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š What Do Boards Do, Anyway?
And the one thing that drives them

The hardest thing about my first big CFO role was learning to manage the board of directors. But it's way easier if you provide the right information in the boardroom. And to get the right information, you need great systems. On that note, here's a word from Ledge, this season's sponsor;

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~~~ WORKING CAPITAL ~~~
Working Capital is a new section where I share an anecdote from the trenches.
Ass Covering in the Boardroom
For the first time in my career, I felt out of my depth.
I sat in my fourth or fifth board meeting since I took my first big CFO role (Iād already lost count).
And now here we were. With one of the most respected bankruptcy law specialists in the world on the phone, taking minutes for our board meeting.
This wasnāt a good sign.
I didnāt have the miles in the tank yet to box clever in a room like this. I was the youngest in the room by a mile. And surrounded by titans of industry.
The tone of the conversation was puzzling me.
Insolvency was being discussed as if it were inevitable.
I didnāt feel that way, nor did the numbers say that. Sure, it was difficult, and survival was far from guaranteed. But there was a path.
That path would only be successful if we all committed, though.
Time to speak up:
āIf we tell ourselves this business is going to the wall, we will be 100% correct, and there is a 0% chance this business survives. If we tell ourselves we can fix this, there is maybe a 50% chance we can rescue this business, and therefore only a 50% chance we are correct. I understand we have our directorsā duties to consider, but we also have to decide what is more importantā¦ that we are right, or that we are successful?ā
Clearly, the CEO had felt the same way. Shortly after Iād said my piece, he dived in, and was less polite.
āThis is all just a** covering horse sh*t. If you havenāt got the stomach for this fight, why are you still here?ā
That was another way of saying it, I guess ā¦
Boardrooms, especially independent boardrooms, are complex, often political places.
~~~ THE DEEP DIVE ~~~
During January, CFO Secrets will feature a three part season on the board of directors. This is the first part.
Why Do Boards Exist, Anyway?
The board of directors (BoD) is the ultimate governing body for a company. You will find a lot of fluffy words about the purpose of the board; setting strategy, overseeing, etc.
But the reality is clearer than that. The BoD is there to make sure the management of the company are doing what they should be doing.
In practice this means:
Hiring and firing the CEO (+ often the CFO)
Setting exec pay
Safeguarding against conflicts of interest
Directors of companies (i.e. formal members of the BoD) carry specific duties set by company law. Those responsibilities will be different depending on jurisdiction. But the themes are broadly the same. More on those themes later.
The Role of a Director
The type of director determines the precise role of the director. There are two axises on which to think about types of board directors:
Executive vs Non-Executive
Executive Director = a member of the BoD who has day to day responsibilities in the business, beyond their formal responsibilities as a member of the board.
Non-Executive Director (also called an Outside Director) = a member of the BoD who does not have any day to day responsibilities in the business.
Independent vs Interested
Independent Director = a member of the BoD who has no āmaterial interestā in the Business. This means they:
Own no shares
Have no material conflicts of interest. That means no relationships with suppliers, customers or competitors.
Are not dependent on the compensation they receive for their services on the board.
The assumption is that an independent directorās primary motivation will be protecting their reputation, rather than financial. i.e. their ability to āresign on principleā is an important component of their independence.
Interested Director = any member of the BoD who is not Independent.
A CEO would be an Interested Director because of the materiality of the compensation to them as an individual (whether variable or not).
The following shows examples of how those two axis interact with each other:

A good olā 2Ć2 grid.
Board Design
The function, tone, format and priorities of the board will vary. It's often based upon the mix of the BoD in relation to the above grid. i.e. a board with a majority of Independent Directors (e.g. a public company) will function differently to a board full of Shareholding Directors (e.g. a PE Backed Business).
Note there is no right answer here. Only a right answer for a specific business, ownership / management structure, and time.
Regardless of the board design, the goal of the BoD should be the same. To deliver the best result for shareholders.
But what does this look like in practice? From my experience, a good BoD will do these three things relentlessly:
Challenge management privately
Support management publicly
Enable management to get things done (often this means getting out of the way)
When a BoD is set up to do these three things, they are a great asset. When they are not, they are a tremendous liability. Iāve worked with both. The difference is stark.
Roles on the Board
The following sets out the different roles on the board and how the CFO should interact with them.
CFO - Letās start with you. As CFO, you may or may not be a formal member of the BoD; i.e. a named āDirectorā. Whether you are or not, you will normally attend all or large parts of the board meeting.
Whether or not you are a named director is a good indicator of whether the BoD will value your opinion and judgments. As opposed to just seeing you as providing information to the board as the āfinance guy/galā.
In the final issue of this series, we will get into the CFOās role in the board room in more detail.
Chair - The chair is the big dog in the board boom. They run the board. The primary duty of the chair is to performance manage the CEO. Sometimes the chair is also the CEO; often in founder dominated businesses. In this case the CEOās interests are naturally aligned to shareholders (by virtue of being a large shareholder); so a separate chair role may not be so important.
Building a good relationship with the Chair as CFO can only be a good thing. The most tangible sign of a good relationship is that the Chair calls you directly. Rather than relaying messages via the CEO or Audit Committee Chair.
Find a reason to be in your Chairās part of town and take them for lunch once in a while.
CEO - The CEO may be the leader of the business, but not in the board room. If a CEO is not feeling challenged by the BoD, the BoD is weak. Normally, the CEO will also be a formal member of the BoD.
Working well with your CEO in the board room can be difficult. Never blindside the CEO in the board room.
Never.
That doesnāt stop you disagreeing with them, even publicly. Especially if you are a named member of the BoD. Just make sure they see it coming.
Seriouslyā¦ get this wrong badly once, and it will wreck your relationship with your CEOā¦ and then what?!
Non-Executive / Outside Directors - Often these are people who have been there and done it. They will likely have experience as CEOs, CFOs, COOs etc. from other businesses.
They may have a day job working in a business as an exec, with one non-executive side-gig.
Or, oftentimes they have retired from exec work, and have a portfolio of BoD roles. āGoing plural.ā
They bring a specific skill set, network and experience.
Bringing real value, whilst not over-reaching into management, is a difficult balance.
But the magic tends to happen when they successfully combine the perspective they have with their experience, and network.
Maintaining a functional relationship with these folk is important. But you can also tie yourself in knots. You are better concentrating efforts on the directors who are most influential; i.e. The Chair and Audit Committee Chair.
Sub-Committee Chairs - Public companies, and large private companies, will have subcommittees of the board. Audit Committee, and Compensation Committee are two particular examples.
The committee chairs (normally outside directors) will often act as the right and left hand of the board chair.
Itās important you keep them onside. The audit committee chair opines on whether your numbers are right. And the comp committee chair decides what you are paid.
Keep them both just a short friendly phone call away.
More on how these committees work next week.
Corporate Secretary - Normally not a formal member of the BoD. But they play an important role in supporting the Chair in ensuring the proper function of the BoD.
Their responsibilities include preparing minutes and record keeping. They also provide advice on the function of the BoD. They normally have a legal background.
This is another important relationship. They usually have a direct reporting line to the Chair as well as CEO/CFO or GC. They have a good inside line on board dialogue and support the Chair. That means deciding the board calendar and agenda. These are things you want to influence.
And when sh*t is going down, they might know more than the CEO and CFO. Your new best friend, right?
Directorsā Duties and Liabilities
The responsibilities of directors of companies are hard wired into law. These are called fiduciary duties. Fiduciary duties should act as a true North for the conduct of directors.
The specifics vary by country, and company type (private v public, etc.), but the essence is often as follows:
Directorās duties are owed to the corporation itself, and its shareholders as a collective. Not one individual shareholder, employee, creditor, etc.
They must avoid conflict of interest, and safeguard the business against conflict of interest. Their sole loyalty is to the company
Demonstrate a high level of skill, care and diligence
Act in good faith
There are circumstances where directorās primary duty of care switches to the creditors as a collective, rather than shareholders. This applies to situations of distress where creditors will not get paid as they fall due. This is a particularly complex area, fraught with personal liability risk for directors.
If you find yourself here, you need an insolvency lawyer in your corner. Careers can get destroyed in a heartbeat by not doing this properly.
Good directors take their fiduciary responsibilities seriously. And so they should. The penalties for breaching directors' duties are harsh. It can include fines, director disqualification, and even personal liability for company debts.
One lawsuit from an aggrieved shareholder could result in huge legal fees. This is where directors and officers (D&O) insurance comes in. The company pays for the directors and officers of the business to be personally insured against those risks.
You should never join a BoD without first understanding the D&O insurance cover. I once heard a horror story of a director who got personally sued by a disgruntled shareholder with deep pockets. And without D&O insurance, the legal bills alone sent them bankrupt.
And if you breach your fiduciary responsibilities, you expose yourself to the biggest risk of allā¦ reputational destruction.
It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently.
Reputation risk drives the discourse on public company boards. Itās rarely said out loud, but itās back of mind for every independent director, moving to the front when things get hard.
As a CFO and responsible board director, your fiduciary responsibilities should be sacrosanct. Being a good director of a complex business is difficult. Especially in public companies. A minefield of conflicts of interest, politics and protocol.
Next week in Part 2 of this series weāll get into the detail of how boardās operate, how they make decisions, and how public boards differ from private boards.
Important disclaimer: Company law is complex and varies by jurisdiction. Iām not a lawyer, just a miserable old CFO giving their perspective. You need to take your own advice. This is for entertainment purposes only.
~~~ THE BOTTOM LINE ~~~
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This is another new section where I answer reader questions.
QUESTION
Lance from the UK asked:
I have recently been promoted to divisional CFO for a large engineering division. However, I have learnt that the division's pricing decisions are made at a group level, separate from the division. This causes an absolute sh*t storm as you can imagine. The pricing teams are making decisions that contradict capacity plans, e.g. offering promotions on products we can't meet demand for or increasing prices on ones where we need to increase demand. How do I bridge this gap? It feels like it is worth a fight (perhaps a big one) to get pricing under mine (and the Divisional CEO) remitā¦
ANSWER
The short answer is that your instinct is right. Go have that fight.
If you donāt control pricing, you donāt control demand. And if you are flexing supply to meet a demand plan you donāt control, you arguably donāt control supply eitherā¦
And if you donāt control demand or supply ā¦ what do you control? Feels like one of those decisions made in an ivory tower that sounded good at the time.
Picking your battles is part of the art of managing corporate politics. And this sounds like a fight you should pick.
Even if you donāt win, youāll learn a bunch, which will help you fight and win the next battle you choose. Build some allies first (divisional CEO, and your line finance manager; I assume Group CFO, are a good place to start)
Congratulations on the recent promotion, it sounds like your career is progressing well. Keep crushing it, Lance š«”.
If you would like to submit a question, please fill out this form.

I share this view. Work hard in your twenties, get the compounding going early. Your older self will thank you.
Donāt take advice from a business āexpertā thatās never built a big business.
The truth:
Work-life balance in your 20s is the easiest way to guarantee a mediocre career.
ā Chris Hladczuk (@chrishlad)
1:07 AM ā¢ Dec 23, 2023
Another classic from the meme-machine, my friend Robert Sterling:
Live footage of Deloitte consultants helping grow EBITDA at a midmarket company paying $1,500,000 for their strategic guidance
ā Robert Sterling (@RobertMSterling)
4:59 PM ā¢ Dec 19, 2023

~~~ WORK WITH SECRET CFO ~~~
~~~ AND FINALLY ~~~
Next week weāll be getting into how boardās actually function, and different types of boards.
As always you can find me here:
If you enjoyed todayās content, donāt forget to check out this seasonās sponsor Ledge.
Stay crispy,
The Secret CFO
Disclaimer: I am not your accountant, tax advisor, lawyer, CFO, director or friend. Well, maybe Iām your friend, but I am not any of those other things. Everything I publish represents my opinions only, not advice. Running the finances for a company is serious business, and you should take the proper advice you need.

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