Ensuring the CEO Speaks the Language of Finance

In my last two posts, I wrote about effective communications throughout the organization, and the importance of board education. It occurred to me that, as CFOs, we should not take for granted our CEO speaks our language. Of course, in these days of sophisticated management and critical financial issues we can assume our CEOs have a at least a basic understanding of financial terminology. And certainly there are many CEOs out there who are extremely knowledgable of fiscal matters.

It's not the CEO's job to understand everything there is to know about finance. That's what (s)he's got a CFO for. That said, there may be gaps in the boss's financial knowledge that for any number of reasons we're unaware of.

Consider a scenario where you are proposing a particular action or strategy related to financial management. Let's say you've developed a set of metrics you propose to provide in a dashboard format. The CEO reviews the metrics and indicates he sees no need for a measure of the "quick ratio". You know this ratio is more important than the current ratio, as it focuses on the ratio of immediately liquid assets to immediately liquid liabilities, rather than all current assets and liabilities. So, if you're in a situation where liquidity is critical, this is an important measure. But, if the CEO does not understand the ratio or its importance in your current situation, (s)he may insist on eliminating it in order to focus on the handful of measures he considers most important.

This may not be a realistic example, because chances are you will have a discussion about the meaning and importance of the ratio. Nevertheless, think how much more efficient your interactions would be if you developed a mini-financial seminar to present to the CEO (and, perhaps, other members of the senior management team). There would be less chance of misunderstandings and a smoother team approach under such circumstances.

Please refer to the previous two posts for examples of the type of financial materials that could be included in such a seminar, and let me know if you think this approach makes sense.