TOO MANY EXPERTS?
By David McCann

Now that financial instruments are wreaking havoc on bank balance sheets, another kind of financial asset is in hot demand: CFOs to serve as outside directors for financial institutions.

On March 31, Citigroup announced its plan to stress finance and investing know-how in filling upcoming board openings. That could be the tip of the iceberg—more financial services companies who suffered subprime losses are likely to adopt the same strategy, according to those familiar with corporate boards.

Previously, companies put CFOs on their boards because of Sarbanes-Oxley compliance demands. Now, capital market problems are creating demand for a different kind of finance executive, according to Tom Kolder, president of finance executive recruiting firm Crist Associates. “Whereas in the past coming up through the CPA track was the qualifier, what you can expect to see now is treasury-related skills coming into favor,” he says.

But that doesn’t necessarily mean the strategy is sound. Milan Moravec, CEO of Moravec & Associates, a firm that advises on board composition, argues that loading a board with financial people—even at banks—makes for a bad mix. “You’ll have a bunch of technical experts who are not really very good at communicating with one another or at bringing about the right levels of constructive conflict and differences of opinion. They’ll be likely to make the same kinds of poor decisions that were made before.”

Such criticism hardly applies to all CFOs, but there is a risk that having too many finance experts could undermine one of a board’s chief functions, which is to ask “the dumb question,” says Keith Hall, a former CFO of Lending Tree who now sits on three boards. Asking and answering such questions could have insulated companies from exposure to the subprime mortgage meltdown, he suggested. “If a board had an environment supportive of members asking dumb questions, they might have asked, ‘What are all these alphabet soup-like things like CDOs?’ The most important question would be, ‘What are the facts behind these subprime loans?’”