The economic climate can turn on a knife’s edge. The Great Depression, the 2008 Banking Crisis, and now events cascading from the pandemic, the Russian–Ukrainian conflict, and climate change have led to widespread disruptions to global supply chains.
Today’s CFOs walk a tightrope of uncertainty.
The International Monetary Fund (IMF) estimates that global growth will slow to just 2.8% in 2023, causing an even greater headache for CFOs who are looking to reassure their key stakeholders.
A recent FTI Consulting Survey found the average tenure of CFOs is now less than 5 years, with a contributing factor to turnover being their enhanced role as advisors to the board of directors. A fact that leads to fractured relationships between boards and executives, and can make drawing from historical insights trickier.
“[CFOs] have the primary responsibility of protecting value for the organisation”, says Myles Corson, Global and Americas strategy and markets leader, Financial Accounting Advisory Services at EY. “That position of trust has always been foundational to the board, audit committees, who all look to the CFO for information.”
With the continued stress of balancing volatile markets, labour and supply chain shortages, ESG reporting, as well as increasing cyber threats, it is no wonder that CFOs are struggling to shoulder the burden.
So, what are the challenges facing CFOs in communicating to their boards of directors? How do they balance a long-term strategy against short-term disruptions, while engaging their executive peers in a singular vision?
Challenges CFOs face when communicating with the board
“Uncertainty and volatility [that] make projecting financial performance more difficult … accurate projections … and managing expectations” are the biggest challenges faced by CFOs in their approach to the board, says Dan Fletcher, CFO for Planful.
“The board needs to have a reasonably accurate view of where the business is headed in order to do their job of guiding management on key decisions.”
CFOs are tasked with prioritising actions, even when outcomes are uncertain, having to balance what might seem like the right decision now but be detrimental to the long-term strategy. For example, the recent mass layoffs in the tech sector might be good for short term profitability, but with the new global focus on ESG practices, these companies have potentially damaged their reputations and future hiring efforts.
“There continues to be expectation to deliver short term performance, [while] making sure that resources are being allocated … to deliver long term value creation”, says Corson. “You can very easily get caught up in the short-term disruptions … but boards expect CFOs to be able to provide a balanced view” of how to best support the long term growth of the company.
Another struggle faced by CFOs is knowing when and at what cadence they should be meeting with members of the board. “Strategic planning and budgeting encompass much of the time spent with the board in terms of discussing capital deployment, strategic investments and business trends that impact performance of the company”, says LendingClub CFO, Drew LaBenne.
“Board members [must] absorb an incredible amount of information in large quantities on a monthly/quarterly basis.” It is the responsibility of CFOs to “educate the board on emerging issues and spend time with individual members whose background may be less focused on finance [in order to] secure buy-in and approval”, adds LaBenne.
As we have seen over the past few years, events can compound and new problems arise extremely quickly. With the wide release of AI tools, more complex cyber security threats are appearing faster than ever before, circumventing defences, and even using voice emulators to trick employees.
“Cyber consistently is one of the top risks for CFOs to identify”, in collaboration with peers such as the chief information officer (CIO), says Corson. “[But] CFOs are significant stakeholders [and] need to disclose some of the consequences of cyber-attacks, particularly in terms of how finance organisations are operating now, with much more financial data moving into the cloud.”
How CFOs can enhance their board communication
“Given the recent turmoil in banking, we have spent time with our board discussing interest rate risk, liquidity and other topics relevant to current issues”, says LaBenne, “During times of economic uncertainty it’s important to ensure all members of the board have their concerns fully addressed and there is consensus on the approach to dealing with market stress”.
It is essential that all stakeholders have a transparent view of the situation and are working harmoniously towards the same outcomes and overall vision for the company. “Times of economic uncertainty highlight the quality and strength of the board that has been built over the course of years, and fortunately for LendingClub, our board is very strong”, adds LaBenne.
Transparency between executive peers is paramount to the CFO’s role. “A talented and charismatic CFO might rise in prominence to be an advisor who can help the CEO manage the complex relationships between board members and management and amongst the board members themselves”, says Fletcher.
“If done correctly, the CFO can help to build trust between stakeholders, win support for key initiatives, sway decisions, increase communication and even diffuse and avoid conflicts”.
This is why strong people management, as well as cultivating knowledge regarding technology, as well as the economic climate, are incredibly important for the CFO.
According to Fletcher, some ways CFOs can keep up to date with changes include: “following the news and analysis relevant to their business; networking with other CFOs, many of which have vibrant and very helpful online communities; attending industry events; and monitoring social media – Twitter, in particular”.
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