From the Boardroom to the Bottom Line: Why the CEO-CFO Relationship Matters More Than Ever

The Chief Executive Officer and the Chief Financial Officer’s roles and responsibilities are so intertwined that the success or failure of one can often determine the fate of the other. 

Yet, for all their importance, the true nature of a healthy and strong CEO-CFO relationship remains a snag point for many organizations, hidden behind boardroom doors and financial reports. We all know that cohesion is a must. Unfortunately, creating that cohesion isn’t always easy.     

Organizations must ask themselves what lies at the heart of this partnership that is responsible for both an organization’s strategy and vision, as well as its execution and management? What are the forces that bind these two leaders together, and what happens when those bonds begin to fray?       

How the CEO-CFO Relationship is Changing

The roles and responsibilities of both CEOs and CFOs have expanded and changed in recent years. This shouldn’t come as news to anyone, but it is important to keep in mind that this shift has, quite understandably, reshaped and redefined the contours of CFOs and CEOs relationships with each other.   

CEOs have always been the top leaders and top dogs at the organizations they serve, but their mandate has grown far past just being a corporate figurehead or “the face of” an organization. Chief executives today must deal with a more diverse set of stakeholders (who are often also more demanding) and an accelerating pace of change. Financial market pressures have intensified, while AI and emerging technologies, the push for sustainability, globalization, and socio-political forces demand exemplary leadership. Because of this, CEOs increasingly rely on their CFOs as strategic thought partners. 

Meanwhile, CFOs have long since leaped over the boundaries of traditional financial management and reporting. The days of the “bean counter” CFO are long gone. As noted in a McKinsey study, leading CFOs are playing a larger and larger role in strategy setting, performance management, and organizational transformation. They serve as the CEO’s “right hand” rather than just as an executive financial controller and provide analytical rigor and financial discipline to strategic decision making.  

The CEO-CFO relationship, in turn, has become more collaborative, with the finance chief gaining clout as a valued voice at the strategy table. And rightfully so. While both roles are important independently, the way they interface with each other is arguably more important than what either leader can achieve individually. 

This relational shift is further explored in academic studies on CFO role perceptions. For example, based on interviews with European CFOs, one study that set out to examine the differences between family and non-family business CFOs found that, generally speaking, all CFOs are experiencing an increase in demand in terms of their involvement in strategic planning alongside the CEO.  

To corroborate this, survey data from Canadian firms shows CFOs ranking their strategic advisory function as highly important; nearly on par with classic duties like reporting and compliance. This is definitely a change from the traditional CFO responsibilities of 50 years ago. And the CFO’s expanding role puts a premium on tight CEO-CFO alignment. 

The Benefits of a Strong CEO-CFO Partnership

A well-functioning CEO-CFO relationship can be a powerful driver of firm performance. When the CEO and CFO can work together like a well-oiled machine, the result is an organization capable of achieving perfect strategic alignment. 

Let’s examine some of the specific benefits more closely. 

1. Improved Decision-Making, Better Outcomes

CFOs who have a close working relationship with their CEOs are more likely to be involved in strategic decision-making processes. It’s not surprising when you consider that it is human nature to be open to spending more time with and collaborating more closely with someone whose company you enjoy.  

The financial expertise CFOs bring to the table often also means that when they’re more involved in decision making, the outcomes of those decisions are improved.   

2. Enhanced Financial Management and Risk Mitigation

A study examined the impact of the CFO role on firm financial policies and outcomes in the UK. It discovered that companies with CFOs who have a stronger relationship with their CEOs exhibit a stronger balance sheet and better operating performance. The reason for this is simple: a strong CEO-CFO partnership enables more effective financial management and risk mitigation.  

When the CFO feels they can communicate openly and honestly with the CEO, without fear of consequences or constantly being overruled, they are more likely to support or oppose C-suite initiatives and ideas when it matters most, and consequently, they are more likely to have the necessary control over the company’s finances. 

3. More Aligned Strategic Vision and Execution

A healthy CEO-CFO partnership allows for better alignment between the company’s strategic vision and its execution. When the CEO and CFO are on the same page, they can work together to develop and implement strategies that drive the organization towards its goals.  

Two real-world examples that highlight the benefits of a healthy CEO-CFO relationship include: 

• The CEO of Salesforce, Marc Benioff, and Mark Hawkins, CFO from 2014 to 2020, formed a strong partnership that helped drive the company’s explosive growth. Their collaboration made it possible for them to execute the company’s strategy like a well thought out battle plan, including the strategic $15.7 billion purchase of Tableau in 2019, which expanded Salesforce’s offerings in the data analytics market just in time for an era in which data analytics is playing an increasingly important role. Benioff and Hawkins’ alignment on strategic priorities and financial discipline enabled Salesforce to achieve consistent revenue growth and maintain a strong balance sheet. 
   
• Mary Barra took over as CEO of General Motors in 2014. Since 2020, she has worked closely with CFO Paul Jacobson to maneuver the company through a period of transformation with absolute precision. Their partnership has been key in executing GM’s strategy to invest in electric vehicles and autonomous driving technology. Barra and Jacobson’s working relationship has also been important to managing the company’s finances through challenging periods, such as the COVID-19 pandemic.  

The Risks of CEO-CFO Misalignment

In any C-suite, you’re going to come across some strong personalities. Naturally, this can sometimes lead to tension and disagreements. While that’s not necessarily a bad thing, it’s important to ensure that tension in the C-suite doesn’t translate into CEO-CFO misalignment. 

While a strong CEO-CFO partnership can drive value creation, misalignment or dysfunction in this relationship can hinder organizational performance and lead to various risks that are better avoided.  

1. Increased Risk of Financial Misconduct

One potential consequence of CEO-CFO misalignment is the increased risk of financial misconduct. Research has found that CFOs are more likely to engage in material accounting manipulations when they face pressure from CEOs to meet aggressive financial targets.  

When a CEO isn’t willing to trust their CFO, the CFO can feel pushed into a corner in terms of performance and their reporting of it. That is to say, a lack of CEO-CFO alignment can create an environment where CFOs feel compelled to engage in misconduct to satisfy the CEO’s demands, especially when financial performance is linked to compensation. 

2. Suboptimal Strategic Decision-Making

CEO-CFO misalignment can also lead to suboptimal strategic decision-making. When the CEO and CFO have divergent views on the company’s strategic direction, the situation that arises is almost like two yoked oxen pulling against each other rather than pulling together to move whatever load they’ve been tasked with. And it typically results in the CFO exiting the organization. 

When this happens, it can result in a lack of clarity and commitment throughout the organization. Research suggest that a dysfunctional CEO-CFO relationship can seriously hinder the implementation of strategic initiatives and lead to missed opportunities for growth and value creation, or worse. 

3. Toxic Work Environment

CEO-CFO misalignment is not merely an issue of differing opinions between two executives; it has real consequences for the work environment too. Studies have proven that toxic work environments (TWEs) can reduce employee engagement significantly. When the CEO-CFO relationship degrades to the point where the environment they create for each other, as well as their direct reports, can only be described as toxic, it is time to act.  

The tone is set from the top. When organizations encounter issues with a TWE, they should first look to the top. This is of particular concern in the relationship-driven roles of CEOs and CFOs, whose alignment is often mirrored in the broader corporate culture. That’s often when the Board of Directors has to step in.   

Leadership Bonds that Drive Success

Your CEO and CFO’s relationship is the foundation upon which your organization is built. Therefore, it makes sense to ensure this foundation is as strong and resilient as possible.   

So, how do you ensure that your CEO and CFO are on the same page? It starts with recognizing the importance of this relationship and making it a top priority. This means facilitating open, honest communication, building trust, and ensuring that both leaders are aligned on the company’s vision and values. It also means being proactive about identifying and addressing any potential points of tension or conflict before they can fester and derail progress. 

Whether you’re looking to recruit a new CEO or CFO, or whether you’re looking to improve the relationships within your existing C-suite, our team is here to support you every step of the way. Click here to reach out to one of our consultants. 

About the Authors

Cathy Logue, FCPA, FCA is a founding Managing Director at Stanton Chase Toronto and Global Leader of Stanton Chase’s CFO Practice Group. She has over 30 years of executive search and financial leadership experience, working with clients across North America. Prior to her career in executive search, Cathy obtained her Chartered Accountant designation with Ernst & Young, and was awarded the Fellow (FCPA, FCA) designation in 2017. In 2021, she was recognized by the WXN Top 100: Most Powerful Women in Canada for her efforts in advancing women in leadership. Cathy sits on the Board of the Association of Executive Search and Leadership Consultants (AESC) and is former Vice Chair, Finance on the Stanton Chase Board of Directors. 

Daniel Casteel is the Global Functional Leader for CEO Search and Succession and Managing Partner of Stanton Chase Nashville. He is a veteran global executive who leverages his extensive experience in building executive leadership teams across diverse industries and geographies for the benefit of his clients. Daniel founded Stanton Chase Nashville in 2005 and has since established a top-caliber team in Georgia, Alabama, and Tennessee that brings great depth of industry expertise and business acumen to deliver outstanding leadership solutions for clients.