How the balancing act between CEO vision and board reality plays out

KEY TAKEAWAYS

CFOs and the data insights they bring are key to short and long-term stability, but it requires support from the right people organisation-wide.

• The executive board and C-suite relationship is key to a company’s success.
• Strong executive teams anticipate board and shareholder concerns, maintain future strategy and avoid conflicts at senior level.
• CFO is emerging as one of most vital roles in balancing quarterly results with new proftable opportunities.
• CFOs affect planning, strategy and performance management by utilising analytical abilities and soft skills.

More than ever, the relationship between the executive board and C-suite is key to success. The board needs to understand the CEO’s vision and believe in it.

How can leaders prepare for the future while dealing with short-term goals and safeguard core business to keep productivity high? How can they adapt to change and integrate it into the strategy developed by management?

THE CFO: EYES OF THE MARKET

The CEO is typically seen as the company’s visionary, responsible for plotting a path to growth and expansion. But the CFO’s guardianship of the big picture is critical. The CFO is a company’s eyes of the market, responsible for financial stability and planning, which contributes directly to the wellbeing of all employees.

As Daniel Yates, Partner and Head of Global Finance Practice, Page Executive, explains: “The CFO forges a bridge between the company’s long-term vision, grounded with the capabilities of the company, and the ebb and flow of the market.”

CFOs need to drive organisational change, especially when it comes to transformation, scaling, data and the digital world. She or he is the key manager to make sure a company is not left behind by a narrow focus on short-term results or too much concentration on long-term goals.

The CFO forges a bridge between the company’s long-term vision, grounded with the capabilities of the company, and the ebb and flow of the market.

Why? Traditionally, CFOs were specialists in numbers and analysis, focusing on treasury, accounting and budgeting. But in recent years, business has seen a shift towards CFOs being more proactive. This has given rise to a more strategic profile, allowing them to affect planning, strategy and performance management in a more profound way, thanks to their analytical abilities and new soft skill competencies the 21st century CFO requires.

This is why Airbnb hired Dave Stephenson, a 17- year veteran of Amazon, as CFO. In the same role within Amazon’s Worldwide Consumer Organisation, he had steered the company through the acquisitions of Whole Foods Market and Zappos. His prior experience is a no-brainer for Airbnb as it looks to transition from a private to public company in 2019. It needs to keep institutional investors and other stockholders on-board as they push for more growth, possibly impacting the balance sheet in the short to medium term.

FRICTION AT BOARD LEVEL

The CFO is a bigger unifying force than ever. And the lessons for what can happen without that unity, when the executive board, C-suite and shareholders do not agree on the big picture vision, are salutary.

One damaging result is a shareholder rebellion, stemming from poor performance, executive bonuses or strategic disagreement with the C-suite. Stockholders may even threaten to reduce the share price through synchronised selling of their holdings.

In 2005 Michael Eisner, then Chairman and CEO of The Walt Disney Company, retired after Walt Disney’s nephew, Roy Disney, led a shareholder revolt. The allegation was that Eisner did not have managerial skills, which would have caused a creative brain drain of the Walt Disney Empire. In 2010, British Petroleum and Shell faced a revolt due to discord in decisions on Canadian policies to deal with tar sands.

According to Yates, some “Institutional shareholders can be negligent in holding administrations accountable because they concentrate on choosing correct actions rather than protecting their interests through their actions.”

Institutional shareholders can be negligent in holding administrations accountable because they concentrate on choosing correct actions rather than protecting their interests through their actions.

WHY GUARDIANSHIP OF THE BIG PICTURE MATTERS

Even the idea of the big picture matters. Where the phrase once meant simply thinking of the long and not just the short term, today it means looking far beyond commercial impact.

B Corporation is an independent assessment form that evaluates the positive impact of companies on society, addressing ideas of governance, sustainability and transparency, considering long-term profitability and long-lasting change for all stakeholders, not just shareholders.

Danone is one major firm that is fast-tracking certification as a B Corp, after announcing in 2017 the push for accreditation for its North American operations.

Why is Danone so eager to get B Corp status across its global operations? Because, as Chairman and CEO Emmanuel Faber explained in a recent LinkedIn article: “B Corp can provide a framework that enables a relevant response to the mounting pressure to measure the non-financial externalities of their impact.”

In the same article, Faber noted that the company syndicated a EUR €2 billion loan from 12 global banks, with interest rates that lower as the company moves forward on its journey towards B Corp status. As Faber said: “The paradigm shift is that these banks have identified B Corp as lowering the beta risk of our credit status.”

Certification like this ultimately compares what a company says to what it does. It offers transparency with regards to standards of social and environmental practices, and fnancial rewards for companies that stay true to their word.

BALANCING THE SHORT AND LONG TERM

The balancing act between quarterly results, constant search for new profitable opportunities and the big (or bigger) picture requires strong leadership. CFO is emerging as one of most vital roles in getting that balance right, because CFOs are well-placed to understand and advocate for the right kind of measurement.

Fernando Andraus, Senior Partner for Page Executive in Latin America, says the point of balance between short and long-term strategic projects lies in which KPIs are used. He insists that “quarterly indicators and annual results are not able to inform economic performance in a real way due to the volatility of these numbers. You need to find KPIs with values that do not change suddenly, such as the value of customers.”

Quarterly indicators and annual results are not able to inform economic performance in a real way due to their volatility. You need KPIs with values that do not change suddenly, such as the value of customers.

TURNING SHORT-TERM LOSS INTO LONG-TERM GAIN

The strategy of making major expansion investments to gain market share and to profit in the future is common in the technology sector. Mobility apps like Uber exemplify this perfectly.

Operating globally, disruptors do not need to make a profit today or in the next quarter, but they must in the medium-term. Early losses are understood as expansion investments only as long as a company is scaling rapid growth.

Uber, valued at almost US $70 billion, invests heavily in new markets (and legal battles) so that they can operate without regulation unlike taxi drivers. That is reflected in its strategy: expand to as many locations as possible, have more drivers than the competition, and generate high returns for shareholders in the near future.

Quick actions are necessary, but with caution. There is great risk in decisions that can negatively influence the future of the company - especially in an environment in constant technological transformation. Uber has suffered major public relations setbacks because the big picture –the brand, not just the business – was arguably neglected in the race to justify early investments.

BALANCE IS KEY

Only a strong C-suite team that anticipates and understands the concerns of the board and shareholders, while maintaining future strategy, can avoid the conflict that comes through misunderstandings within the leadership structure.

Businesses need a CFO with one foot in the market and the other in the C-suite, who offers in-depth analysis that can assist in building a lasting legacy for the CEO’s vision and the board’s needs. By keeping innovation and expansion in mind, aligning systems for better reporting and driving performance, CFOs can do more than navigate a company through uncertainty. They can be the counterweight to short-termism and pilot companies to long-term success.

KEY TAKEAWAYS

CFOs and the data insights they bring are key to short and long-term stability, but it requires support from the right people organisation-wide.

• The executive board and C-suite relationship is key to a company’s success.
• Strong executive teams anticipate board and shareholder concerns, maintain future strategy and avoid conflicts at senior level.
• CFO is emerging as one of most vital roles in balancing quarterly results with new proftable opportunities.
• CFOs affect planning, strategy and performance management by utilising analytical abilities and soft skills.

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