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CEO – CFO Dysfunctional Relationship

An often-overlooked reason

Recently there was a question posted on www.Proformative.com (an online resource and professional network for senior finance, accounting and related professionals) on the often-dysfunctional relationship between CEOs and their CFOs, and trying to explore the underlying reasons for that and what can be done to prevent it. There were a lot of answers posted by Proformative.com contributors participating in the “Ask the Experts” feature of this website, including my own little input in an area I thought was important.

In my work I interact with company upper managements in a variety of industries.  I interview members of the executive team in each organization as part of my various professional engagements (e.g., corporate budget, internal audit process design, external financial reporting, SEC reporting and compliance, etc.).  From these interviews and other opinions expressed by managers and employees I noticed a pattern, which at first appeared to be coincidental and was actually unexpected.   The more experience I gained in working with corporate executives the more I was convinced that there was a fundamental reason contributing to the level of disconnect between a company CEO and his/her CFO.  This is certainly in addition to other, more obvious, reasons usually due to personality conflicts, incompatibility with the company or a specific industry and perhaps other reasons.  Of course, this is only true in companies where this phenomenon occurs; there are many organizations fortunate to have CEO / CFO teams who not only get along but also work as a team and are able to create a great work environment where teamwork is encouraged.

The little insight I gained has to do with the inability of a company to properly plan and then execute their financial plan, including making corrections to the plan and its execution, without taxing the business too much though bad decisions (or indecisions), uncertainties or other actions that aren’t directly derived from a solid decision making process.

A good example that demonstrates this is a company’s CEO expecting certain financial results, based on an incomplete plan or budget and only seeing actual data, which are usually short of the general expectations.  When a CFO is asked to defend the actual results, it appears that due to the lack of proper planning there are no reasonable explanations and suggestions that can initiate a decision making process, in response to the actual results. The CFO and his/her finance team will have certain opinions, usually not backed up by solid data and analysis, and the CEO will often make decisions that are based on intuition, past experience, or based on what other similar companies are doing.  This results with the CEO and CFO not working as a team, and with the company suffering the consequences.

Of course, there are several other reasons for a dysfunctional relationship here, which I have noticed but will not comment on in this blog.
In contrast, having a solid financial plan and discipline to monitor the actual results and compare them to the plan (budget and periodic updated forecasts) can remove this point of tension between the CEO and the CFO.  Expectations become clear and action can be taken immediately following a periodic analysis. In reality, achieving such processes requires, in addition to discipline and willingness to adhere to process execution, a solid and practical information technology that can be realistically implemented and continually used.  The output given by this system must be available to view and understand by all team members, with the CEO and CFO informed on the process and its results at all times.

One of the challenges in the corporate world is to implement such a practical system.  From what I’ve seen, most software solutions designed to help with budgeting, forecasting and business intelligence are not simple to implement, require a significant investment throughout the useful life of the system and are not always capable of providing the data that is really needed to maintain the organization on its planned course.  On the other hand, Budget Maestro was designed precisely to give upper management the information they need, when they need it and in a format that they can quickly understand.  CEOs of small and medium sized companies using this solution can intuitively understand the real financial health of their organization and along with their CFO and other management team members can work together to explore solutions that will correct the course the organization is headed on.

As for personality conflicts between CEOs and CFOs – this is an area I will not attempt to comment on or speculate.  I think I’ll leave it to the experts in that field.