Managing Up The CFO & The Board. (Your Career).

In the early 1990s, Peter Rugg, a partner with Tatum CFO Partners, was CFO of a publicly traded company listed on the New York Stock Exchange. To cope with mounting financial pressure, Rugg had recommended that the company sell some major assets and use the proceeds to retire debt. "The CEO was reluctant to do it," Rugg recalls. The CEO was also averse to telling the board just how had Rugg thought things were.

After a board meeting in which the CEO made light of the firm's deteriorating finances, Rugg got a call from a board member. "He told me what the CEO said, and asked if it was correct. I said no, what's correct is the following..." Rugg laid out the facts. Shortly afterward, the company had a new CEO.

Things could easily have gone the other way, had Rugg not made his relationship with the board a top job priority. The company's corporate governance policy allowed only one employee on the board -- the CEO himself. But Rugg found other ways to make his presence known and his voice heard. "It took several years, but there were numerous social functions where I had the opportunity to meet and talk with members of the board. I'd make the most of those opportunities -- coffee before the annual meeting, luncheons, board outings to play golf. All of those were great opportunities to solidify and build relationships with board members," he says.

Business trends such as the merger boom and the shareholder-value movement have raised the profile of the CFO -- both inside the company and before his or her own board. Meanwhile, new Securities and Exchange Commission dictates for audit committees have set off a miniboom in the market for CFOs as board members. "CFOs have gone to the top of the 'who's hot and who's not' list of talents boards are seeking," says Ralph Ward, editor of Boardroom Insider. "The CFO is in the catbird's seat," agrees Bruce Beebe, editor and publisher of Directorship Monthly, a corporate governance newsletter.

Susan Schultz, CEO of Phoenix-based SSA Executive Search and author of The Board Book, recommends that the board and the CFO do "whatever possible" to see that the CFO has top-level exposure. "It's important for the CFO's relationship with the board to go beyond reporting," she says, "His or her business judgment must be well-established. It's tricky. Too often, the CEO's point of view is the only one available to the board, and it's very awkward for the CFO to intrude into that relationship unless the CEO or the board members understand that they need a second point of view. One of the challenges is the tension between an aggressive CEO and a CFO who has a strong, sensible, balanced opinion -- less aggressive, because that's the fiduciary responsibility of the CFO."

Financial Executive spoke recently with several CFOs who've earned the respect of experts for their skill in managing board-level relationships. Presented here is a sampling of their observations, war stories and advice.

Blythe J. McGarvie

BIC International

CFO and Executive VP

* Trust and Diplomacy

"One thing I've learned is that you have to develop a relationship with the board in good times, so when difficult times come you will already have established trust," says McGarvie. As CFO of Portland, Maine-based retailer Hannaford Bros. Co., McGarvie built a reputation for delivering shareholder value. Three years ago, she joined BIG, and now splits her time between New York and Paris. She serves on the boards of WaWa Inc., a $2 billion retailer and manufacturer, and Accenture, the consulting and outsourcing company.

Trust and diplomacy are the hallmarks of a good GFO-board relationship, McGarvie says. "If I have bad news to deliver (and the CFO usually gets the bad news first), I need to put a lot of sweetness around it, put it in perspective, have a plan for how one might respond, [and] what we re going to do about it -- that's a very important part of diplomacy. Also, listening. There's got to be a certain amount of openness or vulnerability when you work with a board. We're living organisms, not machines,"

When Gillette invited bids for its stationery business in 2000, M&A veteran McGarvie knew there was no time to waste. She had been head of planning at Kraft Foods Inc. when Philip Morris Gos. came knocking, and remembered that it took only eight weeks to move from offer to contract. She led a team that composed a multi-scenario risk-benefit analysis for BIG's acquiring all or part of Gillette's stationery business so the board could move quickly toward a decision. "We laid it all out in a way that allowed the board to make a thorough examination of the options... We knew what the pros and cons would have been at different prices." BIG made an offer, but Newell Rubbermaid topped it. McGarvie reflects, "I think the board was comfortable because they knew the company (it was more that just me, it was the CEO and others) had looked at everything thoroughly, and I don't think that would have happened if they didn't know our team and know that we'd look at ways to get synergies and increase shareholder value."

McGarvie also finds that serving on other boards enhances her value to BIG. "I learn fresh ideas, a different perspective," she says. "Benchmarking is an important part of our culture."

Robert L. Ryan

Medtronic, Inc.

Senior Vice President and CFO

Keep it Simple

Robert Ryan was CFO of an oil and gas company when, in the mid1980s, he accepted an invitation to join the board of TECO Energy Inc. The invitation came in part because of his expertise in the tax treatment of natural gas. Specialized knowledge can be an important consideration when boards attempt to recruit CFOs, but a CFO's breadth is more important than his or her depth in a particular discipline, Ryan avers. "A good financial person at a high-enough level sees the whole organization, and not only understands the numbers but knows how to use the numbers to understand what's happening and why. Financial people can use the numbers to help you deal with problems."

Ryan serves on the boards of The Brunswick Corp. and United Healthgroup. For some time, he has attempted to use his outside board experience to widen his own horizons. A while back, while serving on the board of Dain Rauscher Corp., he asked to sit on the compensation committee, in order to better understand the issues. Later, on the board of United Healthgroup, he requested the same assignment. But recent SEC efforts to upgrade audit committees led United Healthgroup to ask him to switch to the audit committee instead.

That work brings him into close contact with the CFOs, and leads to valuable exchanges of information. "What I have found is that the CFOs will seek you out and want to talk to you about what they do and see if there are ways they can improve what they do. They'll often ask you, for example, how your finance function is organized, what you expect of people in the finance organization, and you can see they're looking and comparing."

Ryan is looking and comparing, too, and his outside board service helps him in his Medtronic job. He knows how boards work, and what they need and don't need from a CFO. "It gives you an understanding of what are board-level issues and what are not. I've been on boards where the CFO comes in and gives you a lot of details the board doesn't need. The board depends on you to isolate key issues and explain why they're key. It's the old story -- 20 percent of the items [represent] 80 percent of the importance. A lot of your job as CFO is to figure out that 20 percent and present it in a way that makes sense."

Tom Ryan

Allied Waste Industries Inc.

Executive Vice President and CFO

Know When to Fold Them

This was a tough autumn for the recession-battered trash hauler. The bad news included flat profits, downgrades by equity analysts and -- at the end of October, after FEs interview -- the abrupt resignation of the firm's chief operating officer.

It was in this context that Ryan said, "Boards have different personalities, and the relationship of the CFO with the board will be dictated in part by the personalities involved and in part by the circumstances of the company. If the company is doing well and has a simple financial structure, the profile of the CFO with the board would be less than if the company is having difficulty, the financial structure is convoluted or complex and life is more on the edge. In situations like that, boards tend to bring themselves closer to the CFO whether the CFO wants it or not."

Ryan joined Allied Waste as CFO in August 2000 after a stint as CFO of Federal-Mogul and, previously, as CFO of Tenneco. His resume suggests a fondness for challenging situations and a familiarity with boards. He doesn't dispute that. "I've had a lot of experience with significant acquisitions," he says, "and as a result, got a lot of direct contact from the board in terms of making presentations and the follow-up activity that would result. I think, just from observing over time, that the quality of the board member has improved. Even operating people that aren't specifically financial have had more exposure to the financial side of the business than might have been the case in the past. As boards evolve, I think you're seeing a drawing together of boards and CFOs."

But the CFO should never forget that his or her role is ultimately to support and further the success of the CEO. "It is very important, in my opinion," says Ryan, "that the CFO be viewed as closely in alignment with the CEO. If you get somebody swinging from the tree as CEO, to the point where the CFO in good conscience can't serve that CEO, then a parting of the ways is probably required."

Frank Siskowski CFO

Zantaz Inc.

* Three-Way Management

* Frank Siskowski is a veteran of one of the few dot-coins ever to turn an operating profit -- E-Loan. As CFO, Siskowski had taken the company public in 1999 when the New Economy was in full swing. By this fall, however, he had moved on to the CFO slot at Zantaz, a startup electronic document-archiving company.

"The relationship between the CFO and the board is really a three-way relationship, because the CFO needs to have a strong relationship not only with the board but with the CEO," Siskowski maintains. "The CFO generally reports to the CEO, and that person is your coach, counselor, mentor, boss, supervisor -- whatever. But the CFO also needs to have a relationship with the board -- because the CFO has a fiduciary responsibility to the board.

"So a CFO has to communicate with the CEO, and more often than not be on the same page, but yet be strong enough to stand up to the CEO when you disagree. If you can back it up with facts and analysis, at least you've put the CEO on notice so that later, if you have to stand up in front of the board, you are not surprising the CEO, and he won't feel the rug is being pulled out from under him."

Siskowski speaks from experience. He recalls, without naming the company, an occasion when the quarterly numbers were about to he missed and the board scheduled a special Saturday meeting to discuss the situation. The CEO told the board that it was nothing to worry about -- the company was solidly on track to meet its numbers the next quarter. Siskowski, with the CEO and the rest of the management team present, had to rain on the parade. "The position of the CFO is very tough, because it's very difficult to book hype," he says, "You can only book facts on the financial statements. If the CEO thinks the numbers should be different, there will be tension. It may be healthy tension, but it's tension."

That's why, before Siskowski signs with a company, he talks to as many board members as possible and asks what sort of relationship they want to have with him as CFO. "More often than not, the board members would like to pick up the phone, call the CFO and engage in conversation about how it's going. I encourage that, because a CFO needs a clear channel of communication to the board.

"But I think it's imperative that whether I call the board member or the board member calls me, I inform the CEO about it afterward. I want the channel to be open -- but if I want to use the channel to disagree with the CEO, I have to have the fortitude to alert the boss beforehand, or shortly after, so he's not blind-sided if the board member calls him."

Gregory J. Millman is a freelance business writer in New Jersey and a frequent contributor to Financial Executive.