Generally speaking, a private company’s board is responsible for setting the firm’s strategic direction and acting as a fiduciary for shareholders. Recognizing that the responsibilities of a board may vary, there are still some best practices that a chief financial officer can follow when engaging with the board to ensure the company is well-positioned for growth and success.
Assuming the CFO is supplying the information the board needs to make its decisions, here are a few topics that CFOs can address regularly.
RISK: ARE WE EFFECTIVELY MANAGING IT?
A CFO is often responsible for identifying and minimizing the company’s risks. Asking the board about their view on the company’s key risks and ways to mitigate those risks can help ensure that both parties are addressing these important topics and maintaining the board’s fiduciary responsibility. These could include discussions on the following:
• Financial risks, including credit, liquidity, interest rate or currency risks
• Operational risks to your supply chain, product quality, employee safety, and other identified business risks for your industry
• Reputation risks, including publicity, brand, customer satisfaction, and anything else that affects customer loyalty
• Regulatory risks. Specifically, compliance with laws and regulations
• Security risks, such as cybersecurity, data breaches, cloud/local storage, and natural disaster plans
• Strategic risks, including market conditions, competitive positions, or disruptive technologies
RETURNS: ARE WE MEETING RETURN GOALS AND FOLLOWING OUR STRATEGIC PLAN?
It’s important to regularly check in with the board to assess whether the company is on track to achieve its strategic objectives. CFOs can ask the board for its views on the company’s performance against its strategic goals and for advice on how to improve. A few questions to consider include:
• Are there key metrics related to returns on the business, divisions, or projects/initiatives that the board looks at when making decisions?
• How do our returns compare to our peers?
• Are there target returns for the company or its divisions?
Companies with an active dialogue between the board and CFO typically manage their risks better, drive the best shareholder returns, and are more aligned with their strategic plans.
CAPITAL PLAN: WHAT IS OUR OPTIMAL CAPITAL ALLOCATION?
Asking the board about its views on the company’s capital structure and growth prospects, and seeking its advice around objectives, can help make sure the business’ goals are aligned with its financial position. A few questions could include:
• What is our cost of capital?
• What is our optimal capital structure?
• What is our access to that capital?
• Where should we be investing that capital?
• When and at what level should we be returning capital?
Companies with an active dialogue between the board and CFO typically manage their risks better, drive the best shareholder returns, and are more aligned with their strategic plans. The questions above are a great starting point to open that dialogue. Maintaining a relationship with an established frequency and agenda for these discussions can also help produce better outcomes.
Kaitlin Skopec is the director of BMO Corporate Advisory for BMO Commercial Bank.
Learn more at commercial.bmo.com. BMO Commercial Bank is a trade name used in the United States by BMO Bank N.A. Member FDIC.
