Latest board challenge recruiting CFOs: more and more companies are interested in outside CFOs as directors, often for audit committees. But landing them can be hard, and board service often requires new skills from CFOs themselves.

Recently, a group of senior financial executives from large organizations in the public and private sectors came together in a roundtable setting at the Longview Solutions User's Group, held at Lake Louise, Canada. The topic: the evolving role of the CFO and the pressures on the finance function today. In the discussions, they found a strong sense that the balance is shifting back to the strategic role--and quickly.

"Finance people are being forced into leadership roles instead of appearing every three months to hit management with the numbers and explain how well, or how poorly, the company is doing," says Dave Murray, CFO at Longview Solutions. "These experts told us it's not an either/or issue of about being steward or strategist. Now, it's all about being steward and strategist."

Those increased responsibilities and skills are in more demand than ever in corporate boardrooms. The Sarbanes-Oxley Act of 2002 beamed a regulatory spotlight on corporate governance, disclosure and transparent financial reporting, which has created new demands on directors. CFOs are now in great demand as key members of corporate boards, particularly for audit committees. But, given the intense pressure on boards, the CFO-type seat is often the toughest to fill.

Not that many recruiters aren't trying. "Sarbanes-Oxley has dramatically affected our business," says Charles King, managing director at Korn/ Ferry International. "Eighteen months ago, executive board searches for financial talent comprised only 10 percent of our total board searches. Today, the number is about 60 percent. Audit committee searches are now at the forefront as the need for sophisticated financial talent has increased."

It goes without saying that unprecedented regulatory scrutiny has had a tremendous effect on companies, their boards, management and auditors--resulting in increased risk avoidance and magnifying the importance of CFOs, who must manage the financial aspects of this change.

CFOs are finding that board membership involves more work, more challenges and more scrutiny, especially when directors are increasingly held accountable for instances of financial mismanagement. The new rules adopted by the stock exchanges and Congress have, of course, heaped new responsibilities and potential risks on corporate directors--particularly members of audit committees.

Despite these new challenges, CFOs are finding that post-Enron board membership is transforming their roles in ways they might not have imagined only a few years ago. While continuing their historic focus on financial accuracy and regulatory compliance, they are finding themselves called upon to become future-oriented strategists who bring insight, discipline and critical decisions to corporate boards.

"When directors are required to monitor a company's financial strategies, execution and controls, as well as alternative accounting treatments, who is better than an experienced CFO to help them through that process?" asks Steve Clark, chief operating partner of the financial services law firm Chapman and Cutler.

Many board experts agree that the practice of CEOs handpicking friends and associates for board membership is on the wane. Search firms are now performing most board searches at major corporations, to address the new focus on avoiding actual or perceived conflicts of interest in the director selection process. Not only do they bring a more neutral perspective to the selection process, but they draw from a wider universe of potential candidates.

Apperance of Independence Vital

"Our clients want to project that their boards are independent, and that the process of selecting them is also independent," says King. "Companies want to present to shareholders the appearance of a truly independent selection process for identifying new directors."

Despite the apparent demand for CFO directors, the process of recruiting them is challenging. A recent survey by Christian & Timbers, a global executive search firm, polled 159 senior executives of Fortune 500 companies and found that 38 percent consider a board seat a "huge responsibility. " Another 38 percent see it as "a learning opportunity," 20 percent consider it an "honor," and 4 percent say it is something they would not do.

Christian & Timbers noted that finding board candidates is taking four times the work in 2003 as it did in the first half of 2001. "This has been one of the most difficult environments I have encountered in my more than 20 years as a recruiter," says chairman Jeffrey Christian, who finds potential board candidates more discriminating than ever. "Today, when we call a candidate, his or her antenna goes up. And the brand name of the company does not matter. Enron has killed the idea of a brand name being trustworthy when it comes to board seats."

Potential candidates are spending more time vetting companies to make sure that good corporate-governance practices are already in place. When Jeffrey Rodek, CEO of software maker Hyperion Solutions, recently interviewed candidates for the company's board, they asked about everything from directors' and officers' insurance to how Rodek reacts to being challenged. "It's a big commitment now," says Rodek, who has hired one new director and is looking for another. "It's already difficult recruiting people. We may have to cast a wider net."

Exacerbating these challenges is the fact that more companies are putting tighter limits on the number of boards their directors can join. This adds to the attractiveness of CFO candidates, as companies have a strong need for audit committee financial experts.

When becoming another company's director, CFOs must consider the potential impact it might have on their employers. If the SEC investigates a company's board, how much of the problem and the publicity will carry over to the CFO's employer? There are also safety precautions CFOs must consider when becoming a director, such as analyzing whether there are any cross-relationships between both companies that might lead to conflicts or embarrassing disclosures.

Murray's user group came up with several themes CFOs must embrace when sitting on corporate boards, including promoting increased transparency within the corporate culture. "The basis of transparency is visibility," says Murray. "CFOs must now insist on high visibility for the work to build a culture where there is never a doubt that everyone is being frank, open and honest."

Finance today has the power to reflect on the past to see the future more clearly. "The pressure on CFOs today is to focus on the past and leave the future to another day. Get your numbers. Close your books. Make sure your CEO can certify in writing that, yes, this actually did happen," says Murray.

"But, that function pales beside the CFO's imperative to be a future-oriented strategist who bring insight and discipline to the business of setting organizational direction and making critical decisions," Murray adds.

Boards and management develop a good working relationship when both groups buy into the idea of good governance culture, according to Glenn Davis, a director at J.H. Cohn's Corporate Governance, Risk Control and Compliance Management Practice. Board members, especially CFOs, are expected to take a stand when management goes astray. A board's most important job is assessing management and ensuring it has a good grip on the business, he says; if directors can't be sure of that, then they must act.

"Boards and management must understand one another's responsibilities or risk stepping on each other's toes," says Davis. "The role of the board is to oversee management, and CFOs who sit on boards must play a key role in providing the board with the information to do so. And no one is in a better position to provide that strategic view to senior executives and to the board that the people who run the numbers."

"CFOs need to choose boards where sitting CEOs welcome their input," advises Thomas McLane, vice chairman of the Directorship Search Group in Greenwich, Conn. "The best CEOs want to be challenged by their boards, even when things are going well. They want directors to contribute ideas about how to do things better. Financial officers should avoid CEOs who have a reputation for not listening to their boards."

Issues to Consider

McLane advises financial officers to keep the following considerations in mind when considering board membership:

* Get to know the chief executive well enough to evaluate your comfort level with his or her management style and ethics.

* Interview other board members to determine a proper fit and develop an understanding of how the board works and how the CEO works with the board.

* Interview members of the company's management team to sense how the CEO works with them.

* Study objective analysts' reports about the company.

* Find out if the company has ever had any ethical or legal problems.

"Although governance cannot be imposed by any board, management has to believe that, in the end, good governance will mean good performance," says McLane. "It's important that the management style within a company fits with your own personal criteria."

As CFOs at large begin to develop more board experience, it will inevitably add another dimension to their business view. Roger M. Kenny, managing partner with Boardroom Consultants Inc. in New York, says it's this breadth that boards really need.

"CFOs are realizing that their new role, whether they like it or not, is to help the CEO run the company. They're not just the financial people any more. They're part of the team, and the CEO is expecting them to help manage his or her team," says Kenny.

"Whenever we've done surveys with CEOs related to CFOs, that's always been one of the elements. The CEOs wish their financial guy would help them more to run the team. I think CFOs now have to deliberately be more accessible so that there are no surprises. It's the second most important job, next to the CEO."

Fundamentally, when a company is driven by strong ethics, effective operating controls and a strong sense of the spirit of what it means to be a public company, then regulations, and the challenges that corporate boards face while adhering to them, are less onerous.

"It takes a strong, principled board of directors and management and a strong, principled employee base to give meaning and substance to the idea of being a responsible, ethical and legally upstanding public company," says Scott Christian, executive vice president and CFO at Norstan Inc. "It comes down to the widespread presence of sound corporate values, especially those that effect the financial side of a company."

Christian believes that CFOs must begin thinking of their role as more than that of "Doctor No," both as managers at their own companies, and also as members of corporate boards. Whether it's at their own organization or on another board, says Christian, "It's more important than ever for today's CFO to become a master of his or her communication skills, able to reach all of the company's constituencies and offer insight that promotes a thorough understanding of a company's financial goals, challenges, successes and shortcomings."

Something to Talk About

A recent newspaper ad says a lot about the perceived value of having a CFO on a board.

In late August, Encana--an independent Canadian oil and gas company--took out a display ad in The Wall Street Journal welcoming Jane Peverett to its board. Peverett is CFO of British Columbia Transmission Corp., and was formerly CEO of Union Gas Ltd. in Ontario.

The ad included a sizable black-and-white photo of Peverett--an FEI member--and recounted her career highlights, her service on various professional and nonprofit boards (including the National Ballet School of Canada) and her educational background, as well as a long paragraph about Encana itself.

Steven Van Yoder ([e-mail]) is a freelance writer in San Francisco and the author of Get Slightly Famous (Bay Tree Publishing, 2003).