Introduction
From a governance standpoint, one would consider the CEO to be the chief employee. This means he is the operational head and as such has all other senior executive team members reporting to him. The question is whether this is the actual case for the CFO?
According to Bill Dee, http://www.hartsfieldadvisors.com/ceo.pdf
The CFO is typically an advisor, counselor, confidant and sometime mentor to the CEO concerning the most sensitive issues of the enterprise.
If this is the case, what does that mean for the other senior executive team members? Is there a hierarchy or is it a team where all members are equal?
It is essential for governance boards to step back and question the type of system they are encouraging by their actions. You may be asking, “What does she mean?” This article examines how the implicit and explicit actions of the board influence the relationships within the senior executive team.
CFO equal to the CEO
- In the August 17, 2009 edition of the Wall Street Journal, www.wsj.com
Philip Tulimieri and Moshe Banai suggested the time is right for the CFO to be a “Co-Leader.”
“The chief executive as visionary leader is a thing of the past. It’s time to make room at the top for co-equals: leadership by the CEO and the CFO-with equal authority and accountability. At the start of this decade, billions of dollars were lost in a series of corporate scandals marked by fiscal mismanagement, fraud and outright greed on the parts of CEO’s, CFO’s and other senior executives. The public and legal backlash gave rise to new thinking about the ways companies should be organized, managed and governed, placing greater emphasis on accountability, regulation and transparency. New regulations were passed, including the Sarbanes-Oxley Act, which thrust the CFO into the forefront of the boardroom and helped create a new balance of power between CEO and CFO.”
The other side of this argument is the that when the board looks to the CFO for all of its financial and risk advice, it may fail to see the big picture. That picture includes the views from human resources, programming or stakeholder perspectives.
Making the CFO and CEO co-leaders could produce friction between the CFO and the CEO. The CFO may not feel he has to listen to or cooperate with the CEO. It may weaken the office of CEO and unmind the ability of the CEO to create an effective senior management team.
CFO different from CEO
The CEO is the chief manager responsible for entire operations of the entity. This person reports directly to the board. His responsibility is to follow the strategic directions of the board and implement aspects of the strategic plan, and effect decisions taken by the board. He ensures the operations of the entity are carried out harmoniously. The board hires, evaluates and renews the CEO contracts.
The CFO is the person who ensures the board’s financial goals and objectives are on target. He prepares the budgets and provides financial details to the board as requested by the CEO. He may be responsible for investment of funds and supervision of cash management. They manage the financial risks reporting noted discrepancies to the CEO immediately, while overseeing day-to-day financial operations.
The CEO requires the CFO to analyze financial data and prepare financial reports for presentation to the board.
At no time, would the CFO compete with or undermine the office of the CEO. In fact, according to Egon Zehnder International http://www.egonzehnder.com/us/download/ceocfo.pdf
CEOs of leading companies almost uniformly agree that they want a CFO who can help them manage the business, complement their skills, think strategically, and offer leadership, while still providing all of the requisite financial skills.
Most senior executives want to work in a harmonious team. There are enough stresses without having to watch competition between the CFO and CEO for power and control.
What does CFO and CEO relations have to do with the board
The board decides on the organizational chart. It either places the position of CEO at the top of the management chart or it makes the CFO and CEO co-leaders.
If it places the CEO as the chief employee, the board
- Respects that role at all times
- Trusts the word of the CEO
- Looks for evidence of risks
- Does not tolerate any actions by the CFO which indicate he is undermining the role of the CEO, and
- Requires the CFO to report to and honor the role of the CEO.
When the board makes the CEO and CFO co-leaders, it
- Distinguishes the roles
- Ensures senior managers have a mechanism to resolve disputes with the co-leaders
- Does not allow either to encroach on the other’s role
- Resolves disputes and power struggles between the CEO and CFO immediately, and
- Protects the dignity and harmony within the senior executive team.
Final Comment
The key is that the board follows its chart and refrains from any action which would render either position impotent or dysfunctional.
