CFOs in high demand
Addressing the board’s increasing need for financial skills
It isn’t news that CFOs make good candidates for the board. But what is interesting is the extent to which the demand for both serving and former CFOs to take on board roles is increasing.
As companies grapple with the aftermath of the financial crisis and a new slow growth environment they want executive and non-executive leaders who can provide comfort and confidence in an uncertain world. The CFO’s unique combination of analytical, technical and strategic capabilities means that they are arguably best placed to provide it.
The CFO appeal
The appetite of shareholders and boards for CFOs to serve on corporate boards is big, and getting bigger.
Of the 800 finance leaders surveyed for our recent report,CFO and beyond: the possibilities and pathways outside finance1, 79% agree that CFOs are more in demand than ever for board level roles because of their financial knowledge.
Our global research found over the past decade, the percentage of audit committee chairs who are former CFOs has also increased significantly. In Australia, for example, the proportion of audit committee chairmen who are former CFOs has more than doubled from 11% in 2002 to 28% in 2012.
The knowledge and experience that CFOs possess is highly relevant to the oversight role that boards perform. Boards speak the language of finance and value, making it a very easy environment for a CFO to fit into.
Drivers of demand
There are three main reasons why finance leaders are becoming more common on corporate boards:
- Changing regulatory requirements
Changes to the regulatory environment, enacted since the corporate governance scandals at the beginning of the century, have increased the demand for finance expertise on boards.
For Australia, the 2011 Centro case served as a reminder for boards of their obligations in respect of financial reporting. “When it comes to the financial report, directors must review, understand and challenge the financial statements and be satisfied that they are consistent with their knowledge of the business,” says Tony Johnson, Asia-Pacific Managing Partner for Financial Services. “A board member with deep and broad finance experience, like that of a CFO, can offer valuable insights and play a leadership role in driving board effectiveness.“
- Challenging macroeconomic environment
Since 2008, companies have faced a highly challenging macroeconomic environment. These challenges require companies to focus on costs, risk and cash-flow management – three areas that fall squarely within the CFO’s skill-set. Translated to the boardroom, this means that non-executive directors with a CFO background are uniquely placed to navigate the complex economics and steer companies toward the right strategic decisions.
“Finance skills alone do not necessarily make someone a good board director, but financial expertise is desperately needed.” Andrew Kakabadsem, Professor of International Management Development, Cranfield University School of Management2.
- Expanding scope of the CFO role
Perhaps more importantly, the evolution of the CFO role over the past decade has significantly broadened the contribution that finance leaders are able to make as board members. The modern finance leader has a broad and complex role, encompassing strategic contribution, business partnering, internal and external stakeholder management, as well as operational responsibilities – far beyond the core technical and financial capabilities that once characterised the role.
In the current economy, shareholder, boards and regulators want board members who have the right skills, perspective and judgement. And, the CFO is uniquely qualified for the job.
CFOs who are interested in board opportunities as a complement to their current role or as an onward step, need to plan ahead. “You need to have a destination in mind and be practical about what is required...to get there.” says Lawrie Tremaine, Executive Vice-President and CFO, Woodside3.
While CFOs are in demand for roles beyond finance, competition for the top board positions is fierce and getting fiercer. As regulatory requirements heighten, younger candidates join the fray, and board expectations increase, career planners will win over opportunists for a place on the shortlist.
1 CFO and beyond: The possibilities and pathways outside finance, EY, 2012.