Study: Correlation between lower-performance at companies with CFOs in the boardroom
It’s not unusual for the chief financial officers at corporations to sit on the boards of other companies, but a new report finds it may not be good for the bottom line of the executive’s company.
Both net income and total shareholder return were lower at companies with CFOs serving on outside boards, according to an Equilar study released Wednesday. And the performance results were even worse when a CFO served on two or more boards.
Do the findings suggest companies should be evaluating whether it makes sense for CFOs to sit on any outside boards? Yes, says Dan Marcec, Director of Content at Equilar and author of the report.
“I think that given the increased responsibilities of public company directors and additional scrutiny placed on boards from investors and proxy advisors,” he maintains, “companies should always consider on a case-by-case basis what types of commitments will be required from executives to serve on outside boards when those opportunities arise.”
That said, he adds, “I wouldn't put ourselves in the position to make a recommendation one way or the other for any particular company—the data is very interesting, but there are far too many inputs to pay and performance to make a broad-sweeping, prescriptive statement.”
Here are some more of the key findings:
- 289 large-cap companies had CFOs (or principal financial officers) serving three consecutive fiscal years, which comprised the sample size—the list of companies from which the sample set for the study was derived can be found here
- 32.5% of the CFOs in the study served on at least one outside board as of the most recent fiscal year end, of which 78 served on one board, 14 on two boards, and two on three boards
- Total compensation in the most recent fiscal year was $3.9 million for CFOs who did not serve a board, $4.0 million for those that served one outside board, and $5.4 million for those that served two or more boards
- Three-year TSR was a median 10.4% for non-boarded CFO companies, 10.0% for companies with boarded CFOs—however, for the companies with CFOs that served two or more boards, median three-year TSR was 3.3%
- Revenue and net income in the most recent fiscal year showed a digressive pattern as CFOs served on more boards