CEOs and CFOs Must Share Responsibility of Forecasts

Editor’s note: This piece is part of our Columnist Network series, which explores the tactical thoughts and actions from Adweek’s community of high-level experts. Today, John French, CEO of French LLC, an advisory firm for the media industry, shares his ideas on budget projections and resolving disunity in the boardroom. Below, in his own words, he emboldens CEOs to step up and own their forecasts like they would anything else. The challenge As we move into the middle of Q3, most of us in the C-suite are actively working on mid-year forecasts. One of the most important duties of the C-suite is to properly and honestly report performance numbers to any combination of stakeholders—banks, lenders, credit agencies, owners and your board. In some ways that's the easy part. The numbers are the numbers. Or as Giants' coach Bill Parcells once said, "you are what your record says you are." However, forecasting future numbers is a whole different kettle of fish. Most CEOs come from the product or operations side of the business, while CFOs come from finance and accounting. It's well-known they will approach forecasting from two very different perspectives. CEOs want to believe the best is yet to come and the glass is half full. CFOs never want to be caught sending unrealistic forecasts up the chain. One of the most common disagreements revolves around marketing dollars—in budget cut exercises, marketing usually gets slashed first. Why? Because it's easy (but detrimental in the long run). Most CEOs believe in the sometimes invisible returns on investment that come from marketing. That's not to say CFOs aren't believers, but it usually comes down to the amount spent rather than the idea of marketing. Of course, these are the built-in checks and balances that make the board members sleep better at night. A natural friction here is good and healthy for a management team, and negotiations lead to an accurate forecast. But what if they disagree? And I mean really disagree. The process CEOs and CFOs both have fiduciary responsibilities to nail forecasts, but technically the CEO has the final say on all matters going to the board. Some companies bypass that chain of command when it comes to communications with board members by going directly to the CFO for the numbers—a structure I've never understood. The org chart usually doesn't read that way, but that's how it plays out in everyday practice. I can't tell you how many times I've seen this begin to break down the authority of the CEO, as well as the CEO's relationship with the CFO. I've heard all the excuses for why: "My CFO is way too conservative"; "If we submit to their gloomy outlook, I'll be forced to make budget cuts that will hurt the business"; "I know these numbers are a stretch, but if I bring them down with the corresponding cuts, I'll never grow this business." If a board doesn't trust the CEO to do the right thing and come up with reliable forecast, then they need a new CEO. But that's way too simple of an answer. A great CEO rises above that. He or she has to own every part of the company. When I've been CEO of my companies, I was always a board member as well. My guidance to myself was simple: What forecast did I want to see, not as the CEO, but as a board member? What does that mean? Negotiate an accurate forecast with your CFO—then go to the board and deliver the forecast yourself. Take ownership of it! Every damn number! Explain specifically where you think the holes could be in the forecast. Detail where you and the CFO disagreed and why. Lay out contingency plans if the numbers begin to fall, but don't start cutting now ... just be ready later. Encourage your board members to weigh in with their thoughts and experiences. Get them to help you arrive at a final number. They'll then share ownership with you of the forecast, and that makes life much simpler going forward. And most importantly, visibly support your CFO and don't refer to the document as "their" forecast. You both own it, actually. The takeaway When I'm in board meetings with management and we get to finance, and the CEO visibly sits back and checks out for a bit while the CFO talks, that makes me mighty nervous. Yes, give your CFO a time to shine, but don't treat that segment like it's not your job. It is your job.

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CEOs and CFOs Alike Should Take Ownership of Mid-Year Forecasts

Resolving budget disagreements in the boardroom

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John French

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