Geopolitical factors such as the Russia-Ukraine war, supply chain disruptions, lingering talent retention and labor struggles will continue to impact economic policy into 2023, according to a recent S&P Global report. This is putting pressure on CFOs tasked both with steering their companies through economic upheaval and keeping key players, such as their board, appraised of shifts in strategy as they are buffeted by economic headwinds.
The CFO has a very important role to play during meetings with the board — what they do or don’t say matters a lot, said Christina Ross, “serial CFO” turned CEO and founder of FP&A software provider Cube.
One of the first things on the list of do’s and don’ts for financial leaders when communicating with one’s board is to avoid surprises, she said, as while not all surprises can be grim, “bad surprises are very bad,” Ross said in an interview.
The real work should therefore happen before the board meeting, “especially when there’s bad news to share,” she said, with financial leaders working to align with the rest of the executive team and gradually bringing board members “into the fray over time” so that the conversation with the board is more of a discussion and less of an informatory session,” she said.
Creating a long-term vision
The feel that a potential recession is imminent is already leading many CFOs to pull back on spending and to focus on lowering their costs or reducing their cash burn in order to shield their profits from the worst pricing pressure in 40 years.
The current pre-recession, post-bubble environment means the focus for many financial leaders has shifted away from growth and more towards how to protect their companies for the future, Ross said.
“The market used to be telling us just keep growing at all costs, and we'll figure out where the cash comes later,” Ross said. “The rewards now in the public markets are less on multiples of growth and more on multiples of traditional business metrics, like cash generation.”
More companies — and especially their CFOs, as keepers of capital — are also focusing on “getting a reset” on where the business will end up by the close of the current fiscal or the next fiscal year, Ross said, as for “all companies coming into 2022, there was a much different sentiment of where they were going, much more of a growth story than where we are now,” she said.
Now, companies are not just moving away from that growth at all costs mindset, but focusing more intently on fleshing out long-term sustainability, she said.
“We're seeing more long-term plans be flushed out at the board level,” she said. “Part of it is cash, but part of it is how you’re recasting the long-term vision financially for the company.”
The CFO as storyteller
It is critical for financial leaders to approach their boards with the right frame of mind, especially as financial leaders look to create that long-term vision while also seeking to steer their companies through the slumping economy successfully. Rather than using one’s board as an audience, CFOs should look to the board as advisors, with the meeting itself as a time to “build together and gather buy-in,” she said.
It is also important for financial leaders to give themselves “breathing room” when communicating with their boards — CFOs should never just have one plan for their companies, but should be prepared with multiple, leaving room either for error or for their teams to reach aspirational goals, she said.
“I think the optimal number is three,” she said. “So you have a company budget, maybe for the team something aspirational, and then what gets reported to the board.”
Board communication is about telling a story, she said, with financial leaders increasingly operating in the role as storyteller. “The reality is great CFOs are also great storytellers,” Ross said. “They just happen to do it with data and numbers and facts.”
Rather than reporting out to the board, CFOs can use the meeting as a way to tell a story of what happened, what the effects of such changes were, and how they are responding to those happenings, she said.
“I think CFOs are moving into a world where storytelling is more and more important,” she said. “So as automation has become a great a part of the CFOs’ life, it's less about being the chief accounting officer and more being a chief operating officer or a great hand to the CEO. Their story skills are ever more important, especially if you're a CFO who speaks to Wall Street or speaks directly to investors.”