The CFO role in the boards of directors of Maltese listed entities

Abstract

PURPOSE: The objectives of the study are threefold: (i) to ascertain how, if in any way, MLEs require CFOs to participate as BMs, or as regular Board participants, or as not regular but specially invited participants on their Boards, or not inviting CFOs to participate at all on such Boards; (ii) to evaluate the pros and cons of the preferred type of participation from the perspectives of both the CFOs themselves and other BMs and (iii) to analyse the wider positive and/or negative CG implications of CFO Board presence upon the Board directors, managers and shareholders of MLEs. DESIGN: A mixed research methodology was adopted. Semi-structured interviews were conducted with 10 BMs and 16 CFOs from MLEs. Additionally, written responses were obtained from three additional BMs and two CFOs, bringing the total number of participants to 31. FINDINGS: The findings underscored MLEs' preference for CFOs as regular participants rather than BMs, thus maintaining financial oversight while preserving independent management scrutiny. The benefits of such type of participation included improved financial understanding and communication among directors. Factors such as CFO shareholding, Board financial literacy, and entity complexity influenced the type of participation. The acceptability of current CFOs on other MLE Boards was noted, as was the presence of ex-CFOs with cooling-off periods. Challenges included potential clashes between current CFOs and ex-CFOs and balancing of Board commitments with day-to-day work by CFOs. Despite some concerns, CFO Board participation was seen as aiding strategic alignment, providing managers with strategic insights and enhancing shareholder confidence. Small Maltese shareholders showed little concern, while large institutional shareholders were reassured by the Board presence of CFOs. CONCLUSIONS: The study concludes that CFO regular participation but non-Board membership is the preferred type of CFO Board participation for MLEs. This facilitates independent scrutiny while prioritising financial considerations. Despite the challenges faced by CFOs in participating on MLE Boards, these including the time commitment involved, the advantages of such participation outweigh the disadvantages, and such participation satisfies the needs of directors, managers and shareholders. IMPLICATIONS: The study seeks to highlight to MLEs the significance, advantages and disadvantages of CFO Board participation and the broader CG implications for directors, managers, and shareholders. The recommendations being forwarded are designed to help MLEs establish a framework to ensure that CFOs attend Board meetings with no negative implications on independence, ultimately fostering governance.