There are no hard and fast rules for the role of the CFO in the corporate world. Globally, the CFO plays a more prominent role in companies in some countries and industries than in others.
Companies have much liberty in deciding the duties and responsibilities of the CFO and whether the CFO reports to the CEO or the board of directors. The CFO position is a senior management position. Much like the CEO position, a CFO may serve on the board of directors for some companies. Other companies choose to keep the CFO role as a non-board position.
Some companies give the CFO duties and responsibilities as a fiduciary director. In this case, the CFO has statutory duties that are governed by specific legal requirements. Part of this responsibility requires CFOs to ensure that the company is accountable to the shareholders and takes stakeholder interests into account. In this capacity, the CFO ensures sustainable value creation.
The CFO's involvement in board member pay depends on several factors, including whether they serve on the board, whether the company has a remuneration committee and how many independent board directors the company has.
What Does the CFO Position Entail?
The boards of each company decide on the job description for their CFO. In the United States, the trend for CFOs who serve on boards of directors is declining. U.S. companies are trending in the direction of having all or mostly all independent directors on their boards. Often, if any senior executives serve on the board of directors, it's the CEO.
Boards of directors also have the liberty of deciding whether the CFO reports to the board of directors or to the CEO. There is some controversy over whether CFOs should report to CEOs. A CFO that reports to a CEO may not feel that they can make the best decisions on their own because they have to consider the response by the CEO. In some cases, CEOs override CFO decisions, which limits their power and influence.
A CFO may also be referred to as a senior vice president. Some of the basic duties and responsibilities for the CFO include analyzing and reviewing financial data, reporting financial performance, preparing budgets, and monitoring expenses and costs. The CFO regularly monitors the corporation's financial health and ethics and makes presentations to the board of directors at various intervals, as well as providing it to the shareholders and regulatory bodies like the Securities and Exchange Commission (SEC).
CFOs should have a sufficient level of status in the company to ensure strong financial management and responsible operational decision-making in order to instill confidence in investors and other stakeholders.
The CFO's Involvement and Interaction With the Board of Directors
Corporate boards are still finding their way in assessing the pros and cons of having the CFO serve on the board of directors.
Where a CFO is not a board director, the person serving in this role shouldn't be a stranger in the boardroom. The board should be able to rely on the CFO to supply them with high-quality information and analysis to support decision-making based on the facts. The CFO should also meet with the CEO and be accountable to external stakeholders for financial information and transparency.
While the trend for CFOs serving on the boards of their own companies is decreasing in the United States, there's an increase in the interest in having CFOs accept part-time, non-executive directorships at other companies. Changing regulatory requirements and the increased demand for CFO skills (particularly in the area of finance) on the board are driving the trend for CFOs to serve as independent board directors on boards where they aren't also employees. This is a win/win situation, as it helps CFOs gain knowledge and experience that will assist them in their daily job duties and responsibilities.
What Is the CFO's Involvement in Determining Board Member Pay?
Who decides a board member pay depends largely on whether they're a senior executive employee or an independent director. Boards decide the salaries of inside board directors as part of their employment benefits package. The company reimburses them for any board-related expenses and usually compensates them for serving on a board committee or serving as board chair.
CFOs who are independent or outside directors aren't employees, and thus don't get a salary from the company. The full board makes a decision about how much all board directors get paid, including the CFO. Independent directors also get reimbursed for meeting expenses, travel, accommodations and food. The same holds true in getting additional compensation for serving on board committees or serving as board chair, as these positions require additional time and commitment.
Most commonly, boards form a remuneration committee and charge them with making recommendations for board director compensation, which would include a CFO who serves on the board. In the interest of independence, some corporations seek assistance and advice from compensation consulting firms.
Business networking is an asset for companies as they attempt to determine fair salaries for board directors. It's common for board directors to consult with each other about what their companies pay their respective board directors.
Shareholders are apt to keep an eye on CEO compensation and ensuring that companies align CEO pay with performance goals. For all senior executives, companies are becoming more cognizant of the need to align C-suite executive salaries with their performance and account for pay equity among the other employees. Public companies are required to disclose their board directors' pay to the shareholders and investors on their annual proxy statements.
When a CFO is an employee and a board director, their role is exactly the same as any other executive board member. The remuneration committee makes recommendations to the board and the CFO votes on the recommendations along with all the other board directors.
Modern governance is evolving. Shareholders are demanding more say on board member pay. Corporations are appointing more independent board directors. Regulatory bodies, proxy advisors and institutional investors are continually evaluating best practices for good corporate governance and fine-tuning their recommendations. Digital tools provide the resources for companies to keep up with the fast-paced and continuously evolving changes in today's corporate world. Diligent Corporation offers Governance Cloud, which is the modern way to approach governance activities. Governance Cloud is a suite of board management solutions that support all board activities for modern times and into the future.