The demand for chief financial officers (CFOs) on corporate boards is undergoing an unprecedented rise, driven by regulation, difficult economic conditions and the CFOs’ broadening skill set, according to an Ernst & Young (E&Y) study. Seventy-nine percent of CFOs surveyed as part of the study state that their financial expertise means they are in more demand than ever before for board level roles.
The possibilities and pathways outside finance also found that many CFOs – both serving and former – are interested in taking up the opportunity 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.
The report is based on a global survey of 800 CFOs (including 21 respondents from Singapore); a study of 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.
Max Loh, Singapore country managing Partner, E&Y, said: “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.”
Rising Demand for CFO Competencies
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 (41% in 2012, up 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.
Loh added: “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
Leading CFOs interviewed for this study talked about using the experience of an additional board role to enhance their performance as a CFO. Globally, the opportunity to gain general management or board-level experience was the top principal benefit of serving as non-executive director. For an overwhelming 91% of the Singapore CFOs surveyed, the chance to get a different perspective on running the organisation was a key benefit of doing so.
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 (global: 65%, Singapore: 67%) 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.
Loh said: “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
While most CFOs recognise the benefits, 42% of the global respondents think it is inappropriate for them to take on part-time board-level roles. Only 19% of Singapore CFOs hold this belief.
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 can already be significant. At the same time, as corporate governance legislation becomes more stringent, the time required to be an effective non-executive director is increasing. It is thus not surprising that the risk of being overstretched by taking on non-executive roles (global: 60%, Singapore: 62%) and risk of conflict of interest between the roles of CFO and non-executive director (global: 48%, Singapore: 57%) were cited as top challenges by CFOs when considering taking on a supplementary role.
Despite the appetite of CFOs to take on non-executive roles, there is a mismatch with the amount of time they feel able to dedicate to such a role. The majority of CFO respondents (global: 50%, Singapore: 43%) opined that they can only spare five hours or less per week on a supplementary role.
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.
Loh 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 consider if it is the right time on their career path. Over the next decade, boards will increasingly value knowledge of rapid-growth markets, analytics and other dynamic technologies such as social media. Board recruiters are now looking for deep technical know-how, such as M&A [merger and acquisition] and capital markets, so added experience of a particular domain will give candidates a better chance of being matched up with suitable roles on boards.”
GTNews asks Pugsley about what advice she would give to treasurers dealing with mergers and acquisitions, what the key challenges for her year ahead will be and how she is selecting a treasury management system (TMS).
The US money market fund reforms came into effect in 2016 and are already dramatically shaping US fund industry with investors flooding out of prime funds and into government securities. While the reforms are similar, they are not the same. GTNews interviews Yeng Bulter, global head of the cash business at State Street Global Advisors on the differences.
Tim de Knegt, strategic finance and treasury manager for the Port of Rotterdam, discusses how he is using blockchain, the challenges he will face in his role of treasury over the next 12 months and the advice he would give to someone starting out their career in treasury.
Due to the low interest rate environment and Basel III regulation many corporate treasurers, who may have in the past been very reliant on the banking sector to provide them with cash management solutions, have been forced to explore alternative options as banks have been refusing short dated cash deposits.