Unprecedented demand for CFOs to serve on corporate boards
- Benefits of additional roles outweigh risks of being overstretched if the right choice and timing of the role is made
- 79% of CFOs see an increase in demand for their expertise on corporate boards
- 75% state understanding boardroom dynamics as principle benefit
London, 7 November 2012 – The demand for CFOs on corporate boards is undergoing an unprecedented rise driven by regulation, difficult economic conditions and the CFOs’ broadening skill set, according to a new EY study, CFO and beyond: the possibilities and pathways outside finance. The report found that many CFOs – both serving and former – are interested in taking up roles that can improve understanding of boardroom dynamics, generate cross-sector ideas and provide exposure to different corporate cultures. However, this interest level is tempered by concerns about the professional risks and distractions from their primary fiduciary duties. Those leading CFOs who have successfully managed the balance, advise candidates for board positions to choose the right role, and time it well.
The report is based on a global survey of 800 CFOs, a study of the career paths of group CFOs at 347 of the world’s largest companies (annual revenues over US$5b) over the past decade, and a series of interviews with leading CFOs, governance experts and academics.
Rising demand for growing number of CFO competencies
Seventy-nine percent of respondents agreed their financial expertise means they are in more demand than ever for board level roles. The study also shows 14% of board members from the world’s largest companies studied were serving or former CFOs, up from 8% in 2002. The proportion of audit committee chairs who are serving or former, CFOs has doubled in the last decade (41% in 2012, up from 19% in 2002), perhaps reflecting the demand for increased transparency on company balance sheets.
Jay Nibbe, EY’s EMEIA Markets Leader, says, “Regulatory pressure is driving a major increase in demand around the world for CFO experience on boards. In many countries, a CFO’s financial expertise is not only highly valued, but also mandatory. Additionally, as companies grapple with a volatile economy and the diverging growth trends of developed and rapid-growth markets, they increasingly want good insights and support for cost, risk, and cash flow management – three areas of focus that fall squarely within the CFO’s skill set.”
The evolution of the CFO role over the past decade has significantly broadened the contribution that finance leaders are able to make to board positions.
Jay Nibbe says, “Although they are crucial, financial skills alone don’t necessarily make for a good board member. Many CFOs today have the financial skills as well as a unique combination of analytical, technical and strategic capabilities. This combination of CFO skills makes for a strong addition to the board.”
Benefits of CFOs taking on non-executive roles
Those leading CFOs interviewed for this study, talked about using the experience of an additional board role to enhance their performance as a CFO. Understanding board dynamics from a different perspective is the principal benefit of serving on a corporate board according to 75% of the CFOs surveyed. Most CFOs spend a lot of time engaging with their own board members but it is only by sitting on the other side of the table they can fully understand how the boardroom works. Over half see it as an opportunity to gain exposure to another company or industry, which enables them to learn lessons that have valuable applications in their core role.
Jay says, “Experience in a different sector is seen by many CFOs as particularly valuable, with the opportunity to gain knowledge and transfer best-practice across industries. There can also be a “halo effect” for those companies whose CFO is serving on the boards of large well-respected companies.”
Professional risks and distractions from core role can be a deterrent
While most CFOs recognize the benefits, more than 40% think it is inappropriate for them to take on part-time roles. Board directors are often personally liable if it can be demonstrated that they have neglected their executive duties. For some, the demands of their core responsibilities are too great, and the risk of being overstretched is too significant. As corporate governance legislation becomes more stringent, the time required to be an effective non-executive director is increasing.
Despite the appetite of CFOs to take on non-executive roles, there is a growing mismatch between the amount of time they feel able to dedicate to such a role and the recommendation by corporate governance best practice. More than half of CFO respondents confirm that they can only spare five hours or less per week on a supplementary role, yet the minimum recommendation from the 2009 UK Walker Report (30 days per year) corresponds to at least that.
CFOs should adopt a long-term view and anticipate board composition changes
Among the CFO respondents, those who identified themselves as long-term planners were significantly more likely to have taken on additional roles than more opportunistic CFOs. CFOs are also taking on board positions at a younger age than they were a decade ago. The increase in those CFOs from the companies studied who have taken on non-executive directorships is most marked among the younger generation – those aged between 40-49 years old.
Jay Nibbe concludes, “CFOs and future finance leaders interested in taking on a board level role should start early – competition for roles and expectations are rising so career planning is critical. They should do the research and choose the right role carefully and for the right time. They should also expect that, over the next decade, boards will increasingly value knowledge of rapid-growth markets, analytics and other dynamic technologies such as social media. Finally, board recruiters are now looking for deep technical know-how, such as M&A and capital markets. Building deep experience of a particular domain will give candidates a good chance of being matched up with certain positions on certain boards.”
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