CEO and the CFO Relationship

Gordon BietzBeyond the Bottom Line

March 30-31, 2015

CFO CEO

How Often Do You Find Yourself at Cross Purposes with the

CEO? 1. Always2. Frequently3. Now and Then4. Rarely5. 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 CFOEgon 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. Yes2. No3. Abstain

Successful Administrative Team

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You have Three MinutesYou have Two Minutes

Discussion

• What are the major causes of disagreement between the CFO and the CEO?

You have One MinuteTime is up!!!!

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

ROI5. 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.”

19

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.

20

The Boat Trip

What is my response?

“You have a problem!”

No “We have a

problem!”

Communication

On Average how often do you and the CEO talk when you are both in the office?1. Multiple times a day2. Daily3. 2 to 3 times a week4. Once a week5. Less than weekly

Communication

Mixed Signals

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You have Three MinutesYou have Two Minutes

Discussion

What techniques do you use to make sure that you and the CEO have good communication?

You have One MinuteTime is up!!!!

On a Scale of One to Ten How Much Influence do You Feel You

Have in Decisions with Financial Impact.

11 10

No Influence

VetoInfluence

27

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.

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Successful leadership is serving others so they can reach their

goals rather than feeding on others so

we can reach our goals.

Question

Is the CFO is the first person to whom the CEO turns for a second opinion or for a no-holds-barred discussion of a burning issue.1. Yes2. 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 IllustrationBalancing 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. Always2. Frequently3. Now and Then4. Rarely5. Never

Strategic Planning

Strategic plansthat are not acted uponconstitute 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

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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.

How Often When There Is Not Enough Money For An Initiative

Or Project Is It Said, “We’ll Raise The Money?”

1. Never2. Rarely3. Regularly4. 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