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8 Tactics for Leading Effective Annual Planning Conversations

A Three-Part Framework for Annual Financial Planning

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The Role and Responsibilities of the CFO with the Board

The Role and Responsibilities of the CFO with the Board

We are all familiar with the Board’s primary obligations: Company Strategy – healthy debates; Oversight – “smells right”; and lastly, Fiduciary – act on behalf of all shareholders. But a more honest description of the board’s responsibility shared on a recent CFO|Circle call was one that will stick with us, which is they fly at about 50k feet, and their ultimate responsibility is to hire and fire the CEO as needed. 

However, CFO’s also have a unique role and certain responsibilities while engaging with the Board.  That’s what our CFO|Circle community discussed this past week, and we have recapped below. We’ll stay 50k feet above (like the board does) as the depth of the conversation will be kept private for our community. 

The role of a CFO and how to prepare for a board meeting:

Know the numbers/accounting:

A no brainer, right? The CFO’s primary responsibility in a board meeting is to know the numbers, the accounting, like where things come from. But also if a board member asks a fairly detailed question, it’s best to defer. Say, “Hey, I’m going to write that question down and I’ll get to you after the meeting.” If the conversations and questions get really detailed, then it’s probably best to take it offline.

Align with CEO and Management team and coordinate with GC and HR on admin:

The CFO should connect with the CEO and management team before the board meeting and align on what the CFO’s role will be.

“[CFO] getting aligned with the CEO before the meeting is absolutely critical.”

After meeting with the CEO, the CFO must know their role as a financial expert. A CFO speaks up when questions are asked about “the numbers”. Especially when the CEO and/or the management team announce a financial metric that is not true. For instance, if the CEO says “yeah, we’re going to do a billion dollars next year…” and the CFO knows they’re going to do a $100 million, then this would be a good time for the CFO to insert themself as appropriate. 

Preview with Audit Committee Chair:

Before the meeting, it’s suggested the CFO talk to the Audit Committee Chair about what they’re interested in and what they would like to see. Building a strong relationship with the audit committee chair where the CFO can spend an hour 1:1 with him/her to go through the entire financial deck can prove highly beneficial. Ultimately, this can help avoid having to debate topics like revenue recognition and other critical accounting policies.

“Avoid surprises…connect with board members prior to the meeting if things are ‘off from plan’.”

Work with CEO on agenda:

At the end of the day, the CEO is in control of the board meeting in terms of what is said. Still, a way for the CFO to help control the narrative is to meet together with the CEO beforehand and have a conversation on what is going to be on the agenda. This will help the CFO control the narrative and help script the CEO, in terms of aligning on what is going to be said. This also allows the CFO to educate the CEO on terms like bookings, billings, GAAP accounting. By spending time with the CEO before the meeting it helps ensure both team members are speaking the same language, especially on financial terms.

Dispel “fear of the unknown” (stress test):

It’s the CFO’s job to stress test the model and understand what could go wrong on the assumptions built into the model. As the “risk” person, it’s important to understand what’s the worst-case scenario and eliminate the “fear of the unknown”.

Focus on what’s important – cash:

It was suggested that a CFO’s presentation should be ten slides or less. And one slide should always be focused on cash. Cash is obviously the key to most things in life and having the board and the CFO understand its position and standing is important.

Know your audience:

The experts on the call recommend that CFO’s carve out time with one or two board members that they think of as mentors and have conversations about the company in addition to what’s going on in life. What are they seeing as VCs? What’s the regulatory environment? What’s the competitive environment? It’s critical to get buy-in from the CEO on the CFO having these relationships and if the CEO is not on board with this, then that may be a red flag and something the CFO should consider diving into to understand why.

Another useful strategy is to provide the board pre-reading fulsome materials beforehand so that when the board gathers, they have the opportunity to ask questions about the pre-reading materials before diving into main discussion topics.

CFO strategies during a board meeting:

Read the room: don’t be afraid to address push back or contention, even if it’s just reading body language.

Focus on the big picture: provide what was high-level last meeting, what’s changed, and where you’re going now without getting into the weeds.

Provide ranges, and you can give scenarios (but focus on “likely”): always use ranges, then share assumptions that drive the high end of the range versus the low end of the range while encompassing both the CFO’s and the CEO’s point of view within that presentation. Focus on the assumptions (market conditions, competitive elements, pricing, you name it) that drive a plan (budget or forecast) will help everyone understand later if there is a miss, what core assumption was missed on as opposed to just talking about a number.

Provide “walks”: basically a voice over “bridge” of how you got from an assumption or projection to what actually happened.

Keep the conversation grounded in reality: While it is good to shoot high, part of the CFO’s job is to keep the conversation grounded in reality. You should align with the CEO before the meeting (90%). For the last 10%, you may have to play an active role in directing the meeting’s conversation.

Key metrics: what are the measures.

Take good notes: follow up, it’s ok to say you don’t know.

Building a Strong Relationship with the Board:

Be truthful and have an opinion: The board relies on the CFO to be the financial expert in the room and to “call balls and strikes.” They know the CEO will be optimistic and visionary; that’s why they invest in the company. However, they need someone to tell them the reality and that’s the CFO. 

All that said, in regards to transparency of a forecast with the board, fraud aside, the CFO does not need to be overly-cautious and spell out every key risk surrounding forecast assumptions. It’s worth noting that many VC board members want to avoid having to go back to their partnerships and write down investments. As such, many will have a “See no evil, do no evil” mindset, and not want this detail.

“Your reputation and your integrity is everything in the CFO business.”

Be viewed as a Public CFO (if that’s your goal): Treat every encounter at a board meeting as a job interview. If you can, find a board to sit on to get the view from the other side.

Seek Board Mentorship: The individuals best able to provide mentorship have been in operating roles. If you don’t see this person on your board, consider their network. They may be able to introduce you to an ideal mentor. A reminder that if a board member introduces your mentor, your discussions are always subject to get back to the board. No matter what, have “third party” mentorship outside of your board too.

What a successful and efficient Board Meeting should look like:

Structure + Process

  • Four topics suggested for the agenda: CEO’s commentary, Financial piece, Operational topic, Admin. For the Financial part, if you’re spending more than 20 minutes on financials, something has gone wrong.
  • The meeting should not run longer than three hours. If you’re having more of a three-hour-long meeting, it’s probably too detailed.
  • Have an onboarding process for new board members: having them acquainted with the numbers from the get-go will be essential for maintaining productive board deliberations as the BOD grows.

Balancing Topics

  • A useful strategy is to set an annual slate of meetings where each one includes a deep dive into a particular business piece. For example, an efficient board team might have one meeting focused primarily on Sales & Marketing, the next on Product & Development, and so on. This annual slate of meetings then concludes with a fifth board meeting focused on strategy, set for the fall before drafting the company operating plan.
  • Avoid looping a strategic discussion into a regularly-scheduled board meeting. This will detract from the board’s effectiveness to conduct normal operations and likely not leave enough time for a fulsome strategic discourse.

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