Critical business decisions, without the buy-in of both the c-suite and the board of directors, are fraught with risk. This is why the CFO's relationship with the board is essential, especially during the COVID-19 pandemic.
The CFO must communicate both good and bad news to the board to build trust, briefing the board on key issues and how they're being addressed, says Grant Halloran, CEO of FP&A software company Planful.
But the CFO's relationship with the board is changing, and CFOs must work to create a stronger relationship for the benefit of the business going forward.
"The modern CFO's knowledge of and connectedness to how the business operates is essential right now, because boards need very forward-looking and strategic executives," Halloran told CFO Dive. "That requires the CFO to be really plugged into operations and value creation."
Especially during this pandemic and the resulting economic volatility, Halloran says, the board depends on the CFO to provide not only scenario plan updates and revised forecasting but also where they see risks for the business.
When the market started to fall in late March, in what Halloran calls "the ambush," his own company's board members were on the phone multiple times a day with him and his CFO to figure out next steps.
"They asked, 'What will happen to our cash flow and what will we need to do to preserve cash during this period?'" Halloran recalled. "There's a heightened tactical need there that CFOs need to be in command of."
As things began to stabilize in late May, the CFO's communications with the board changed again. "The conversation became, 'What are the medium and long-term impacts? How does the business operate? What are we going to do in the future to fortify the supply chain? Where can we source supplies if we need to?'" Halloran said.
Forecasting without a map
The CFO's role as forecaster-in-chief has accelerated along with hands-on communication with the board. Halloran refers to this acceleration as high-frequency forecasting, particularly when it's done each week. But it's not enough to simply make projections into uncharted territory. "You can't just throw a bunch of numbers at the CEO and board members," he said. "You need to explain the risks, the decisions underpinning the forecast, and whether things need to be redone."
Mastering the new forecasting plan, keeping the board on top of all developments, and reallocating resources towards digital transformation might seem like a long to-do list. But Halloran insists it's not as daunting as many CFOs think.
"Some of the folks I've talked to have had their minds polluted by sales and back office implementations from the last 20 years," he said. "Maybe they're thinking about how difficult all the technology was to implement back then, but that's not the case these days; it's all very sophisticated now."
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During the pandemic's "ambush" period, Halloran and his CFO spoke with his board members multiple times a day, which he called a "dramatic rise in informal engagement."
"I talked to my board members, typically, on a weekly basis," he said. "That became multiple times a day, because, when you think about it, it's such a multifaceted relationship. Most CFOs I know talk to their board members weekly."
Board communications are not the only CFO duties to have skyrocketed since the onset of COVID-19. "Your forecast scenario, which you may have done quarterly, you're now doing weekly, because it's just so volatile," Halloran said. "With customers paying bills and looking for deferment, that's affecting cash flow. You're also now working with bankers and people who fund the business, making sure you have a good supply of liquidity."
A digital partnership
On that note, Halloran adds that CFOs must act in lockstep with the CIO. Everything going forward will be targeted at helping CEOs reshape the company for the new normal, and doing so will hinge upon effective tech application.
"CIOs have been obsessed with data security and the cloud, but they really need to work with the CFO on digital transformation," Halloran said. "I was talking to a CFO the other day and he explicitly said, 'By the end of 2021, our business needs to be where it would have otherwise been in 2030.'"
“We need to accelerate digital transformation dramatically," he said. "Engage the marketplace, prospective customers, and existing customers through digital methods. Salespeople won't be able to travel, so we have to figure out how to facilitate engagement, with our value proposition, through digital means."