|Global Knowledge Gateway||
Finance Leadership & Development
Should a CFO be a Board Member?
by Stathis Gould, Head of Professional Accountants in Business and Integrated Reporting, IFAC | January 6, 2014 |
A critical determining factor of the status of a chief financial officer (CFO) is how they are positioned within his/her organization. Another is whether a CFO is a professional accountant. Examining status through these two lenses can give a sense of how strong the financial management and control of an organization is. (see “Should a CFO be a Professional Accountant?” for additional information).
The perceived status of CFOs within organizations very much depends on positioning. In some countries, industry sectors, and companies, the status of a CFO as an organizational leader is more prominent than in others. CFOs should occupy a senior management position or be a member of the board but this is not always the case.
In some jurisdictions as part of a unitary board structure, the CFO is a director of a company with statutory duties. For a unitary board composed of both executive and non-executive directors with the CFO appointed to the board as a fiduciary director, there will be an additional dimension and purpose to their role.
A CFO serving as a fiduciary director has duties governed by specific legal requirements, such as ensuring the company is accountable to shareholders, and as part of ensuring sustainable value creation, they should take into account wider stakeholder interests.
However, in some jurisdictions because of different institutional governance arrangements and cultural norms, CFOs are not necessarily directors of a company with corresponding fiduciary responsibilities. For example, in the US, the number of CFOs who are directors of their own boards is in decline, reflecting a general trend for greater board independence with the chief executive officers (CEOs) typically the only executive director on the board.
In some companies, particularly in some sectors such as financial services, CFOs may not be typically part of senior management (let alone a member of the board) or involved in frontline operational activities. This might be driven at least in part by the increasing prominence of other paraprofessionals, such as those holding MBA degrees, and other professionals, such as those with the Chartered Financial Analyst qualification.
There are benefits and risks to a CFO sitting on their own board (additional analysis is available at Proformative.com). However, where the CFO is not a board member, he or she should operate at the highest level of senior management. This is a critical part of better business and management.
A governing body should be able to rely on a CFO for high-quality information and analysis to support evidence-based decision making. To this end, the CFO should attend at least some board meetings with the CEO, and be accountable on behalf of the organization to external stakeholders.
When a CFO is not a board member, confusion can arise regarding to whom the CFO is accountable and whom he or she serves (for example, see the discussion on who a CFO should report to at Proformative.com and on if a CFO should be present for board meetings on the Chartered Institute of Management Accountants (CIMA)’s LinkedIn group). Investors and other stakeholders should have confidence that the CFO has sufficient status in an organization to ensure financial discipline and strong financial management, as well as responsible and robust strategic and operational decision making.
The recent article in CGMA Magazine, “Boards are Hungry for CFO Talent,” indicates that the appetite for CFOs to participate on corporate boards is increasing, and it is increasingly common for CFOs to take on part-time non-executive directorships at other companies to help them gain new knowledge and experience. EY’s CFO and Beyond shows this trend is being driven by changing regulatory requirements and the increased demand for CFO skills, particularly finance skills.
A key question for the profession is how it can help ensure that the status of the CFO as an organizational leader is recognized and preserved in regulatory and cultural norms in all parts of the world.
What do you think are the key actions that should be taken by the profession?
Like what you see here? Subscribe to The Latest, our customizable update sent every two weeks.
Do you have a perspective you'd like to share with the global profession? Email Gateway@ifac.org to inquire about becoming a Gateway contributing author.