Demand for chief financial officers (CFOs) to sit on corporate boards is undergoing an unprecedented rise, driven by regulation, difficult economic conditions and the CFO’s broadening skill set, according to an Ernst & Young (E&Y) study.
The study, entitled ‘CFO and Beyond: the Possibilities and Pathways Outside Finance’, is based on a global survey of 800 CFOs and the career paths of group CFOs at 347 of the world’s largest companies (annual revenues over US$5bn) over the past decade, and a series of interviews with leading CFOs, governance experts and academics.
It found that many CFOs, both serving and former, are interested in taking up the opportunity to sit on boards as it can improve their understanding of boardroom dynamics, generate cross-sector ideas and provide exposure to different corporate cultures. However, this is tempered by concerns about the professional risks and distractions from their primary fiduciary duties.
Seventy-nine percent of CFOs surveyed as part of the study said their financial expertise means they are in more demand than ever before for board level roles. Understanding board dynamics from a different perspective is the principal benefit of serving on a corporate board according to 75% of those surveyed.
“In many countries, a CFO’s financial expertise is not only highly valued, but also mandatory,” said Jay Nibbe, E&Y’s Europe, Middle East, India and Africa (EMEIA) markets leader. “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.
“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.”
The study 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, to 41% in 2012 from 19% in 2002, perhaps reflecting the demand for increased transparency on company balance sheets. This evolution of the CFO role over the past decade has significantly broadened the contribution that finance leaders are able to make to board positions.
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.
While most CFOs recognise the benefits, more than 40% think it is inappropriate for them to take on part-time board-level 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.
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