As a CFO, your corporate board of directors is one of your most important constituencies. Therefore, it’s critical to manage board relations carefully and strategically and to make sure that you and your CEO are aligned on your approach and your respective roles.
This starts with understanding the unique interests of each of the individual members, knowing their data needs, and determining who should be communicating with which board member and on what cadence, says Consero’s CFO and COO, Mike Dansby. “This will enable board members to most effectively support and govern the company,” says Dansby. “And it will lessen the chance that there are unmet board member expectations on the part of your company.”
The Makeup of Your Board
Managing board relations effectively starts with achieving the right makeup for your board. In smaller organizations, the board might consist of just investors and the founders. But as businesses grow, the makeup of their board should evolve as well. For instance, “independent” board members may be added to bring specific industry, product or functional expertise to the board. Additionally, with growth the board will evolve and form committees. Quite often, someone with deep financial expertise is added to chair the audit committee.
Over time, conflicts can sometimes arise based on how the board makeup is structured. Consider a venture capital-backed business with both early- and late-stage investors. The early-stage investors might not be as patient as time passes and might prefer a quick sale to generate liquidity whereas late-stage investors may be more willing to take a long-term view of the business.
“I have seen this scenario play out many times,” says Dansby. “It can be avoided by carefully managing the makeup of your board to achieve a balanced representation of shareholders, management and independent directors. Also, the company should pay close attention to the voting rights and preferences given to each series of shareholder to understand if decision making is balanced or loaded in favor of a particular shareholder class.”
Communicating with Your Board
Another key to effective board relations is knowing how to communicate with board members in the language they want to hear. For example, a business that’s backed by venture capitalists most often operates at a loss. In this scenario, the VC board members will be primarily interested in the progress of bookings growth and how to use cash flow to help drive growth, not in things like marketing and expense management.
“There’s no need to go over a detailed P&L statement with them or talk about expense reduction,” says Dansby. “Instead, spend your time with them focusing on sales, revenue and cash flow.”
On the other hand, a business that’s owned by private equity investors is probably more established. The PE board members will likely be most interested in ways to boost efficiency and cash flow in order to service debt, as well as adherence to loan covenants. If debt is minimal, they will probably be interested in expense management and what types of investments are needed to grow the business.
“Private equity owners tend to demand more data and perhaps be more hands-on with the business,” says Dansby. “Sometimes this requires a little more patience on the part of CFOs.”
Organizing and Facilitating the Meeting
According to Dansby, it’s important to choose a consistent format and agenda for your board meetings so members know what to expect. “Have a consistent flow to your meetings and a consistent set of metrics so they have a similar experience and get the same view every time,” he says.
For example, you might get routine business matters out of the way up front, like approving stock options. Next, you could cover the executive summary and key strategic initiatives. Then you can spend the rest of the time focusing on the things that are important to your board members, as discussed above.
Dansby recommends preparing the board deck and distributing it to board members several days in advance so they can review it and be better prepared. Get consensus early on as to key metrics and analytics for the business and stick to those. Relegate the GAAP financials to the appendix as most boards prefer to look at some version of an adjusted EBITDA analysis.
The hardest aspect of keeping board members up to speed might involve translating complex financial data into actionable insights. “Board members might be unfamiliar with financial concepts that CFOs analyze regularly and confused by accounting jargon,” says Dansby. “Therefore, it’s important to keep reports simple and make sure they’re timely, consistent and concise.”
The CFO’s Role in the Meeting
At times CFOs might feel like a stick in the mud when they have to follow the CEO at a board meeting. The CEO is the optimist who talks about big-picture strategy and headline numbers, and then the CFO has to explain what the numbers mean, how the company can achieve them, and perhaps a dose of reality to the discussion.
“Sometimes CFOs even need to reign CEOs in a little bit,” says Dansby. “But a board meeting isn’t the right time or place for open disagreements or to challenge the CEO. Instead, be adaptable and explain to the board what assumptions need to be met for the company to achieve the CEO’s vision and goals.”
If you have more questions about managing your corporate board more effectively, request a complimentary consultation.
