Budgeting Process Insights & Tips from the Finance Frontlines
The CFO Career Path: How to Join a Board of Directors
Making it to the ranks of CFO puts you in highly rarified air. And we commend you on your career path success because we've been in your shoes, knowing all too well the perseverance, long hours, and commitment it took to get you to that nice corner office.
But that's not to say being a CFO – whether for a Fortune 500 industrial giant, a startup tech wonder, or anywhere in between – is your end-all-be-all in career aspirations, right? Sure, there's always the CFO-to-CEO transition, but that's not the only path forward. Instead, we're going to see why joining an outside board of directors can be career rocket fuel for a CFO and, most importantly, provide some tips on joining one.
Should a CFO Serve on an Outside Board?
Before we get to the nitty-gritty, it's best to ask if it's even a wise choice for a CFO to join an outside board. And to be honest, it's a completely valid question given how much time a board position can consume, typically anywhere between 20 and 45 days, sometimes even more if you're also on the audit committee. Therefore, our initial focus isn't so much on how a CFO can join a board, but if they should join.
Surprisingly, research shows only 7% of Fortune 500 CFOs serve on the boards of other Fortune 500 companies. Obviously, the steep time investments involved probably have a lot to do with that meager statistic. However, there are many other factors a CFO – and their home firm – should consider.
For example, another recent study determined companies with CFOs sitting on other boards have 21% fewer misstatements in their financials. But why would that be, you ask? Well, it has a lot to do with the exposure to different skill sets, experiences, and knowledge a CFO absorbs when sitting on another board. It’s an eye-opener, one that invariably causes a CFO to turn their pensive gaze toward their own house to identify issues and inefficiencies.
Simply put, joining an outside board is a unique learning experience for a CFO, especially when they're also on the audit committee. And this new experience can put a motivating bounce in a CFO’s step, often even affecting their career path trajectory. Therefore, assuming the home company's finance organization can streamline operations to free more time for the CFO – more on that in a bit – then joining an outside board can be a win-win for everyone involved.
The Modern Board of Directors
Now that we've determined that, at least for the most part, both CFOs and their companies can benefit when a CFO joins the board, let's take a look at what a modern board of directors looks like. Because, suffice it to say, it's not your grandparents' board anymore.
Modern dynamics are shaping today's boards, where companies are making an effort to ensure they more accurately represent the employee base and the customers they serve. To that point, women comprised 45% and minorities 15% of new board members in 2019, figures that will undoubtedly continue to rise in coming years.
Further, companies expect their corporate directors to bring fresh skills, a track record of success, and an independent perspective without a conflict of interest in sight, especially in this SOX-driven regulatory environment. Remember, directors have a fiduciary responsibility to adhere to bylaws and act with due care in steering the corporate ship, facing potential legal liabilities when things go sideways.
The point is, the modern board of directors is far more dynamic and talent-hungry than its counterparts from just a few decades ago. Of course, that's not necessarily bad. In fact, from an outside perspective, it's nothing but good. However, if you’re a CFO that wants to sit on a board, it's important to have the right attitude and expectations as you start your journey.
Embark's Tips for Joining a Corporate Board
Now it's time for the main event – getting you on a board of directors. And while there is no magic spell that will work for every company every time, we've gathered some general insights that, collectively, will be extremely beneficial in helping you find the right open board seat.
Approach it Like Any Other High-Level Job
Sure, becoming a member of the board is different from other positions you've pursued in the past. But that difference really comes from the destination itself – board service – and not the process of getting there. Put another way, you're best off following a strategy similar to pursuing a C-suite role or some other high-ranking leadership position.
That means doing your homework, reading the annual proxy statement if you're trying to join a public company board, and researching the backgrounds of existing board members through LinkedIn and other resources. You'll also want to tap into your professional network for advice as well as possible connections to executive/board search firms.
Likewise, prepare a board resume that highlights why you're such a strong candidate for a specific open board position. And if that board resume looks a bit scant at first, not to worry. You can always bolster your qualifications by joining trade and professional associations, a nonprofit board, or something civic-related.
Find a Good Fit
Companies are like people, each with their own quirks, characteristics, and goals. Thus, choosing a business that matches your personal vision, values, and temperament will go a long way toward ensuring your experience on a particular company board is a fulfilling and enlightening one.
Similarly, try to figure out what type of board member you want to be. Granted, it's not like there's a set of prefabricated categories companies slip their board members into like they're a baseball card collection. However, there's something to be said for narrowing your focus to a more honed mindset.
Are you a real stickler for compliance? A tried-and-true legacy builder? Or maybe a data and analytics evangelist? Companies are often looking for board directors that bring specific strengths rather than broad-based utility players that can do a merely adequate job across the infield. Put another way, find what you're best at, most interested in, and pursue it. Just make sure it doesn't come at the expense of a more open and strategic mindset.
Prepare for a New Mindset
Speaking of an open, strategic mindset, the board experience is very collaborative. Sure, you collaborate frequently with people in your company. However, in the case of your board role, you're working hand-in-hand with other directors and leaders from across the enterprise – and beyond – not just the finance organization.
As a director, you're also an individual piece to a larger puzzle, usually with limited boardroom time to voice your opinion and ask questions since there are plenty of other people sitting around that handsome conference table. Therefore, it's important to know when to stay in your lane during board meetings and carefully choose your questions and comments because time is finite.
Also, while we know you're an intelligent and informed person – otherwise, you wouldn't be a CFO – companies are looking for a different brand of intelligence from their directors. A CFO pursuing board membership should be able to look at a picture that's bigger than just cash flow, a month-end financial close, and short-term strategy. For example:
- Do you immediately zero in on GAAP compliance when you look at an income statement? Or can you put on your x-ray goggles and look into that financial to see what's really going on under the hood for a company?
- Can you take those financial insights, combine them with data on the competition, market trends, and other external forces to develop a game plan to reach a preferred future state? Or help determine what that preferred state should look like?
- How comfortable are you establishing relationships with fellow current board members, company executives, and other key stakeholders?
- Can you build and maintain an environment where executives can feel comfortable being honest and upfront, especially when things aren't going well in operations? Remember, directors have fiduciary responsibilities so an open, frank, and transparent board environment is an absolute necessity.
As a best practice, joining cross-functional initiatives within your home company is a great way to build the mindset you need to be an effective board member. This way, you're branching out from the finance organization, working with leaders from various departments, and hopefully strategizing for the bigger picture.
Transformation Makes Time to Grow and Prepare
Finally, nothing we've discussed here comes quickly. Building collaborative superpowers, forming a strategic mindset, developing a specialized skill set – they all require time. Unfortunately, as a busy CFO, you probably don't have much of that these days.
However, think about the day-to-day operations in your finance organization. Do you have swathes of bright, motivated people drowning in disparate data sources and manual processes? If you answered yes, then transforming your finance and accounting functions into streamlined, data-driven efficiency machines would give you the free time you need to prepare for board membership. And all this while you’re also generating next-level business intelligence for leadership's decision-making.
We're not exaggerating when we say an automated solution might be able to shrink your AP process from a week into hours. Or advanced analytics could become an accurate crystal ball for your FP&A team. And those are just two of the many examples we could provide to demonstrate just how much a finance transformation initiative can save you in time and resources.
Therefore, if time is needed to prepare yourself to be a first-time director, let the transformation begin. Because competition amongst potential board members is fierce these days, making preparation both a critical differentiator and your key to success. And Embark is just the experienced partner you need to get you there.