You are here Critical Discussion with Your CFO

Janice DiPietro, CEO, Exceptional Leaders International

You are here Critical Discussion with Your CFO

As you execute your plan for 2016 and deal with the myriad of issues and opportunities that CEOs face every day, it is critical that your communications with your direct reports be as succinct and meaningful as possible. This article, the first in a series, addresses the most salient discussion points and expected caliber of response you should be receiving from your Chief Financial Officer.

In the best run organizations, the CFO truly functions as a business partner to the CEO. The CFO should be providing insightful feedback, analysis and recommendations to you as they relate to the financial health of the business, as well as its strategic and operational well-being. The best CFOs think and act strategically and are intimately knowledgeable of all critical facets of the business. Many view the CFO's role as that of the “naysayer”, expounding reasons not to undertake new initiatives or expenditures. The best of CFOs are always thinking ahead and balancing their fiscal responsibility with the needs of driving the business forward.

To maximize your time and return, consider discussing the following 5 topics on a regular basis with your CFO:

1. Financial Performance - Timely closing of your monthly financial statements is a key metric by which your CFO should be evaluated. On average, regardless of the complexity of your business, you should be able to review financial performance with your CFO no later than the tenth business day following the end of the month. This review should include an explanation of all significant variances to plan. Your CFO should be able to offer straightforward and in depth explanations of these differences, along with the necessary actions to be taken to minimize such variances going forward. The CFO prior to sitting down with you should have sought explanations from the appropriate functional leaders as to the rationale for the deviations to plan, and objectively assessed the response and course of action to be taken to mitigate such variances in the future. At the conclusion of this financial review you should feel confident that your CFO not only understands why performance is where it is but has objectively mapped out for you the steps to be taken moving forward.

2. Risk Mitigation – Inquire of your CFO as to his/her opinion on the risks the business faces and what is being done to mitigate them. A top performing CFO will always be mindful of the exposures the business faces. This risk discussion should include the following areas:

a) Performance Risk - Are there elements of current financial performance that the CFO is concerned about? For example, is there higher customer concentration then experienced in the past?  As the CFO has investigated profitability by customer does he/she see any emerging trends that are a concern? Are there particular pricing pressures the CFO is concerned with? Are there supply shortages or other issues within your supplier base that could affect future operations?

b) Reporting Risk - Have there been or are there expected to be changes in financial reporting standards that will affect your reporting? If so what is the expected impact and what if any changes in operations will be needed to respond?

c) Internal Control Risk - What steps have been taken to mitigate any previously identified internal control weaknesses? What new exposures may exist?

d) Financial Department Risk - How is the CFO assessing the talent of his direct team? What potential competency gaps does he/she feel exist and what is being done to address them?  How well cross-trained is the group? What is the contingency plan in the event of the CFO’s absence?

3. Strategic Considerations

a) Market Changes- Are there new or changing competitive threats that the CFO feels warrants a modification of strategy? Is there significant M & A activity occurring amongst your competitors or customers and what is the impact of this activity on your business? How well positioned is the company to respond to these changes?

b) Line of Business/Product Line Performance - Does the CFO feel certain lines of business or product lines warrant more or less investment? Why? Should certain divestitures or acquisitions be considered?

c) Key Metrics- What key metrics is the CFO tracking? Why these particular metrics? How do the metrics and your company’s results compare to the competition?

4. Governance

a) Board Relationships - What type of feedback has the CFO received from the Board? What modifications to your monthly reporting package would he/she suggest?

b) Investor Feedback - Have any particular issues or concerns been presented by the company’s investors? Are there any particular upcoming equity triggers you should be aware of?

c) Debt Compliance – Where do you stand relative to your debt covenants? Are you receiving the best possible terms? Should you be considering additional financing (debt or equity)? If so, when?

d) Legal/Audit Firm Catch Up - Ask the CFO to arrange a meeting with the two of you and the Firm’s primary legal advisor to discuss any potential issues. Do the same with the audit partner on your account. Minimally conduct these discussions twice per year. Conduct one meeting with the audit firm partner on your own and inquire as to the partners’ assessment of the CFO and his/her team’s performance.

5. Interpersonal - Perhaps one of the most important discussion topics with your CFO deals with how as CEO you can best support the efforts of your CFO. Consider asking the following:

a) Do you feel that you have adequate access to me?

b) Could the way in which we communicate be improved? If so, how?

c) In what ways could I better support your efforts? Leverage this to then discussing how the CFO can better meet your needs and that of the organization.

The relationship between a CEO and CFO is a critical one. The ability of a CEO to ask the right questions of their CFO and equally as important interpret the quality of their responses can be paramount to the organization’s and CEO’s success. The five topic areas outlined above will not only lead to a healthier organization, but to improved communication and rapport between a CEO and what by necessity should be their true business partner - their CFO.


About the Author

Janice DiPietro is the Chief Executive Officer of Exceptional Leaders International, a consulting firm focused on accelerating the performance of executives and the organizations they lead.  Janice has successfully led and consulted to publicly traded and closely held companies across a wide spectrum of industries for over 25 years. Janice founded E.L.I. to channel that passion and experience in a powerful new way, bringing together an exceptional team of business veterans to guide organizations through their most critical transitions. She holds an MBA and Doctoral degree from Boston University. Ms. DiPietro lecturers and publishes on a variety of business topics and serves as a Board member for several organizations.