Are CFOs Fit for Outside Board Seats?

Citigroup's intention to add directors with finance expertise raises the question: How many is too many?

A different point of view was offered by Ramon Weil, a professor of accounting in the University of Chicago’s graduate business school who has done research on the roles of finance executives on corporate boards. He said Citigroup’s strategy is appropriate because it’s a financial services company. At a manufacturing company, say, someone whose expertise is largely in finance rather than in manufacturing might not have much to offer as a member of the general board.

Theoretically such a person is needed for the audit committee, but Weil pointed to problems there as well. “The most surprising thing in my research has been how many CFOs don’t know diddly-squat about accounting,” he said. “I’m suspect of CFOs on boards who have never been involved with accounting. They know about financial markets, earnings reports, borrowing, and dividend policy, but they tend not to be real helpful on audit committees about the kinds of accounting issues that have gotten so many companies in trouble.”

Yet that kind of CFO might be just the one that corporations are looking to install on their boards, according to Tom Kolder, president of finance-executive recruiting firm Crist Associates, for which placing board members is a key service.

In recent years, Kolder said, the catalyst for bringing CFOs into the boardroom was the new compliance demands brought about by Sarbanes-Oxley. Now, though, the trigger will be the devastating effects of companies’ risky behavior in the capital markets. That means a different kind of CFO will be in demand. “Whereas in the past coming up through the CPA track was the key qualifier, what you can expect to see now is treasury-related skills coming into favor,” he said.

Regardless, companies are ill-advised to view changing the board mix as a panacea for their problems, according to Hall. “I suppose the trend for more industry experts being put on boards [at financial services companies] will continue, but that doesn’t make a problem like the mortgage mess magically disappear,” he said. “It’s going to take a lot of work and time to sort matters out. Sometimes it takes a lot of dumb questions to get to the real answers. And let’s face it, there are a lot of guys on Wall Street who all thought they were doing the right thing and the risk wasn’t that great.”


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