CEO and the CFO
Relationship
Gordon Bietz
Beyond the Bottom Line
March 30-31, 2015
CFO
CEO
How Often Do You Find Yourself at
Cross Purposes with the CEO?
1.
2.
3.
4.
5.
Always
Frequently
Now and Then
Rarely
Never
The days of the one-dimensional CFO number
cruncher are long gone. CEOs of leading
companies almost uniformly agree that they
want a CFO who can help them manage the
business, complement their skills, think
strategically, and offer leadership, while still
providing all of the requisite financial skills. It’s a
tall order – made even more difficult by the
complex relationship with the CEO that this
changing role entails.
Tension
This inherent tension at the heart of the
evolving CEO/CFO relationship emerging in
leading companies makes the relationship like no
other. It is closer than the arm’s length
mentoring/monitoring relationship between
independent board members and the CEO.
Tension
At the same time, it is more distant than a
partnership of equals.
Even “business partnership” – suggesting explicit
contractual boundaries and spheres of operation
– fails to encompass the subtle skills involved in
managing the relationship.
Managing the Evolving Relationship between the CEO and the CFO
Egon Zehnder International
Ellen White
“Brother Maxson, you have felt at liberty to
choose your own men for the board of
directors. If there were those whom you
thought would stand in your way and oppose
your plans and suggestions, you would try
changing them, putting them out, to secure a
board without them.
Ellen White
The very ones who would move discreetly,
cautiously, who would consider your
propositions, and if they saw the result of your
plans meant more money out would oppose
your ideas, you have managed to prevent from
acting a part. {20MR 108.5}
I counsel you, both husband and wife, to give up
the financial management of the institution. Let
this burden rest upon a carefully selected board,
not chosen through your influence but by the
judgment of those upon whom the responsibility
rests. Let these directors wrestle with the
problem of bringing the expenditure of the
institution within the income, and there will be a
binding about of the business transactions. The
business will not be run wildly in accordance
with your mind and your wife's mind and your
brother's mind. {20MR 109.1}
Nepotism
• How many of you are aware of situations
where nepotism, family influences, have been a
problem in church institutions?
1. I am aware of such a situation now.
2. I am aware of some such situations in the
past.
3. I am not aware of any problems of nepotism.
Ellen White continues:
I may not express this in a way that you shall
understand, but I will try to make it plain. You
should have been employed with the full
understanding that the institution was to be
under a faithful superintendent other than
yourself. {20MR 109.2}
From the first you have exercised too much
control in all the business matters, and you have
not the capabilities to be a wise manager. {20MR
109.3}
Question
How Many of You have Served a Leader who
did not have as Ellen White said: “the
capabilities to be a wise manager.”
1. Yes
2. No
3. Abstain
Successful Administrative Team
Discussion
• What are the
major causes of
disagreement
between the
CFO and the
CEO?
You
have
Two
Minutes
You
have
Three
Minutes
One
Minute
Time is up!!!!
14
What Is the Most Significant Reason
for Differences of Opinion?
1. Genuine differences about the mission.
2. Lack of close communication.
3. Difference of opinion about how much
money a project will cost.
4. The CEO’s lack of understanding of ROI
5. Power struggle between the CFO and CEO
Conflict Resolution
Matthew 18:15–17 (The Message)
“If a fellow believer [worker] hurts you, go and
tell him—work it out between the two of you. If
he listens, you’ve made a friend.
If he won’t listen, take one or two others along
so that the presence of witnesses will keep
things honest, and try again.
Matthew 18:15–17 (The Message)
If he still won’t listen, tell the church [HR
Department/supervisor]. If he won’t listen to
the church, [HR Department/supervisor] you’ll
have to start over from scratch, confront him
with the need for repentance, and offer again
God’s forgiving love.”
The Boat Trip
Imagine that
we are in a
boat together
and suddenly I
look over and
see a hole in
your end of
the boat.
19
The Boat Trip
What is my
response?
“You have a
problem!”
No
“We have a
problem!”
20
Communication
On Average how often do you and the CEO
talk when you are both in the office?
1. Multiple times a day
2. Daily
3. 2 to 3 times a week
4. Once a week
5. Less than weekly
Communication
Mixed Signals
Discussion
What techniques
do you use to
make sure that
you and the CEO
have good
communication?
You
have
Two
Minutes
You
have
Three
Minutes
One
Minute
Time is up!!!!
25
On a Scale of One to Ten How Much
Influence do You Feel You Have in
Decisions with Financial Impact.
1
No
Influence
10
Veto
Influence
Leadership Is Influence.
• The lowest form of that influence is the
influence you have because of a title or a
position.
• If your influence depends on the location of
your office or the location of your box on the
organization chart than your influence is
probably minimal.
•
John Maxwell.
27
Successful leadership is
serving others so they can
reach their goals rather
than feeding on others so
we can reach our goals.
28
Question
Is the CFO is the first person to whom the
CEO turns for a second opinion or for a noholds-barred discussion of a burning issue.
1. Yes
2. No
Andrew Halford,
CFO of Vodafone.
“To me the CFO role is very much that of the
right-hand person to the CEO and therefore the
personal chemistry is extremely important,”
says “If that works, I think it can be a very
powerful combination.”
The Role of the CFO
• Collaborative Independence
– Maintain independence
– Maintain collaboration
• Are these contradictory?
The CFO Relates to The Board
“The goal for CFOs should be to provide
director education that anticipates emerging
issues, provides relevant background
information and avoids unnecessary surprises.
This includes orientation, a continuous update
process for recurring items, and special
education on unique issues.”
What Boards Should Expect from the CFO, Hugh Lindsay, FCA, CIP, Project direction by Gigi
Dawe, Principal, Risk Management and Governance, CICA
The CFO Relates to The Board
• “Providing transparent data is not enough –
there also has to be some ability to convert
the data into actions...”
– Special relationship: the CEO/CFO partnership Michael Hawker - CEO - Insurance
Australia Group
An Illustration
Balancing The Relationship Between
the CFO and the CEO by Bill Dee
The CFO of a $300mm leveraged business
expressed his concerns to the CEO that a
recent bolt on acquisition could not be
successfully integrated as originally conceived.
For reasons recently discovered the deal would
continue to be a major consumer of cash while
the company’s core business softened.
An Illustration
The CEO remained optimistic and assured the
board, comprised of private equity investors,
that the business would deliver it’s forecasted
EBITDA.
In preparation for his financial briefing to the
board, the CFO created two cash flow charts.
One under the CEO’s most favorable scenario,
the other under more stringent, but realistic
conditions, based upon current market
conditions. The investors were quick to
understand the gravity of the situation and
within a week collectively persuaded the CEO
on an immediate down sizing of the business and
the sale of a non-core division to raise cash
before banking covenants were breached.
How Would That Scenario
Play Out in Your Institution?
1. The CEO would be grateful for the guidance
of the CFO.
2. The CEO would try to fire the CFO.
3. There would be a break down in relationship
between the CFO and the CEO.
4. The Board would begin to question whether
the CEO should be leading the organization.
Independence
Further, it is often the CFO who must act as the
hard-nosed realist in the face of financially
unwise or even reckless corporate strategies,
policies, or behavior. Says Citi’s Crittenden,
“When you are a CFO, you have to be tough;
sometimes you have to be really difficult, and
you have to insist on performance, and you have
to draw the line.
Independence
There has to be someone inside the company,
like one of the parents in a family, who has the
ability to say, ‘No!’” Nevertheless, he says, there
is an art to saying no in a way that strengthens
rather than destabilizes the relationship with the
CEO.
Independence
For many CFOs – and the many financial
executives who aspire to this more rewarding
role – the real challenge will lie not in acquiring
the expanded business ability but in successfully
managing that relationship.
•
Managing the Evolving Relationship between the CEO and the CFO
How Often Have you Had to
Publically Oppose the Position Taken
by the CEO?
1.
2.
3.
4.
5.
Always
Frequently
Now and Then
Rarely
Never
Strategic Planning
Strategic plans
that are not
acted upon
constitute
wasted
time
Strategic Planning
Working on Strategic Planning
• Working on the budget is a perfect time to
discuss the strategic plan and its priorities
• “The budget is the strategic plan in financial
terms”
– Wayne Vandevere
Planning
• Seneca said, “when you don’t know what
harbor you are headed to any wind is a good
wind.”
To fail to plan is to plan to fail.
47
How Often When There Is Not
Enough Money For An Initiative Or
Project Is It Said,
“We’ll Raise The Money?”
1.
2.
3.
4.
Never
Rarely
Regularly
Always
Some Key Conclusions From
CEO Roundtable
• Participants generally agreed that the CFO
provided immense value to them and the
organizations that they serve.
• Over a longer term, it may be realistic to
expect that the value of the CFO depends not
only on the industry and the company; but
also on economic cycles. CFOs are much
more valued when businesses are facing
economic difficulties.
Some Key Conclusions From
CEO Roundtable
• CFOs will need to have a close and cordial
relationship with the CEO and other
stakeholders and not be a ‘destabiliser’. He or
she has to support the same vision as the
CEO.
• It was noted that the term ‘CFO’ has often
been used casually to apply to persons who
do not necessarily perform the CFO role.
Some Key Conclusions From
CEO Roundtable
• It was felt that the CFO should be consulted
early even in areas that, at the outset, do not
appear to require him to be involved, e.g.
procurement and other operational activities;
in order to identify and manage the financial
implications and effects.
– A Singapore CFO Institute-ACCA Roundtable Discussion commissioned by
the Singapore Accountancy Commission - October 10, 2012
What I Want From My CFO
• A clear picture of the financial situation as it
appears over time. Spend time with me to
explain the financial statement.
• Conservative approach, but not too
conservative. (Initiative money)
• Careful review of my expense reports
• A picture of the landscape of trends in the
business.
• Benchmarking with similar organizations