Enterprise Governance from the Office of the CFO

Nov 23, 2020

Investors, lenders, other stakeholders, the board, the audit committee, regulators, all of these play a role in dictating how you govern your enterprise. Successfully managing these relationships and efficiently following their rules has a do or die impact on your business strategy.

Ethics & Reporting

A code of ethics is essential as a collective agreement among members of the organization to act ethically. Within the ethics code should be descriptors of inappropriate activity related to finance. It is imperative that the entire finance function, especially controllership, understands what constitutes unethical activity and behavior. Sometimes what seems obvious to one employee may not be to another. It is the CFO’s job to clarify these expectations to all finance members.

This ethical responsibility most heavily rests on the shoulders of company management. Managers who report through the CFO office may own specific fiduciary duties, but in most cases, this does not relieve the CFO or CEO from ultimate accountability.

The Board & the Audit Committee

The dialogue between the CFO and board members should be one of trust. Board members must know and feel that they can have a conversation with the CFO at their discretion and vice versa. The CFO will particularly need access to the audit committee chair to prepare press releases, review quarterly numbers, and understand what is scruitinized. New CFOs need to take the time in the first board meeting to get a sense of what the presentations look like, how the dialogue is facilitated and by whom, and get a general understanding of how they fit into the environment. Different boards have different board cultures and expectations of the CFO. Becoming acclimated quickly allows the CFO to begin creating relationships and fostering necessary trust immediately.

Investors and Lenders

A good investor relations (IR) team, depending on the organization’s size, can be a critical component to timely and effective communication with the public. Investor relations allows a company to represent itself effectively and honestly while under SOX reporting requirements. While there should be a separate IR team, public relations (PR) and IR go hand in hand. Ideally, both coordinate messaging and collaborate to maintain and develop branding. To investors, the CFO & CEO are the faces of the company. Their statements can have a massive impact on market sentiment and, ultimately, company valuation. This makes it especially important to identify realistic and reachable targets while avoiding underestimating the business. Stakeholders must view the CFO as honest and not as a cunning salesperson.

Less can be more in the space of lenders. Depending on the business’s size, a CFO may have to deal with 40 or 50+ banking relationships. Enhancing your financial spend under fewer banks will give your company preferential treatment over lesser spending clients. It is vital to have responsive lenders, and similarly, lenders want a CFO they can reach. Lenders are more objective than investors, but they are still interested to know what management’s prospects are for the future. Make sure they see the best of your business plans as well as its reporting.

Questions for consideration:

  • Is your code of ethics available to and known by all employees? Does the accounting and finance staff understand all issues that can constitute unethical behavior?
  • Does the CFO have a relationship of trust with the board?
  • Do you have a designated IR team? Do they collaborate with PR?
  • Are your lending relationships manageable? Or is valuable time being wasted?

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