Change is becoming the only constant. What does it take for supervisory boards and CFOs to keep up with time and new requirements of advanced board reporting?
Naturally, the management of reporting functions is an essential task of a CFO. Responsibilities therefore include finance, accounting, controlling, investor relations and sometimes IT, HR, logistics and other central services. Especially in small and medium-sized enterprises, a CFO’s area of responsibility can be very wide. The CFO’s core task, to be the company’s ‘commercial conscience’ and ensure compliance with all legal requirements regarding accounting, controlling & reporting, especially to the supervisory board, often falls short.
Requirements of Advanced Board Reporting
The requirements of advanced board reporting fall into three categories: the ‘hard fact’ basics, the ‘nice to haves’, and finally the personal qualities that are set to increase in importance.
The basics are primarily concerned with the company’s business transparency. The strategic planning should be presented to the supervisory board for discussion six months prior to the beginning of the financial year. The early timing is necessary due to the fact that the pre-order business in the clothing industry generally has long lead times. If the planning gets approved just a month before the new financial year, it would be too late for buying as most of the coming season is already well under way. Moreover, distribution would hardly have a chance to adjust and only very few deviations could be applied for the first months of the new year.
Good reporting also includes monthly progress reports with comparisons and commentary regarding the previous year and the plan. These figures should be available by the 15th of the following month. To what extent these monthly reports need to be included in the board reporting is a situational decision, depending on the current state of the business. A board supervising a company in crisis will heavily rely on monthly reports. But for a company experiencing healthy growth, a quarterly board reporting cycle or reports prior to the board meetings may be sufficient.
After each quarter, the forecast for the end of the financial year should be updated, again with comparisons and commentary on the previous year and the plan. Any planned management provisions should be mentioned as well. These quarterly reports are very important for the supervisory board as they allow the board to effectively exercise their control function. Towards the end of the financial year, provisional annual accounts, balancing risks, and assessing inventories become important in addition.
Tasks of a Modern Supervisory Board
The transition to the ‘nice to have’ requirements can be fluid, as they often also depend on the particular situation a company finds itself in. Transparency about the different business channels, i.e. wholesale, retail, online with different KPIs is important in case of major growth issues. Transparency on the economic viability of business with large key accounts, on the other hand, may play a bigger role in crisis markets.
A related topic the CFO needs to have on the radar is transfer pricing. Tax authorities across the globe pay increasing attention to closing loopholes, and can impose costly fines if companies are too creative with in-house invoicing.
Recent years have seen a number of new additions to the work of a modern supervisory board. Digitalisation has become an important strategic project for every company and affects all business areas. Depending on the state of the online business, the supervisory board needs to monitor the progress, at least on a strategic level.
The Risk Management System (RMS), Compliance Management System (CMS) and Internal Control System (ICS) are new and fast becoming a must for larger companies. And small and medium enterprises would be well advised to adapt a least the basics from the three areas too.
Compliance Management in particular is as good as non-existent on a professional level in many companies. This system includes compliance culture, -objectives, -organisation, -risks, as well as the compliance programme, and monitoring (including communications).
A Modern CFO
A CFO only meets modern needs when actively engaging in all of the above and consulting the executive board on core business management matters. They should offer support and emphasise the control function in cost matters. Where necessary, the CFO should exercise opposition in a compassionate but firm manner to safeguard the interests of shareholders at all times.
The CFO needs to continuously develop modern corporate governance. This includes company culture, a very important basis of every business that needs to be nurtured and further developed. As the figurative Interior Minister of a company, the CFO role lends itself to this task.
Cybersecurity is yet another new task for CFO and supervisory board. The fashion industry too had several prominent cases of unauthorised access that have led to damages and high costs. The supervisory board has the duty to monitor the executive board.
Last but not least, the CFO’s personal qualities should match contemporary business needs. Over recent years, requirements in terms of personal competences have shifted to much larger extent than in terms of professional expertise. Without curiosity and a passion for permanent learning, a CFO won’t stay up to date for long.
Pragmatism and agility are gaining in importance. An entrepreneurial spirit, a holistic approach, and embracing the role of a change agent contribute to a job well done. With an eye on economic viability, it’s important for any CFO to stay on top of the current sustainability megatrend.
And let’s not forget fun and pleasure. A CFO too should bring a sense of humour to work, as everything is easier when one is having fun.
About the Author:
Alexander Gedat is an experienced brand executive who benefits from the best of both worlds, a long career in brand management (until recently as the CEO of Marc O‘Polo) and experience in supervisory management. Get in touch with him to discuss supervisory management strategy or read more of his work here.