefs who have moved on from executive life, a non-executive role can help retain a link to business. Richard Aitken-Davies, former CFO of the UK arm of electricity company Powergen, holds a couple of non-executive directorships, one of which is with Pinnacle Staffing Group, a health-care staffing company listed on London's AIM. For the past 15 months, Aitken-Davies has been guiding David Laing, Pinnacle's 37-year-old finance director, who is new to running the finance function of a listed company, particularly in terms of issues around complying with stock exchange rules and investor relations.
That's ideal for Aitken-Davies, who needs to stay in touch with the markets as part of his role as deputy president of the Association of Chartered Certified Accountants (ACCA) — a global accountancy body. "The benefit the non-executive role brings to me is that I can speak to my ACCA colleagues — most of whom are still in full-time executive roles or full-time employment — and our wider membership with much more credibility," says Aitken-Davis. "It shows that I'm still engaged in business life."
Along with markets-related advice, compliance is another area in which finance insight is welcome. It's something Frederick Ball, CFO of Silicon Valley video-networking provider BigBand Networks, has noticed while serving on the board of high-tech manufacturing-equipment maker Electro Scientific Industries and talks with its finance chief John Metcalf at least once a month. "I often call just to catch up," Ball says, and the sense of camaraderie "really drives the relationship."
When Metcalf makes presentations on oversight issues, such as Sarbox-required accounting controls or risk management, Ball works with him to help the Electro Scientific finance team understand and implement the audit committee's recommendations. In general, Ball says he "tries to work in support of the finance department and help the rest of the general board understand." He also helped Metcalf and Electro Scientific's management team prepare a recent stock-buyback programme — something BigBand had done not long before.
Ball knows, however, that dealing with another CFO is not all about giving advice. "Listening is just as important," he says. "CFOs get there because of a lot of hard work, so if you lecture to them and state the obvious, you're not going to impress anyone."
Also, it's important not to cross the fine line between the duties of an executive and non-executive director. "I will give guidance and advice but I won't actually try to do the job," says the ACCA's Aitken-Davies. He reckons his relationship with Pinnacle Staffing's Laing is so good — they're in touch by email, phone or in person at least once a fortnight — because Laing "realises I'm not a threat to the way he wants to do his job." If you can get that across, says Aitken-Davies, "they look to you as somebody who's actually there to help, not to catch them out."