“We spend a lot of time studying and discussing best practices in governance and how to implement them,” says Netegrity’s Sommer. “We try not to overdose on it, but we have had to extend our meetings to allow time to also talk about actual business issues.”
Experts say communication has certainly become a bigger part of most CFOs’ jobs lately. “A CFO now needs to be fully engaged with the board,” says Harvard Business School professor Jay Lorsch, co-author of Back to the Drawing Board: Designing Corporate Boards for a Complex World. He sees a broader role for CFOs, in which they do far more than simply recap the numbers. “CFOs who are explicit about financial objectives; risk factors; and one-, two-, and three-year targets perform a critical service,” he says, particularly in an environment in which there is continued pressure for short-term results. Add to that a sometimes-delicate educator’s role for the CFO. “Board members typically believe they understand financial principles, even when they don’t,” says Lorsch. “And even if they do, they may not make a connection to the company’s specific line of business.”
All that communicating can be time-consuming, particularly at smaller companies. At Netegrity, for example, Sommer says she has been spending about 10 percent of her time on governance issues, while the company’s general counsel has spent about 25 percent of his time on them. Netegrity hired an outside firm to document its internal controls, in order to get the task done quickly and more efficiently. While some value has come from the company adopting a number of best practices, “it does seem like the pendulum has swung too far,” she says, “and you have to wonder whether the shareholder benefit equals the amount of work that’s gone into this.”
MIT’s Holmstrom jokes that the post-Enron regulatory environment has been like “a fire department trying to devise a fire code that’s so all-encompassing that they’ll never have to put out another fire.”
Most in corporate finance believe the rule-making has largely subsided. Now it’s up to the companies to make governance reforms work. “A new standard has been set,” says Smithart. And “even if things relax a little, governance has been transformed.”
Scott Leibs is editor of CFO IT.
Corporate Governance Survey
CFO conducted a Web-based survey between 12/18/03 and 1/5/04. Results are based on 310 respondents, 90% of whom are CFOs, VPs of finance, or other senior finance executives. All respondents worked for companies with annual revenue of at least $500 million, with 68% working for publicly traded companies, 21% for private companies, and the balance split among nonprofit, academic, and government institutions. Margin of error is +/- 5.1%. Totals may not equal 100% due to rounding.
Changes to corporate-governance policies/procedures have:
Moved in the right direction but not far enough. 23.5%
Proved distracting and costly, to little advantage. 22.1%
Largely addressed key issues and corrected shortcomings. 16.9%