Welcome to CFO 4.0, the future of finance. The CFO role is changing rapidly, moving from cost controller to strategic visionary, and with every change comes opportunity. We are here to help you take advantage of this transition, to win at work, drive your career forwards, and lead with confidence.
Join Hannah Munro, Managing Director of ITAS, a financial transformation consultancy, as she interviews key experts to give you real-world advice and guidance on how to transform your processes, people and data. Welcome to CFO 4.0, the future of finance.
So hello and welcome to this episode of CFO 4.0. My name is Hannah Munro and I am your host today. With me today, I have Patrick Dunn. So Patrick is an experienced chair and board member in both business and social enterprise. He's also the author of award-winning book, Boards. So thank you, Patrick. It's great to have you on the show.
Great pleasure to be here. I've always valued CFOs, so nice to be able to chat to them.
Absolutely. And you've done quite a lot in your years, you know, your last few years, and particularly from what I understand, you're also part of the FT Advisory Board as well for boards. Is that right?
Yes.
Yeah.
Brilliant. So tell us a little bit about your journey and how you ended up writing your book, Boards.
Yeah, so by background, I'm from Liverpool, mathematician, and spent the bulk of my executive career in chemicals and private equity. And in private equity, you get to work with a lot of boards. And early on in my career, I sort of worked out that the better the boards, the more money you make and the less hassle you'd have.
And so I put all the thought into, well, what does make a good board? And came up with a model for that. and started to sort of write on a little bit about that. But it was really a really bad board meeting that I went to one day that got me properly writing because I thought, God, I've got to buy this chair a book to do it better.
It'll save me a lot of time. And I went into a bookshop, tried to buy. I asked the guy, have you got anything on running board meetings? And he didn't and looked on his computer and couldn't find it. So I thought, well, maybe I'll write something. That was way back in. 1997.
And I wrote a few books around then, and then had a break, you know, been very busy, ended up on the operating committee of 3i and the social enterprises and so on.
But just over a year ago, the FT, who I would do a lot with, in terms of board director programmes, asked me, you know, would I be interested in doing a sort of new book, because they felt there was demand. And I thought, well, what am I going to call it? And I thought, well, it's going to be about boards.
And just as I didn't find a book many years ago on running board meetings, I couldn't see that anyone had got the title boards. So because I'm mildly dyslexic, I like short words. And so I thought, well, boards, that's a good title, isn't it? So that was it.
And it came out about a year ago, just in time for the crisis, which wasn't necessarily the best of times. But yeah, and it's been really interesting to see the response to it.
And I can imagine that actually during coronavirus, the importance of having a good board becomes even more prominent. And so what does a good board and CFO relationship actually look like?
Yeah, well, I mean, my starting point is triangles because I love triangles. And when I was trying to figure out what does make a good board, I I had this triangle in mind of purpose, people, and process.
Because if you're really clear about what you're doing, and everyone's aligned behind that, and you've got the right people working together in the right way, and you've got good process, then it's going to be a pretty good board. And I also love Venn diagrams.
I mean, John Venn was an amazing guy, sort of apart from being a brilliant mathematician and philosopher, social entrepreneur, amazing guy. And I think of his Venn diagram in the context of one circle being the board, the other being the management. And the secret sauce, if you like, is in the middle in that intersection.
And that's where the board and the exec come together. And the CFO is really central to making that work. I mean, they're a big connection for the board and the executive.
And so what are boards looking for in that CFO? So you said that they're really important. What is the role of a CFO when they're working well?
Yeah. So ages ago, one of the other bits of research I did was, you know, what's the difference between really good CFOs and those that aren't? and came up with, again, another triangle, I'm afraid, a sort of Maslow's hierarchy of needs type approach, saying, well, you know, what do you absolutely have to have? What's really good to have?
And what's sort of in the nice to have category? And at the base, I think, is integrity. If you're a director, you have to trust what the FD, CFO is telling you. You know, that's sort of fundamental.
The next thing is they have to have relevance, and relevance is a really important word, Technical competence for that organization, because there are many different types of organizations. And I think, you know, it's hard to find a universally great CFO for every sort of situation.
So you have to find, you know, have they got the right technical skills for that big difference between a public company? and a private company and so on. They have to have management skills, if only to manage themselves, but they're going to manage a finance function.
They have to understand what it's like being a leader, being a manager, because they're relating with the other people in the C-suite. They have to have, I think, to be a partner with the CEO, and the board, they have to have a good understanding of strategy.
So I'm not saying you need to be a strategic genius, but they need to understand, you know, the language of strategy, the basic approaches to that, what other people are doing to be able to take part in strategic discussions and almost avoid being cast as just the numbers person. So I think that's important. The next thing they need, I think, is sales skills.
And that might sound odd in a CFO, but it might book, being able to clearly convince other people of the need for good financial control, forecasting, sensible budgeting, to be able to communicate with investors, whether they be debt investors or equity investors, all of that, to be able to communicate with the board and influence the board. You need that.
Then you may or may not want them to have some characteristics of or potential to be a CEO, you know, that might be something that you might want. And they have to have board skills. If you're going to put them on the board, you know, they need to have board skills. So I think it's actually quite, you know, that's a lot to expect in someone.
But I think, you know, if you're thinking of a chair's dream CFO, There's the things I'd sort of look for. And when I'm interviewing CFOs, you know, I look for those things among some other things.
And it was a really interesting point you made about relevance. So when you say relevance, are you talking about industry experience? Is that what you're looking for? Is it wider than that?
I think it's wider than that. So that could be experience of a different type of ownership structure. So, you know, very different CFO needs in a family environment. firm, to a private equity-backed firm, to a public company, to a startup. Very different CFO needs in a big international business with subsidiaries all over the world to a local domestic business.
Very different experiences needed for you know a capital goods business versus a high volume service business so there are many it's a bit like a Rubik's Cube really there's sort of many dimensions but you kind of need that that cocktail of things and it could be you know experience of being in financially stretched situations as opposed to you know having loads of
cash in the bank you know so it's these different things
So I think what you're saying there is relevance is made up of a mixture of type of boards because I can only imagine that the skills needed for a family-owned board versus maybe a startup, like you said, they're very different. So it's more about the situation that the company's in as well as the business model that they're working to.
Yeah, and situational experience often trumps sectoral experience when it comes to it.
Yeah. Yeah, and I was going to say there's going to be a few CEOs who will have coronavirus survival on their resume. Oh, you
bet. And I mean, mentioning CEO, you know, that relationship between the CEO and the CFO is really critical.
And what makes a good relationship? So, you know, what do you see as the signs of a successful CEO and CFO relationship?
I think trust and respect. are probably the underpinning things. So that they trust each other, that they respect each other. So you look at some of, you know, I think I've sort of witnessed some fantastic CEO, CFO partnerships, and I use that word partnerships. So the CFO isn't subservient to the CEO.
You know, they together, they run the company, they have complementary different different skills and they respect the difference. When I'm coaching CEOs, you know, I worry when they kind of see the CFO as a servant kind of to them.
And I encourage them all to sort of, you know, the things that might irritate you about them actually are brilliant because they're the things you haven't got but you need. So, you know, and actually, you know, sometimes the CFO, the CEO has got things that they haven't got and they might be irritating.
But if they can find a way to respect their differences and draw on those strengths and cover for each other's weaknesses, then that's a great thing.
So it's about the balance in terms of both skills and by the sounds of it, sort of balance. mindset in some ways as well, probably having that person that, you know, being the opposite in that conversation before you even get in front of the board. Is that what you're saying is really important?
Yeah, you know, all of that, you know, critical friend providing an analysis that the CEO, you know, may not have had time to do, you know, being able to really get people to understand consequences.
I think CFOs, in my experience, are often very good helping not just the CEO, but the board really understand the consequences, usually financial, but not only, of, you know, if we do this, this is actually how this is going to play out. And in public companies, that's incredibly critical.
And what are the signs that that relationship isn't working well? Are there any sort of common signs where you go into it and you see it and you go, yes, this needs to be addressed?
Yeah.
Yeah, it's a bit like, I use another sort of Venn analogy, really. So if you can imagine the two circles in a Venn diagram, with no intersection, so they're living in a slightly parallel universe, they're not really talking to each other. They're talking to different groups of people, there isn't a sort of joined upness. That's a real sign.
If you can imagine the the other end of that spectrum of sort of intersections is two nearly overlapping circles. They're trying to do each other's jobs. So the CEO isn't happy with the CFO, and particularly if they've been a CFO themselves before, they will tend to sort of slip down the slippery slope of doing the other person's job.
And if the CFO feels the CEO is not being a good CEO and not doing that, they'll do the same. They'll expand the envelope of their CFOdom into that. And then there's just good old human chemistry. So one of the things I think that CFOs have to be really good at is managing conflict.
You know, knowing when to compete, when to avoid, when to collaborate, when to compromise, when to accommodate. That's all about judgment. And, you know, it's a very tough job being a CEO. And, you know, if you can be that critical friend, but also that fantastic supporter when they need a bit of a lift, because, you know, they can't share their highest hopes alone.
and worst fears with too many people as CEOs, but they should be able to share them at the CFO.
No, I absolutely love that. And I have to say, as a fellow mathematician, I'm loving all of the references to Venn diagrams and triangles. Oh, wait till I get to
catastrophe theory.
Brilliant. Oh, sorry, geeking out over mathematics. We'll move swiftly on. So in terms of a poor relationship between the CFO and the CEO or the board, is it something that can be repaired or do you sort of, have to make a decision either to shift away or to make that change.
I think it absolutely can be repaired. But sometimes it's a bit like a bit of elastic. You can stretch it and stretch it and stretch it. But if it's broken, I don't know if you've ever tried, Hannah, to put a piece of elastic back together again. It's actually quite tricky. And at the core of this, I think, is trust and respect.
So if a relationship is struggling, I think trying to get each side of that. And this is a very important role for a chair to play. If the chair spots something, And in terms of what chairs need to be good at, they need really good antennae. And if you can actually help this along before it escalates, then you're going to be much better.
But with most situations like this. I mean, there's a sort of acronym that Leap Confronting Conflict, one of the charities I helped to build, which helps young people manage conflict more effectively. We have an acronym called FIDO, and it stands for facts, interpretation, decision, outcome.
So I think the judgment you have to make fairly early on is, is this actually repairable? If it is, then the outcome we want actually is to get them focused again. And one of the ways to do that is, you know, what can you get them aligned on? So I remember one situation where, you know, CEO and CFO were, you know, nearly at fisticuffs.
And the CEO was a woman. And the CFO was a man. And the only thing I could get them to align on was let's not go bust. And then we built up from there. So because, you know, if this goes bust, both of you, you know, are going to be, it's going to be very difficult for you. People will lose their jobs. You have a responsibility.
So we either have to sort this out or one of you's got to go. And I haven't decided who that should be yet, but we need to find a way to work this out. So let's just focus all of our efforts on, you know, saving the company, restoring it, and then can we sort out your personal differences after that? And it worked.
And they found a way to work together until the exit, I think it was three years later or something. So you can do it. But it requires a lot of time and clear sort of rules of the game. So, you know, CEO, you will not belittle the CFO in board meetings. CFO, you know, you won't embarrass the CEO.
with some new information that you've kept to yourself beforehand you know so just basics really and respect is really important
and if you're a CFO and you you can see some of these signs of concern you feel like you know you know you're perhaps shifting into a role that shouldn't you know, you shouldn't be accepted because you can see the gaps. How would you suggest that they actually approach it? Would you suggest a conversation with the chair? Is it a conversation with the seat?
How do you actually address that, assuming you think it can be repaired, of course?
Yeah, so the first thing is about self-awareness. So there's some research from Harvard which shows that, by Theodor von Rubin, I think, which shows that people who are highly self-aware, groups of people who are highly self-aware, on average perform twice as effectively in terms of making decisions, managing conflicts, coordinating, things like that.
The good news is, oh, so let's just get self-aware. The bad news is that there's other research that shows that people in business or elsewhere are not very good at being self-aware. So the correlation between your own view of what you're good at and what impact you're having on others versus the reality tends to be only about less than a third.
So we're really not good at this. So we need help. We need feedback. And so getting an interlocutor is quite helpful. So the first thing a CFO needs to do actually is think about what is really going on here. And let's sort of do your double entry bookkeeping, if you like, on one side is, you know, what am I doing that's helpful?
And what am I doing that's unhelpful to this situation? And what's the CEO doing that's helpful and unhelpful? And what actually are the things that we don't respect each other on? What are the things we actually don't agree on? What are the things we actually align on? What are the things we actually like about that other person?
Because often it's a situation of, you know, like lots of relationships where, you know, I love you madly, but you drive me nuts. And it's kind of, you know, you just need to figure out what drives the nuts and stop doing it and everything will be all right.
You know, not filling the dishwasher up properly or not, you know, leaving stuff around the house in a bad way or whatever. You know, it can be that trivial. Yeah. and then talk about it. So you're making a judgment as well, as you know.
So if you and I, Hannah, which is probably unlikely, if we had a sort of attention like that, I think there's points for the first person to say, we don't seem to be working as well as we were. What do you think, why do you think that is? What is it that I'm doing that's really getting up your nose? I think have a proper conversation.
If the CEO is closed, then you may need to seek the counsel of a non-exec or the chair or a peer or a mentor and say, look, there's something not quite right here. I think I understand what it is, but I'm not quite sure how to move it on. Or I'm not sure what it is. Have you got any thoughts? And then move it on that way.
But recognition is the first. Like most things, you've got to realise you've got a problem before you can solve it.
Absolutely. And I think there's a few people listening to this one, you know, going to start writing lists about their marriage and the pros and cons and things they tie each other nuts with. So same principles, I guess. It is a marriage though, in some ways, isn't it?
When you think about that relationship between a CEO and a CFO, it's that, you know, you have to coexist peacefully and get all the children to do what they're supposed to do in the way that they're supposed to.
Yeah. And there's a bit, I mean, if you can forgive me for another little bit of mess, but if you think of a normal distribution, the bell curve, and you think of effectiveness and you think of pressure, you know, one of the things you have to do in most kind of relationships, and the board has to do this with the exec as a whole, is, you know, how do
you keep yourself in the middle where your effectiveness is high and the pressures, you know, it's pacey, there's good momentum, but it's, you're not a headless chicken and you're not asleep. And most CEOs operate at just to the, you know, the good ones operate just to the right of that peak.
You know, they're always trying to do more than is possible, but not too much. And part of the role of CFO actually is helping them by relieving pressure, taking a lot of hassle away from them, making sure things are in order, that what the CEO is telling the board about the numbers in the business are accurate and he's not over-egging it and all of that.
Yeah, so the sense check, I think, is the way I sometimes think about it. Yeah. Not just the numbers person, but the sanity. I think you mentioned the term sanity check. So before they get too far ahead of themselves.
Yeah.
That's a great way to think about it. And in terms of, say, you know, what about a new CFO coming into a role? What is the, you know, is there anything that you're looking, so say you know that you might be taking on a CFO that perhaps hasn't got the experience. What are you looking for there?
You know, what are the sorts of things would say actually that person's ready to step up into that CFO role?
So I think, I mean, they have those three things fundamental characteristics that you want in people in the executive team, and it goes for board members as well. So you're looking for, have they got really good judgment? Have they got the interpersonal skills to go with that judgment so that they can bring those judgments to bear?
So will they have influence with the CEO? Will they have influence with the other executive directors? Will they have influence with the board, stakeholders, and so on? And have they got really good antennae? I talked about the chairs antennae before, but the best CFOs I know are really good at understanding the business.
They absolutely get the financial dynamic of the business. So one of the tests I have in sort of interviews is, you know, can you just talk me through the financial dynamics of the business? And really good CFOs don't need Any spreadsheets, they just can tell you, you know, this is the dynamic of our income and cost. This is the dynamic of our balance sheet.
This is the dynamic of our cash flow. And they're able to explain that to someone who hasn't got a high level of financial technical understanding. They can actually do that. You can see whether a CFO commands the respect of the business unit leaders. And then for a new CFO, it's sort of inducting themself into that.
I think it's quite important that they build a good relationship with the non-execs individually as opposed to just collectively. So they take time, they have regular coffees, they make sure the non-execs understand the financial dynamic of the business.
Interestingly, where I'm chair, I usually ask the CFO once a year just to give us an update on how the financial dynamic of the business is changing. We did this in all of them just as we were entering the COVID thing. And it was really helpful because then people are making balanced judgments about what they're doing because they understand how this will play out.
And so are there any top tips that you can give our listeners? Perhaps they're a CFO new to role and they just want to make sure they're starting off on the right foot with their board. Have you got any recommendations for them and practical things that they can do?
Yeah, so if you want to build your power with a group of people, that will come from, you know, your positional power and your personal power. Now, given the board has got a higher positional power than the CFO, the CFO will need to basically, you know, obviously be very good at the day job.
But if they really want to be, to excel, they have to, and not, you can't microwave people. strong relationships. They take time to build. So they have to invest the time in getting to know the non-execs, understand the non-execs and the execs, and be really good at thinking of themselves as being in that intersection between those two groups.
They have to be trusted by both. There'll be times they have to challenge both.
And there are lots of times when they have to support both so I think that's that mindset actually helps a lot and it's not an instant thing and you can't pour a sachet into a cup put some hot water in and you know you've got a nice drink it this is something that takes time to mature
Absolutely. And I really now understand why you use the triangle because I can see the triangle between the board, the CFO and the CEO, because that CFO is helping the board to understand that financials while still feeding that information into that CEO. I can understand why one part of that triangle isn't an equilateral one.
Then you can end up in some real hot water. So that's a really great way to do it. And when you're actually sort of having those conversations with the board members, would you change your approach depending on sort of their experience, their background? And how responsible is the CFO for making sure that the board have a good financial understanding generally?
Because that's probably a tricky part of being a CFO, isn't it? Making sure the boards actually understand the finances. without offending anybody by talking at too low a level.
Yeah, it's really important. So I can give you two examples.
So at the EY Foundation and ESSA, which I chair, for any new trustee, because they're charities, they're trustees, and we have young people on the boards who haven't got the experience or haven't got the financial training or understanding, it's just as important for them So an important part of their induction is understanding the financial dynamics of the organisation.
When I joined the board of the University of Warwick many years ago, the finance director, Rosie, was excellent at taking me through how the finances of a university work. And I think by taking on that role of CFO, it'll save them time and hassle and tension later.
If they can make sure they're their non-execs, their trustees, whatever their sort of organisational frame is, really understand the fundamental drivers from a financial perspective in the organisation, then they'll probably make better decisions. The worst position for a CFO to be in is where the board are taking decisions which don't make sense financially.
And then that's just going to cause them a huge amount of problems later. So they have a real interest, I think, in helping the board make the right judgments. And no one's got a monopoly on wisdom. Sometimes they'll get that right. Sometimes they won't.
Yeah, absolutely.
And I think... it's a it's a really interesting dynamic and I and I love your your focus on those relationships I can understand why that's so critical and like you said they've got to be amazing at their day job but actually you know in terms of the numbers but it's so much more than that to being a successful CFO so so any last thoughts any other top tips
that you just you know that our listeners can take away
one of one of my most important sort of learnings actually as a kid was that it's really important to listen to what people say but it's even more important to listen to what they think and if you're a CFO that can see into the thought bubbles that can be enormously useful so understanding how people are feeling what they really think as opposed to what they
might be saying to be accommodating or to be polite or whatever. And I think the best CFOs can read the thought language, read into the thought bubble.
I love that. And that is a cracking way to end the podcast. Thank you, Patrick, to be able to see into the thought bundles, to be able to focus on what they're thinking rather than what they're saying. Because yes, that can definitely be two opposite ends depending on the individual. So thank you so much, Patrick. That has been incredibly valuable.
And I think there's another book in there about CFOs and the board itself, how to be an amazing CFO for the board I think you know there's a few more books in there I'm sure so yeah
Quite possibly.
But thank you so much for joining us. And obviously, if our listeners want to learn more about what boards are art and what a good board looks like and read into some more of your insights. And I think you've got a chapter, haven't you, in your book on the relationship with the CFO and that side of things as well.
So if they want to learn more, where do they find your book? Is Amazon the best place or is it?
You can find the book from I think there's a discount on governance, my publisher. So if you look for governance and you can get it on Amazon, all good bookshops.
Fantastic. And there's a
Kindle version as well.
As there should be. I must admit, I'm a Kindle girl myself. So that's always the preference. So thank you so much, Patrick. It's been an absolute pleasure having you on the show. And yeah, I literally, I think I could have talked about all this on this topic. So thank you.
My pleasure.
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