On transparency between Management, Board and Investors...

I asked Jim the question about the level of transparency he maintains with the board.  He divided his response in multiple layers.

The CFOs role with the board is to be the guy that provides transparency and tells them how the business is doing.  That's how trust is built between the the board and the CFO.  Obviously there is an art here - the CFO shouldn't submarine the CEO or rest of the leadership team - but that's where messaging comes in.

From a transparency perspective, Jim maintains two types of messaging.  One that's for the management and the board, and one that's for the investors.  The investor bit is covered in another blog post (https://akaleaderperspectives.blogspot.com/2025/05/on-earnings-calls.html).  For the management, it's complete transparency - so leaders know what they have to do and the success metrics.  For the board, the messaging is similar to the management, albeit with some variations.

The management gets the unvarnished version of numbers and narrative (eg. if new customers count is not upto expectations, it is shown as such, discussed openly and actions are derived/tracked).  The board however gets a view of the softness in new customer count, but without getting into too much detail.  This softness is shared, and it is narrated that the management is aware of it and taking necessary actions.  If need be, some more detail is provided. 

The budget discussion is also similar.  Management gets a clearer and aggressive view of the budget being planned, whereas the board gets a budget view that has some haircuts to the targets.  Read: https://akaleaderperspectives.blogspot.com/2025/03/on-numbers-for-board-investors-and.html

 

On Earnings Calls...

Earnings Calls are hard.  They are like chess - where you have to think about 3-4 moves ahead every time.  Whatever you tell investors in this call, you have to bear in mind that you will speak with them in 90 days - and they will remember what you said last time.  

Metrics - you have to disclose metrics that you are prepared to share every time.  Metrics that indicate the health of the business, yes, but also the ones that are truly strong.

Guidance - the guide you give has to be something that is achievable.  Investors are conservative type - so missing the guidance spooks them.  At the same time, you have to be cautious that you are not being so conservative that next time they will ask you to raise the guidance substantially.

Narrative - the narrative you build has to be more towards the direction you are heading in, and current results have to be presented in the context of that direction.  Anomalies are not taken nicely.

Transparency - In the narrative, you have to be careful about the level of transparency.  There are going to be times, wherein a weak quarter or a less than stellar quarter will lead investors to asking about metrics that aren't doing well.  At such time, you have to be careful and not agree or indicate concern about any such metric - else that will be all they will want to discuss.  You will have to deflect it to something else at the time.  For eg. if new customer growth is slower, you'll have to suggest that our strategy is to acquire quality new customers, or expand into our existing base.  Investors (sell side analysts) are the suspicious sort and they can blow this out of proportion.

Minimize Surprises - if you want to introduce a new concept, or are expecting a driver to impact your results in the future, it is critical to start sensitizing investors in advance.  And this "advance" sensitizing can/should happen as early as possible (maybe even 2-3 quarters ahead of time).  Because when this concept/driver does hit your results (or guidance), they are already aware of it and don't consider it to be a surprise element that they don't understand.  CFOs should take the time to explain the drivers in earnings calls, call-backs, roadshows, etc.

Preparation - above all, earnings call require incredible preparation.  About the numbers, about the narrative, and metrics that drive the business.  The CFO's command over the business and investor sentiment (to anticipate the questions that might come up) are key tools to drive the preparedness.

Ready to take input - sell side analysts generally have sophisticated models that are informed by analytics.  Finance teams typically factor in much of the analytics important to the business.  But there are going to be occasions where investors conduct deeper analytics to inform their models - analytics that your finance team isn't doing.  At such times, CFO (and finance teams) should be willing to pickup and start conducting such analytics.  By the same vein, CFO should be willing to discard metrics that aren't relevant anymore.

All in all it's an art to manage earnings calls with retail investors.   

Good companies that do a good job with earnings calls are very thoughtful of managing earnings calls.  They evaluate every earnings call in the context of previous calls, metrics shared, questions on those calls, road show questions/comments, expectations (and commentary in those reports), subsequent calls after the current call, and future drivers.

Risk appetite of a cfo…

Jim has generally been clear about being at the center of a position he has to take. Eg. If it’s a tax optimization strategy, the questions are clear:

1) are we within the bounds of tax code

2) is this something that most companies do - are there precedents

3) what’s the gain from this, a likelihood of litigation and  impact if it is litigated. 

If we are in the center (or close to), wherein the rewards are commensurate with the probability of risk materializing, and we are within the law, it’s a reasonable risk (even if litigated). The answer is not always clear, but general philosophy is to try and seek clarity. 

On numbers for the board, investors and internal…

While planning and projections are critical, what gets communicated depends on the stakeholder. 

For a board plan, you want to show numbers that are a stretch, but attainable. Numbers that show that the leadership is ambitious. Of course they need to be attainable with good execution. Not flawless execution, but really good execution. Boards don’t want to see conservative numbers at all times - else while you hit your numbers and earn their trust, they can also suspect that you are not being ambitious enough. But at the same time, boards don’t want you to miss numbers all the time. It’s a fine balance.

Investors are a different beast. They don’t like stretches. They like predictability. To investors you show a projection that you can hit. That has meaningful risk baked in. 

Internally, transparency is good. So execution leaders know what’s at stake. That they can be part of a winning team, and have good compensation effects if they execute well. And flip side, what they lose if they don’t. 

On importance of planning…

Planning is an important exercise in any company. It is important because it helps align all teams. Aligns teams to unified goals, spending envelopes, and catches disconnects before they become drivers of failure. But for that planning exercise has to be well managed. It should push sales to drive numbers that are a stretch, but reachable; and it should force product teams to deliver. A disconnected planned exercise will fail in alignment exercise and fail in getting confidence of people involved. 

On reading…

As a finance leader, you should look for breadth in your knowledge absorption. These will allow you to build high level understanding of a wide range of topics and have educated conversations with your stakeholders. Jim prefers to read articles and summaries that “net it out” for him, than reading a book where the point is made after 100 pages. A CFO should also try to spread that knowledge by forwarding key articles to relevant team members so they can also educate their work, conduct and conversations. 

Time is a scarce commodity and consuming: relevant topics, at right level of depth, and from right sources are key factors.  

Jim reads sales side analyst reports - to help understand how companies are positioning themselves, the way they manage their narrative and how investors are perceiving results. He reads insights from Korn Ferry and editorials from WSJ. Lastly, his other source of understanding is meeting professionals outside of work - bankers, attending cfo roundtables, investors. 

on introducing disruption in the team...

When you are looking to make changes in your team, you have to be mindful about how much disruption you are introducing deliberately.  Sometimes you don't have a choice - external factors introduce.  But when you do have a choice, you have to be careful about the areas getting disrupted, how much, and when.  It is also important to consider the ability of the team under the leaders.  You should also assess how your direct leaders are in collaborating with other parts of the organization.  As a CFO, it isn't just the ability of your leaders to do their functional jobs, it's also about their ability to do their organizational roles - extensions of the CFO.