The role of the FD and its power to influence the board
12 min read
09 March 2015
With every company comprising an executive team with different backgrounds, dynamics, cultures and strategies, it's fair to say the role of the financial director is unlikely to be the same at two businesses. As such, during our Real FD Live event, we looked at the position of the FD and the often underestimated power that comes with it, exploring how those in the role can bring out the best in their boards.
Most British workers have admitted that they tend to use their smartphones during meetings to visit Facebook, Twitter and other social media channels – even our Real FD Live panel joked that board meetings can be the least enjoyable part of the job, providing the opportunity to catch up with online shopping.
So on the subject of making the board tick, Brian Muirhead, director at Foxley Consulting, said: “A board is a team and like all teams there needs to be an effective team dynamic, and the boards that I’ve sat on have varied extensively. They’ve been most effective when all the people in the room are together for a common purpose, and where nobody takes a strong view that they should be dominant in the team. Environments where the board views itself as a committee that gets together to second-guess what the executive management is doing. I think that can be very negative.”
He added that the CEO and CFO, which are usually the executive management team, should look to work together and enter the meeting with a clear agenda and unified purpose of discussion and how they want it to move forward. “They use the expertise and resources of the other board members, and then those other board members deploy the expertise in a way that’s supportive of the management that doesn’t attempt to overrule or overpower,” Muirhead explained.
“It’s a difficult balance to get right, particularly with non-executive directors who often have very senior roles and are very knowledgable in their own right, and it will require restraint at times in reigning back their interference. But it’s also incumbent on the executive board to push back at times when non-execs are more interfering than would be desirable.”
In keeping with the topic of the key to a FD and CEO relationship, Equity FD founder Sarah Hunt, said: “I think it works best when there’s a real peer-level respect and that it’s an actual team with complementary skills – you need to have the same agenda and business focus, so if the CEO goes under a bus, the FD could pick the reins up.
“I’m not suggesting you need a wannabe chief executive, but somebody that has that breadth of business mindset. This is about the business, not finance – it’s about being the other part of that executive team when it’s a righthand man or woman to the chief exec. Often that is when skills are different. Often businesses are at different stages and it can be quite tough at times to get a chief exec to see they do need somebody with a different background, someone that can help take the business from where it is now to where it wants to be – not just somebody that supports the same football team. I think the FD can help put the structures and processes in place, scaffolding if you like, for the future – so different experiences to the maverick chief exec to help grow the business.”
With such strong thoughts about the role of the FD and how those in the position can be different reflection to the CEO, the debate moved on to the things that should be discussed during FD job interviews, though Hunt explained that the idea of “interviews” should be replaced with “meetings” at such a high hiring level.
“It is about sitting down together and talking about ‘are we going to be a good team to take this business forward’, rather than ‘do we like each other’. It’s an incredibly easy, human thing to do and think ‘oh I really like him, we got on great’ but, actually, how are you going to get on when it’s not great?” Hunt reasoned.
“I would very much encourage discussions around failures. Get people to talk about how they’ve dealt with things that have gone wrong, not just about how great it’s been. I think having meetings, not interviews, and not recruiting in your own image, is very important in either direction.”
She explained that a lot of companies, particularly the young tech businesses haven’t had a financial partner before, so will need to understand what that will feel like. With meetings, and even an invite to make a presentation to the board will be beneficial for everyone involved in the recruitment process.
“It’s great from a business perspective to see how this person will work, but also it’s great from the FD’s perspective, it’s the nearest they’re going to get to seeing how it will be in real life” Hunt said.
“Recruitment is a flawed process, you don’t know how it’s going to be until you get there and that’s the closest you can get. You can see how the presentation goes, how it feels, how the board reacts to what you’ve got to say and I think that’s a really crucial part of the process.”
Next, a look at the time a CFO overpowered the CEO and why a financial background makes for a natural path to become a chairman.
Looking at the varied power an FD can possess, Muirhead admitted he’s among a small minority of CFOs that have dismissed the chief executive. “He was a fascinating character who managed to hoodwink a number of partners of private equity firms, and the selection committee of the conservative party to get onto the local council. He was incredibly persuasive in terms of raising money and building relationships.
“We were a small business and it was a classic case of a chief executive in a big corporate environment who had been very successful, but very out of his depth running a small company. We spent all of the equity funds in the first 12 months of operation and were running against all sort of horrible banking covenants, and we had subtly and painfully agreed with the individual that he had to go in such a way that didn’t upset our business environment.”
With such a demonstration of how the role can differ so greatly, and that the CFO can be placed in such a higher position for strategy, Muirhead said that still isn’t the case in many companies. “I’ve certainly had many situations where as soon as I get off the numbers in a pure finance role, I get a very definite sense that ‘that’s interesting, but that’s an IT matter so lets leave it to someone else, Brian’ and then there are other boards where my views are actively considered in other areas.
“I think it’s a shame when finance directors are pigeon-holed into pure financial aspects. I always push, wherever possible, whether that’s sales remuneration plan, IT strategy or something else not in my professional section, to have an input in it because I’m a board director. That can move the debate and you don’t just end up rubber stamping what the chief exec has said.”
Seconding Muirhead’s desire for more breathing space in the role, Hunt added: “In quite a lot of businesses we’re looking at, a lot does come under finance, as they’re responsible for IT, HR and the broader piece, but fundamentally if you’re going to be the FD in a business you’ve got to be strategic. Cash is strategic, it’s part of the strategy, the exit value is what you’re going to be driving, so I think if you’re not strategic while also being hands-on you’re probably in the wrong slot.”
Looking at what makes a good chairman, Cindy Casciani, founder of Equity Chair, commented that excelling in communication skills is important. “A good chairman should lead the board and enable everyone around that board to participate in ensure you’re driving strategy for the business. He should make sure there’s a strategy in place and an executive team that’s able to deliver the strategy, she said.
“If you have a chairman that can’t get everyone to communicate, then clearly it’s not going to succeed. There are lots of facets of a chairman and it can be quite a difficult role when what you’re trying to do is mentor the management team, drive strategy and balance the investors.”
Further elevating the importance of the FD, Hunt added: “We talk about FDs making good chairmen. They’re used to having to get stuff done without necessarily being the person that can tell people what to do, and it’s quite a nice skill for a chairman to be persuasive rather than dictatorial. You don’t want to be spending weeks trying to get away from the stride and views of the chairman, so for FDs it’s a natural progression.
Casciani concluded: “It’s a smoother transition for an FD to become a chairman that it is for a CEO, because a CEO is often a person that can make that ultimate decision whereas a FD or CFO will have to work through the CEO, non-execs and chairman to get decisions made. “It’s probably someone used to not necessarily getting the credit for judgements, and that’s a key function of a chairman, someone who’s prepared to be an unsung hero and not be credited for decisions. In fact, they’re there to facilitate decisions.”