But the importance of taking care with communications doesn’t end with e-mail, and setting up formal communications policies can reinforce how serious the matter can be. Say, for instance, a CFO feels the need to set up an internal committee to investigate an aggressive tax strategy. The CFO should give the committee members not only a clear goal and decision-making parameters but also a routine for how results should be reported back to senior management. What’s more, if new material financial information is uncovered, the procedures should instruct the committee to work with the CFO to disclose the information to comply with securities laws. Such policies “take a compliance approach and overlay it on a business approach,” notes Mann.
Another internal communications issue that has received attention of late is corporate policy related to the Foreign Corrupt Practices Act, the U.S. law that addresses bribery. Mann says policies should be in place that spell out how executives should respond to a counterparty that asks for, or offers, a bribe in exchange for business, and how and to whom the incident should be reported. “Lots of executives say they would never pay a bribe, but just having a good business ethic isn’t good enough,” he counsels. “The idea is to be proactive and insert compliance into the situation before any questions are asked.”
Poor communication between the CFO and the board could have serious ramifications for the future of the business. “If accounting issues hold up a liquidity event [like an initial public offering or the sale of a company or major asset], that’s a huge problem,” says Damon Lewis, audit partner at Ireland San Filippo LLP, a regional accounting firm that works with small and midsize companies. Faulty or nonexistent communication regarding working capital, earnouts tied to the transaction, and contingent liabilities have been known to gum up transactions.
By Lewis’s lights, it’s the CFOs responsibility to prepare the board for accounting and other financial irregularities that may surface during deal negotiations, if only to manage expectations. He contends that in most cases, accounting snags spotted and communicated early won’t change the deal at all, or at least will have a better chance of being solved in-house before anyone outside the company identifies them.
Lewis also suggests that CFOs set policies to make sure directors receive materials on a regular basis and at least a week ahead of meetings. While that may be easier said than done, it lets the board members prepare questions. The task is much easier at public companies, where finance teams are used to compiling information for analysts and investors who expect earnings guidance on a set schedule, and preparing financial statements for the Securities and Exchange Commission, which mandates hard deadlines for filing results.
What happens when a big deal gets in the way of compiling board materials, or the board meeting itself? Communicate that to the board, too. Many directors of smaller companies have worked for, or served on boards of, small companies, and have an appreciation of the priorities the CFO and other executives must juggle, notes Lewis: “No board member in the world would complain if a meeting is rescheduled because employees are preparing for negotiations with a potential customer.”