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In today's environment, who should the CFO report to? The CEO or the Board?

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Posted Mon, 01/11/2010 - 1:05pm by Scott MacDonald (President/Owner)

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Most of the problems we have seen with company failures in recent times is the fact that a CFO didn't make good decisions, most of the time because of the leverage the CEO had over them. I believe the CFO should report directly to the Board of Directors, so that their job can't be threatened by the CEO. I also believe a CFO should have a clause in their contract that in essence allows the CFO to leave with a sizable severance should they be asked by the CEO or BOD to do something illegal, unethical or immoral.

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I completely agree

by Scott Lane (CFO and CRO) - 01/13/2010 - 11:42am

The CFO should be as independent as possible for sound governance purposes, the CFO has fiduciary responsibilities. In many smaller companies the CFO is also the default COO which makes independence even more important. If not reporting to BoD then the severance clause is a great idea.

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I don't know...

by Mark Stokes (CFO) - 01/13/2010 - 2:36pm

I'm all for power to the people, but I see a few critical issues with the CFO reporting directly to the board. First, it's hard to succeed with two quarterbacks on the field at once (sorry for the hackneyed sports metaphor).

Part of what makes an executive team successful (when they succeed) is that it is a team with one clear leader. If the CFO reports directly to the board then there would be some confusion at all levels and within the CXXs themselves around who is the company's leader. And I don't believe the board itself can be an effective leader. Board members are a group, not an individual, so they are not ideal as day-to-day managers, and board members are not dedicated to any company nor are they full-time. So the board is not nearly as engaged as the CEO and therefore less able to effectively lead multiple separate groups at the company.

If you set the independence and malfeasance aside, I think that having the CFO report to the CEO is far superior. As for independence, malfeasance and the like, well, that is the responsibility of both the CFO and the board. And together (and each separately) they should be able to maintain adequate independence from the CEO to keep worrisome items in check.

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I don´t think so ....

by Carlos Malagoni (CFO) - 01/14/2010 - 3:21am

The report should always be to the main responsible for the day-to-day operation. The figure of a leader is very important to make clear who decide in final operational instances. One thing that could be done is co-responsabilize the CEO for some decisions prior made solely by the CFO, derivatives contracts for example. A huge part of the return in the business plans come from a perfect sincronism in the operational and financial chains, issues not always discussed int the board agendas.

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Not the Board

by Bob Newton (President) - 01/19/2010 - 7:18am

It is not within the proper function of a Board to get involved at such a level of detail to be the CFO's direct manager. The CEO is the player-coach of the management team.

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CEO/CFO joined at the hip

by William Tennison (CFO) - 01/20/2010 - 6:29am

Having been a CFO for several companies, I believe the CFO should be a direct report to the CEO and dotted line to the Audit Committee. The CFO walks a fine line between internal operational matters and external financial reporting requirements.

In most companies, the CEO and CFO work in tandem to manage the enterprise. If the CFO and CEO are at odds with each other, the CFO is normally replaced. When a new CEO is broght into an entrprise, the CFO is often replaced with the CEO's choice. I am not saying this is the right way to manage an enterprise, however, it is the accepted norm in today's environment. The CEO relies on the CFO to complete the necessary tasks at hand. That person typically brings in someone that the CEO trusts.

For publicly held corporations there is the added pressure of being compliant with all the SEC regulations. The audit committee of the Board has the responsibility to maintain oversight for external reporting. As such, the CFO and CAO normally have dotted line responsibilities to this committee. This also provides an outlet for the CFO to the Board if there is a difference of opinion on how to handle financial relataed matters with the CEO.

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CFO Reporting to CEO or Board

by Richard Randall (Board Director; Audit Co) - 01/20/2010 - 7:32am

As a former CFO of several publicly held companies and now as the chair of Audit Committees of 3 entities (2 NASDAQ, 1 Not for Profit) I can understand leanings either way BUT I am very comfortable with the CFO reporting to the CEO and having a good, communicative and confidential relationship with the Audit chair.

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CFO vs. CEO

by Nate Cammack (CFO) - 01/20/2010 - 11:05am

The question commingles two separate issues. First the relationship with a CEO, and secondly that of ethics.
No, a CFO should not report to the Board - no one will ever support that idea. As mentioned above, the Board is not operational in any event and this would be a blatant attempt to skirt the CEO and finesse support from the Board. Speaks more to the weakness of the CFO than the CEO. If a CFO can't influence the CEO, then it's the wrong CFO in the slot. Not to say that the CEO should be protected - but correcting the CEO is the responsibility of the Board. I once heard a very senior attorney mention that it takes two CFO's moving on, for a CEO to be next on the list - my experience would suggest that's true.
Second, in the event of am ethical conflict, the CFO has literally no choice - you may not be able to avoid a conflict of this type, but you have NO choice as to your own behavior. A CFO that gets this wrong may never again be a CFO (think Enron).

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Line of reporting for CFO

by p weiss (CLO) - 03/31/2010 - 11:10am

What is the "best practice" for whether a CFO reports to the CEO, the Board, or even a COO in a small organization? Any comments, resources are appreciated.

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In a small company the CFO

by Bryan Frey (VP Finance/Corp Controll) - 03/31/2010 - 12:35pm

In a small company the CFO should report to the CEO. Given how small small companies tend to be (yes, I wrote "small" twice intentionally) it does not make much sense to add a COO layer. In fact, unless the CEO is very hands-off, it's pretty rare to have anyone between the CFO and the CEO at any size company, much less a small company.

Likewise, I don't think you can have the CFO reporting to the board directly. Unless there are some contentious issues with the CEO it just doesn't make sense. The CEO and CFO need to work so closely together on a day-to-day basis that putting a board or even one board member between them seems like a very bad idea.

In summary, the best and clearly most frequent practice is the CFO reporting directly to the CEO.

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