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CEO Inaction Killing The Company - Now What?

Jim Harness's Profile

If the CEO is unwilling to take action on the declining financial condition of the firm that calls into question the firm's viability in the short run (12-18months) is it the responsibility of the CFO to notify the shareholders? The CFO acknowledges that his/her actions would jeopardize their position in the firm but to take no action would be tantamount to letting the company go under. Your thoughts.

Answers

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

The CFO has a fiduciary responsibility to the firm, sic shareholders. The answer would be IMHO yes.

EMERSON GALFO
Title: CFO
Company: C-Suite Services
LinkedIn Profile
(CFO, C-Suite Services) |

Agree with Wayne. It is the CFO's responsibility.

I have one dimension to point out though....What is your Board doing?

These types of information/reporting and concern is one of the major reasons why there are Board meetings. You say declining, and yet the Board (assuming there are regular monthly meetings, or even quarterly) has NOT taken issue with it. If it happens in between meetings, an emergency meeting could have been called. Even if the CFO does NOT make this a major issue during meetings, the Board should have noticed this and asked for explanations and corrective measures. The quality (and independence) and performance of the Board may also be in question and not just the CEO.

The Board should make it convenient for the CFO to report confidentially (and over the CEO's head) if needed either through individual board members, committee chairs or special sections of the monthly meetings without "management" in attendance. In one of the companies I have served, I have quarterly breakfast meetings with individual board members (rotating) as well as i have their personal telephone numbers and email addresses. We also have a separate section during meetings where no management is present and any board member can call on anyone (CFO included) to be heard by the Board.

If the Board is doing it's job, you have covered your behind, and you are presenting documented facts, your job/position should not be in jeopardy.

Hope you consider this dimension before deciding on HOW to approach the problem and adjust your expectations since you may be shouting on deaf (if not incompetent) ears.

Greg Anderson
Title: CFO
Company: iGPS
LinkedIn Profile
(CFO, iGPS) |

This is a good answer. Often the "what to do" about the issue may not be straightforward and there may be disagreement. A CFO should make his concerns about strategy known to the CEO and the board, but it's not his job to consistently row in the other direction. And it is the BOD's job to take stock of the information given and evaluate the current strategy.

Anonymous
(CEO) |

How about when the CEO is Chairman of the Board? The rest of the board is all family members..

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

Look for a new job (unless you know the family is fighting, then follow the first four words of this sentence).

Len Green
Title: Performance Improvement Consultant and E..
Company: Haygarth Consulting LLC
LinkedIn Profile
(Performance Improvement Consultant and ERP Strategist, Haygarth Consulting LLC) |

What relationship do you have with the bank and/or auditors? Can you ask them some questions about how they see the company's performance?
Have you fact checked your assessment of declining performance with someone you can trust?
And, if you follow the first 4 words of Wayne's advice, go back and check that every single decision you made is documented so that you don't get thrown under the bus after you leave and the company fails.

Stephen Turk
Title: Principal
Company: Stephen Turk, CPA
(Principal, Stephen Turk, CPA) |

This is why companies have Boards, who are the elected representatives of the stockholders. The CFO does have a responsibility to bring his/her concerns to the Board but no responsibility to notify the stockholders directly.

Mike Haile
Title: Founder
Company: Haile Consulting Solutions
(Founder, Haile Consulting Solutions) |

Its an interesting question. I don't know if the person who asked the follow up question is the same as the original questioner but, if the board is predominantly made up of the CEO and his/her family, then in all probability the family will be the majority shareholders.

Denis Kurochkin
Title: CFO
Company: Systematica
(CFO, Systematica) |

In a private co, if CEO is a hired individual, a written report to CEO copied to the owners should do the job. Getting facts straight and basis for forecasts is key. Otherwise CFO ends up an accomplice in this failure with all nasty consequences following.

In a public company, addressing a board member chairing the audit committee and / or a chairman should be able to help, as in most countries directors are the ones responsible and liable for communicating the state of affairs to shareholders. Any unexpected event that all of a sudden makes going concern an issue is also most times a reportable event.

Darryl Delwo, CPA, CMA
Title: Controller
Company: Sulvaris Inc
(Controller, Sulvaris Inc) |

It appears your position is gone in 12-18 months anyways. A conversation with the Chairman of the Audit committee or Board Chairman is imperative, as there is more at risk (personally) if you do not bring it up, than losing your job if you raise the issue higher up.

Anonymous
(Chief Financial Officer) |

It sounds like it is a small or middle market family firm. That means not much is likely to happen but I agree with the other posters to bring it to the board (which probably is a board in name only and is not having meetings.) Email the CEO with the facts and a proposal to turn around the company and copy the owners.

I was once interim VP of Finance for a firm that had been repossessed by the bank and sold off to my client. The company was high on the hog and the owners had $100k Mercedes and Porsches and then the tech market crashed and they couldn't bring themselves to change what they were doing. What a disaster. But, the free market has a way of destroying businesses that 'should' be destroyed.

Bob Worthington
Title: CFO
Company: Jupiter Systems
(CFO, Jupiter Systems) |

The fiduciary responsibility of disclosure to shareholders is a CEO responsibility and not a CFO responsibility. And, the BoD is responsible for ensuring that the CEO does their job. A good CFO should always raise business concerns with the BoD, whether in a formal board meeting or through normal communications. However, burden of disclosure to shareholders lies with the CEO and the BoD.

The CFO should help educate the BoD, however, of their responsibilities for all shareholders, in particular, their fiduciary responsibilities in protecting the interest of minority shareholders. (I'm assuming in the context of this question that the CFO is concerned about minority shareholders.)

Here's an article discussing minority shareholders. http://www.hmblaw.com/media/10638/isba_20-_20shareholder_20fid.pdf

If the CFO believes that the BoD is failing to do their job, then maybe its time for the CFO to explore "other opportunities."

Greg Anderson
Title: CFO
Company: iGPS
LinkedIn Profile
(CFO, iGPS) |

Don't all company exec/directors have fiduciary responsibilities?

ArLyne Diamond
Title: Owner - President
Company: Diamond Associates
LinkedIn Profile
(Owner - President, Diamond Associates) |

The CEO is like the parent to children. His or her mood or even perceived mood either encourages or frightens the children. I recall a CEO telling me that the most important task he had was the manner in which he walked into work in the morning. He needed to stand tall and look confident. If he slumped or looked sad (possibly because of a fight with his kids) everyone assumed the company was dying.

I mention this because I want to emphasize the importance of the perception when the CEO is either active or inactive about any major decision.

Ultimately the CEO must take a stand and be vocal about it. He or she has a responsibility to employees, shareholders, vendors, customers and any and all other stakeholders.

EMERSON GALFO
Title: CFO
Company: C-Suite Services
LinkedIn Profile
(CFO, C-Suite Services) |

I really think that we should stop with the parent/child comparison when it comes to the business world and professional working relationships.

EVERYONE SHOULD BE TREATED AS AND EXPECTED TO ACT AS PROFESSIONAL ADULTS. That is the BASE relationship and that is the EXPECTATION.

I don't care for moods of the CEO. I expect him to be professional and at his 100% when he enters the office. I am sure he expects it from me too. I am also cognizant that we are not robots and moods DO affect us.....but that should be the exception rather than the norm. Even then, I expect the CEO and all of my team members to make the effort to let it not negatively affect them while performing their job. (The operative word is....negatively)

I am known to give team members the day off (or taken one myself or adviced the CEO to take one) just to shrug off whatever it is or deal with whatever is affecting their moods negatively. I am also known to change CEO moods when they are pissed off, as they know I dont tolerate it.

(Sorry for changing the topic and yes it is an opinion)

Proformative Team
Title: Team
Company: Proformative
(Team, Proformative) |

This conversation now has a part 2 here:

https://www.proformative.com/questions/ceo-inaction-killing-company-part-2

Darryl Delwo, CPA, CMA
Title: Controller
Company: Sulvaris Inc
(Controller, Sulvaris Inc) |

Emerson brings up a good point regarding relationships. The one thing that is required for the relationship to work, is setting up the expectations first day, or even at the hiring stage. If you are not forthcoming and the CEO is accepting the forthcoming at the start, then the relationship will be a tumultuous one. While trust needs to be built between the relationship from day one, the openness to have Crucial Conversations (including those with high stakes) is imperative for the business to move forward. Once this trust is broken it is typically very difficult to manage and usually becomes a politic tennis match, and brings with it high emotions (which can lead to communicating the wrong message).

Key is finding the right role and company, which allows the fostering of these types of relationships and the skills/experience that each person brings to the table.

John Argo
Title: Consultant
Company: Independent Advisory Services
(Consultant, Independent Advisory Services) |

Reporting to the CEO and board are the primary fiduciary responsibilities, although ethics may demand more, depending on the circumstances. The board bears the ultimate fiduciary responsibilities to the shareholders for any failures of oversight of executives. Any other fiduciary responsibilities should be enumerated in an employment agreement. Inform the CEO, then the board, then resign if you're confident in your assessment of the financial situation and the lack of remediation.

As long as you ensure the board is informed of the situation and your assessment reliably and timely, you should be on safe ground.

Going directly to shareholders, while it might be the ethical thing to do from the shareholder's perspective, might have legal implications unless investor relations are your enumerated responsibilities. Hypothetically and probably not the case here, a CEO and/or board could have their own plans that are not communicated to the executive team. Inadvertently torpedoing those would be problematic.

Anonymous
(Director, Business Services) |

I learned the hard way on this one - if it's family, then find a new position. I stayed at a firm and tried to "help" and it was misery, totally untenable. They wanted it their way, and it made no difference whether it worked for the employees, etc. A good friend in HR put it this way - "it's their company - if they want to put a clown nose on it and a purple hat, it's their decision." Move on -

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