Leadership

How CFOs Can Prevent Board Blowups

Your CEO was so excited about a new opportunity he forgot to prepare the board. That was bad for him, bad for the company, and bad for you. Here’s ...
Robert SherJanuary 29, 2013

Few missteps can erode a CEO’s credibility faster than a board meeting in which directors shoot big holes in a sketchy growth proposal. The CFO can play a powerful role in gaining board support for a CEO’s growth concept. 

Too often CEOs fall in love with their ideas, and then present them to the board without giving enough thought to how it will react. These CEOs typically fail to give the board the full context behind the growth idea whether it’s an acquisition, a potential new product, or a possible alliance. Facts are as scant as million-dollar lottery winners.  Asked to consider a proposition they can’t possibly appreciate, directors hammer the ideas and the people who brought them.  Many great ideas are lost as a result, along with executive credibility.

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Consider the case of a $22 million IT-security software company. One of the firm’s largest customers asked it to customize a core product, even offering a generous fee that would have paid for underfunded research-and-development work. The software company’s cash-hungry CEO was eager, and the project seemed like a no-brainer. But when he pitched it to the board without notice or diligence, they balked, worrying about resources, as well as the mysterious (to them) customer. Relationships were damaged.

CFOs are in an excellent position to make sure these board meetings don’t blow up. Whether an idea to jumpstart growth comes from the CEO, product development, or any other source, that idea must stop at the CFO’s desk before the CEO presents it to the board. The CFO’s role: make sure the financial forecasts of a sought-after acquisition, new product launch, strategic alliance, or other money-making idea are well supported, and that the board isn’t caught off-guard.

The CFO’s role here goes way beyond financial calculations and modeling. The CFO needs to think of her role as initial judge and jury. That means playing three parts: skeptic, emissary, and presentation consultant.

Your first role is skeptic. Don’t let internal discussions about a new scheme get too far before you step in. Explain to top management that you will challenge all its assumptions, just as the board eventually will. Ask questions about the source of the data, competitive threats, technological feasibility, and more until you’re convinced the team has thought it through. Do your own homework so you’re convinced as to the viability of the opportunity.

Once you’re reasonably convinced, you become the emissary. This means you can advance the CEO’s interests by shopping the concept. With your CEO’s permission, hold one-on-one meetings with key board members, delivering the draft board presentation in a dress rehearsal. Talk just enough, but mostly listen.

Probe the board members for their concerns. Go beyond the numbers and absorb the directors’ feedback about all strategic and tactical issues. Your first job as emissary is to surface objections so that the CEO can adjust his presentation. The next job is to seed the idea so board directors can catch up to management’s thinking and, perhaps, begin to share its enthusiasm for the idea.

Seek out board members who are both friendly and influential with other board members. Talk with one to three members about a week to 10 days before the board meeting, allowing just enough time to revise the presentation, but not enough time to lose control of the discussion.

Within an hour after each meeting, write down your thoughts and reactions. Now you’re in presentation-consultant mode. Most CFOs are skilled at capturing accurate and unbiased data (something some CEOs are less good at). Bring that information to your CEO so he can revise his presentation.

Thanks to your efforts, your CEO’s board meetings will go much more smoothly. More of his projects will be approved. Better still, incorporating the thinking of board members into the plan is likely to produce better business results.

Not sure you can fill these three roles? Your modestly becomes you. But let me see if I can convince you that you are up to the tasks.

Most CFOs are instinctively risk-averse and adept at pinpointing weaknesses in business arguments. CFOs are also good at separating facts from wishes, and as such make great counterbalances to passionate, optimistic CEOs. These traits make you a good skeptic.

The board expects the CEO to have an abiding passion for growth. It expects the CFO to be skeptical about new ideas. This makes you a perfect emissary. That, and the assistance you can offer your CEO in building a business case, will allow him to be more confident in approaching the board.

Here’s an example of excellent CFO/CEO teamwork at a high-tech venture-backed $80 million revenue firm. The CEO wanted aggressive growth, but knew that key investors wanted to achieve profitability for a quick exit by being acquired. The CFO stepped in and modeled focusing the growth efforts in one key area while achieving breakeven within a year. He met with individual board members and then crafted a dual-track strategy for both initial public offering (big growth) and mergers and acquisitions (short-term exit) that the board accepted. The company stayed on plan, and were bought pre-IPO at an excellent multiple.

CFOs can and should play a significant role in building board support for the CEO. They can help by building rock-solid business cases, by previewing them with key board members to collect feedback and earn buy-in, and by delivering feedback to the CEO before board members cast their votes. CFOs who do this well will do their companies and their careers a big favor.

Robert Sher is the founding principal of CEO to CEO, a consulting firm of former chief executives who work to improve the skills of mid-market-company CEOs and C-level executives navigating major shifts in their business or marketplace.

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