Instead of engaging in only the passive role of reporting, chief financial officers are expected to do a lot more: provide data and analysis to the board; help to structure the strategy of the company; and drive financial performance through improved information and decision-making.
But to be successful, the CFO has to function well alongside the CEO. The pairing doesn’t always work, but when it does it can be a force multiplier for an organization. What makes for an effective CFO-CEO relationship?
Catriona Fallon, former CFO of Silver Spring Networks and now a senior vice president at Itron, the company that acquired Silver Spring, is answering that very question at CFO’s upcoming FP&A for High-Tech Summit on May 8-9.
Her presentation, “Leading from the Two-Seat: Improving Decision-Making in Challenging Circumstances,” will address the CFO-CEO dynamic. In an interview with CFO, she provided a preview.
Ultimately, the decisions lie with the CEO. In order for the CFO to have influence, there needs to be trust and an understanding of true integrity. Both [CEO and CFO] are facing the same direction with the same objective in mind: improved performance and a fiduciary responsibility to shareholders.
Typically a CEO is going to see the opportunities and the potential. They’re going to be very optimistic and they’ll want to just go for it. They want the deal done, they want to sign the partnership, they want to go, go, go. The CFO needs the ability to balance that optimism with realism and with an assessment of risk.
I believe that [between the CEO and CFO] there’s both a professional relationship and one that’s more personal. The former comes from delivering good work, but the personal relationship means, for example, if we’re stuck at an airport for five hours we’re going to have things to talk about; we actually like each other. That way, if we have hard news to deliver to each other it’ll be okay, and we’ll get through it.
It makes sense to spend time developing that personal relationship. That’s how trust is built over time. If you’re a new CFO, put in the time and know that you’re there to help the CEO. Figure out what he or she needs, what their blind spots might be, what their strengths are, and figure out how they like information presented to them. Do they prefer email, presentations, or phone calls?
When it comes to planning and budgeting, it is important to have alignment on the goals: financial and organizational. An optimistic CEO may “forecast” 20% growth, which would require a certain resource allocation. If the growth is not achieved, then excess hiring could hurt the bottom line and the company’s cash on hand. In that situation, the best solution may be to put in checkpoints so that [the executive team] is watching for the signs that [the organization] is off track and [needs to] make changes.
The CFO reports to the CEO, but the CFO also has a fiduciary responsibility to the shareholders, and therefore, the board. They sign the financial statements and certify their accuracy, and it is their duty to portray accurate forecasts to the leadership team and the board so that both can make informed decisions. … If a CFO is not allowed to communicate with the board, then it may be time for them to move along.
If there’s a message it’s that the best CFOs have their compasses facing “true north,” meaning focusing on fiduciary responsibilities and making ethical decisions one hundred percent of the time. True character is at the top of the list when looking for a CFO: someone who gives their mind and viewpoint, but is also able to read a board and read the executive team and figure out how they can add value.
Catriona will be presenting at the FP&A for High-Tech Summit on May 8-9.