Everyone expected that Sarbanes-Oxley would result in the seating of many more CFOs on the boards of public companies. It hasn’t. Ever since the Securities and Exchange Commission decided to liberalize the definition of “financial literacy” for purposes of board composition, companies have tended to pick CEOs or academics instead.
What has changed is the relationship between CFOs and their own boards. The recent slew of scandals left boards looking flat-footed and ignorant, so they now insist on better communication with the CFO — and more of it. As senior editor Roy Harris reports in “Across the Board“, CFOs are spending more time with directors outside the boardroom, even taking them on tours of operations.
According to the CFO/National Association of Corporate Directors survey, 70 percent of directors say such communication has improved their understanding of the company. When it comes to corporate governance, more than 40 percent think the CFO should ensure that the letter of the law is met. More surprising, perhaps: a significant minority — almost one in five — believes the CFO should push for change above and beyond the letter of the law.
Boards also want CFOs who understand the nuts and bolts of the business, as well as its numbers. It’s not that they distrust the CEO, but more are looking to the CFO to provide a second perspective on the health of the company — and more CFOs feel comfortable providing it. This marks a big change from earlier times, when a CFO who questioned the CEO’s version of events would soon find himself polishing his résumé.