The appetite for CFOs to participate on corporate boards is increasing.
Seventy-nine per cent of CFOs are experiencing increased demand for their expertise on corporate boards, according to an Ernst & Young survey of 800 global finance chiefs. CFO and Beyond: The Possibilities and Pathways Outside Finance communicated the results of the survey and a study of 347 companies worldwide with annual revenue over $5 billion.
Current or former CFOs make up 14% of board members of the companies studied, up from 8% in 2002. And 41% of audit committee chairs are current or former CFOs, up from 19% in 2002.
The desire on the part of CEOs to have finance professionals look beyond their functional silo to collaborate effectively on strategic decisions was revealed in the CGMA report Rebooting Business: Valuing the Human Dimension. Those same skills are sought by corporate boards, and CFOs are supplying them.
Jim Ladd, CPA, CGMA, senior vice president of finance and operations at the Institute for Systems Biology in Seattle, estimated that he has served on about 18 boards during his career. His current board responsibilities include an audit committee role for a New York Stock Exchange-listed company, a lead independent director position with a privately owned company in Seattle, and participation on two not-for-profit boards.
He said finance executives can contribute a lot to boards.
“They’re generally sought out initially because of finance background and a knowledge of financial reporting and audit risks and that sort of thing,” Ladd said. “But CPAs have a broader background than that. And people discover that.”
Audit committee a good fit
Finance skills make CFOs ideal candidates for audit committee positions. In many jurisdictions, regulatory requirements demand that at least one audit committee member have financial expertise to keep abreast of evolving accounting standards, risks and regulations.
Public companies listed in the United States, for example, must disclose whether they have at least one financial expert independent of management on their audit committee. The United Kingdom’s Corporate Governance Code says a board should satisfy itself that at least one audit committee member has recent, relevant financial experience.
This can be a benefit and a frustration to CFOs. Eighty-one per cent of them say finance leaders are good choices for audit committee jobs because of their finance acumen. But CFOs want to make sure their skills in strategic development and other areas are recognised, too.
“Some of them can be a little insulted that the breadth of their experience as CFO is not necessarily recognised,” Gerard Dalbosco, an E&Y managing partner, said in the report.
Opportunity to branch out
Although CFOs already have busy jobs, about two-thirds of them reported that they have taken on, or would be willing to accept, more part-time, voluntary or non-executive roles. Twenty-seven per cent said they already have taken such a role, and 40% said they haven’t yet, but would be interested in doing so.
Scott Lampe, vice president and CFO of Hendrick Motorsports in North Carolina, serves on a few community and government boards and said he is willing to consider working on boards of companies that don’t have a lot of risk and are looking to grow organically. “I want to work with companies who share my philosophy about how a business should be run and what kind of contribution it can make in improving the communities is operates in,” Lampe said.
What do CFOs reap from serving on boards? Three-quarters of survey respondents said gaining general management or board level experience is a benefit. Other top benefits included gaining exposure to another company or industry (65%) and getting a different perspective on running an organisation (62%).
“You get to look beyond the purely financial and think more strategically about a different organisation,” Qatar Foundation CFO Faisal Al-Hajri said in the report. “You can also use these roles to play a broader role in society or the community.”
Serving on charitable and community service boards also gives CFOs an opportunity to give back to the community. Mick Armstrong, CPA, CGMA, recently agreed to serve as treasurer on the board of directors of the chamber of commerce in Meridian, Idaho, where he is employed as CFO of Micro 100 Tool Corp.
“We as a company are committed to the community and realise that just our business environment, the quality of life for our employees, all is wrapped up together,” Armstrong said. “So we choose to be involved in the community.”
Protection from liability
Ladd said a key question any potential board member should ask before considering a seat on a board is whether the organisation carries liability insurance for its directors and officers. He said risk exists even at not-for-profit organisations, so board members should make sure they are protected.
In addition, Ladd said, it is important to make sure you are working for an organisation that supports your involvement on an external board. And you need to have the time and energy to fulfil your board duties in addition to your regular job.
Armstrong, for example, said his duties as chamber of commerce treasurer are made easier by Micro 100’s recent hiring of an accounting manager with a public accounting background. As Armstrong moves toward more of an executive leadership role with his company, this distancing from Micro 100’s daily accounting activity also has helped him find more time – early in the morning, at lunchtime and on weekends – to devote to his board duties.
Ladd said he does a lot of his board work during evenings and weekends.
“I sometimes joke with my wife when I come home at night that I’m starting my second job,” Ladd said. “…But most of the meetings are during the day, so you do have to have an understanding employer. That puts some strain and requires extra time in your life. There is no doubt about that.”
—Ken Tysiac (email@example.com) is a CGMA Magazine senior editor.
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