CEOs and business owners often experience a disconnect between themselves and their finance departments. CFOs, controllers, and accountants often experience the same disconnect with the CEOs and business owners they support. Gaining understanding and building ongoing rapport are keys to the success of the business.
What Makes a Good CEO vs. a Good CFO?
The CEO and CFO have distinct responsibilities within a company, and these are vastly different roles. Because the responsibilities are so different, it also makes sense that what makes a good CEO may not be the same as a good CFO. The differences in the characteristics and the skill sets required for these vital positions can vary widely. It's no wonder the two can sometimes clash or just not seem to understand each other.
A typical CEO relies on the "big picture," and is a right-brain thinker. They are intuitive and creative and are comfortable in front of a crowd. Some of the skills and characteristics that an effective CEO will have include:
- Servant Leadership
- Emotional Intelligence (EI)
- Active Listening
- Strategy Development
- Distilling Concepts and Ideas
A typical CFO or other finance executive uses more of the left side of their brain. This is a person who is more of an analyst, logical thinker, and reasoner. Instead of being comfortable in front of a crowd, they would rather spend time with ledgers and technology. Some of the skills and characteristics that an effective CFO will have include:
- Balanced and Reflective
- Implements Strategies
- Improves Cash Flow and Profits
- Locates and Fixes Problems
Understanding Different Leadership and Working Styles
The CEO and CFO fill different roles within the organization, so it makes sense that they might have different leadership and working styles. The CEO typically has broad oversight responsibility over every area of the business. They see the big picture, set strategic goals, and link the inner workings of the company to the outside world.
The CEO is not necessarily a finance expert. A notable strength of successful CEOs is the ability to motivate and inspire others. Even in the face of adversity, the CEO should be able to summon new ideas and a level of optimism that will empower the team and encourage them to achieve strategic goals. A CEO may sometimes be ignorant about financial matters or constraints, so doesn't know to ask for what they need.
The CFO's primary focus is the financial management and development of the organization. Those strategic goals and outside-the-box thinking that came from the CEO? The CFO will be the voice of reason that determines whether the company's finances will align with its goals.
While also strategic in nature, this is a highly data-driven position that depends on quantitative and qualitative financial analysis. The CFO position is also mired in deadlines thanks to regulatory requirements (taxes, etc.), and the need for accurate periodic financials. The department must also adhere to standards regarding GAAP, bank covenants, and other constraints.
Typically, a CFO will split their time between managing their finance department and conducting analysis and planning. Throughout the year, they will need to attend board meetings, prepare an annual budget, deal with required filings, and provide company leadership with requested reports and recommendations.
Obviously, these are vastly different roles and working styles. But, ideally, both parties are pointed in the same direction and working towards the same goals. To increase the odds of success, both will need to take a few more steps to strengthen the CEO-CFO relationship.
Building Rapport Between the CEO and CFO Roles
A wise CEO understands that they will only benefit from the counsel and support of a strong CFO. Likewise, a successful CFO realizes that working for a company with a strong vision and leader will lead to the achievement of financial goals. To accomplish this, the CEO and CFO must build a partnership instead of just a reporting relationship.
When it comes to a CEO building strong ties with their CFO, several things seem to matter. In a 2017 KPMG survey of over 500 global CEOs, more than half saw the importance of the CFO role increasing over the next three years, yet nearly one-third (30 percent) believed their current CFO wasn't up to the challenge.
From the CEO's viewpoint, 61 percent see regulation as an opportunity to gain a competitive advantage and want the CFO to have a role in these initiatives. Some of the most important attributes that CEOs are looking for in a CFO are industry experience (32 percent) and regulatory experience ( 19 percent). When it comes to building that rapport with the CFO, some recommendations include:
- Understand your CFOs strengths (very analytical) and weaknesses (usually more comfortable with data than in front of a crowd).
- Leverage their strengths to get the information you need, when you need it.
- Support them by providing tools and resources to help them overcome their weaknesses.
CFOs can also work on their relationship with their company's CEO, and there is data to back up which areas are of most value. Russell Reynolds released a survey of over 100 CFOs, where just half (49 percent) said that they had a "very strong" relationship with their CEO. Of those who declared a very strong relationship, 70 percent said that they provide top management with access to their direct reports and 98 percent said they are comfortable discussing tough issues with their chiefs.
This comes down to transparency and communication. While there should be a healthy working relationship between the two, there won't be a sense of trust established without full disclosure. In fact, a CEO Magazine survey of more than 100,000 executives revealed that the most valued leadership quality was honesty.
So, when it comes to building rapport with a CEO, some of the things that a CFO can do include:
- Ask questions to gain an understanding of how they work, what they need, and when they need it.
- Be completely transparent and open to admitting mistakes.
- Provide information in a format that is consumable by the CEO.
- Be open to constructive criticism and willing to share your opinion.
- Develop appropriate metrics and calendars and share them.
How to Strengthen the CEO-CFO Working Relationship
To be successful, the CFO must be able to function well alongside the CEO, and vice versa. When the pairing works, it can be a catalyst for growth and innovation within an organization. While the two must be aligned on big issues, they also need to have a relationship that allows for constructive challenging. There are several ways to strengthen this relationship.
- CEOs must be willing to ask for what they need and want from the CFO.
- CEOs should have regularly-scheduled, collaborative discussions with their CFO. Make sure they understand your business drivers (what makes the company go). Keep them up to date on changes and adjustments outside the finance space so that they can help spot potential risks and opportunities.
- CFOs need to ask the right questions of their chiefs and be willing to challenge them when necessary.
- CFOs should work on adding value in addition to managing costs. In other words, how can the CFO role develop top talent, work with operations, and help align the CEO's initiatives?
- Both managers will need to put themselves in the other's shoes to understand what is required for success, both in the role and for the organization.
The relationship between your company's CEO and CFO is vital. Creating a successful rapport between the CEO and CFO will ensure that relevant and timely information is provided to effect good business decisions. A lack of cohesion could mean that the company is unable to meet its goals.
If you want to harness the power of a strong CEO/CFO partnership, finding or developing this talent will bring tremendous benefits to your organization. Contact us here for more information about how we can help.
About the Author
Kurt Maass is a versatile and accomplished executive with 30+ years of experience in finance, accounting, and operations roles. He has worked extensively in the wireless, landline telecom, ecommerce, manufacturing and energy conservation sectors, including serving as divisional and public company VP-Finance and CFO, in addition to public accounting firm experience.
He brings a unique perspective from working with both very large companies (managing operational and capital budgets in excess of $2B annually) as well as very small early-stage start-ups, where he has actively participated in multiple equity and debt financing rounds. He is experienced with the International Financial Reporting Standards, having converted a Canadian-GAAP reporting company to IFRS for stock exchange reporting purposes.