How Finance Committees Drive Business Health
For any company—nonprofit or for-profit—your board’s finance committee can be a key to fiscal health. Depending on the size and complexity of the organization and its level of sophistication, the role of the finance committee is generally one of the most (if the not the most important) committees in overseeing the overall finances and accounting of the organization as well as reporting these findings and status to the full board.
In the bigger picture, it’s the finance committee’s job to offer recommendations for improvements and review and assess the financial performance of the organization. The rest of the board relies on the finance committee and management to ensure its ongoing financial health. Typically, it’s the finance committee’s job to review monthly, quarterly, and yearend audits, and annual budgets. It works directly with the CFO and executive director/president, and ultimately, with outside auditors to approve the audit and other required reporting on a “scheduled” basis.
But that just scratches the surface of what a well-put-together, flexible finance committee can do. In the nonprofit world, the committee may have experience with tax-exempt bond issues and cuts in state and federal dollars—and nonprofit and for-profit committees may also deal with everything from union issues and lawsuits to business development.
Not every finance committee operates in the same way, but if it’s functioning correctly—coupled with a strong, engaged management team—it can have a very significant impact on an organization’s long-term health. Obviously, the stronger the management team, including the CEO, CFO, and controller, the more a finance committee can act in a support role. With a weaker management team, even if they are very good at their “mission,” the organization may have to rely on the finance committee more than it should. At the end of the day, it works best to achieve a balance of strengths between the finance committee and a management team. To get there, the finance committee and board can often be called on to help improve management skillsets.
To that end, you depend on your finance committee members—and all board members—to have their own distinct skills. Experience, knowledge, and availability are critical, along with a core understanding of the organization and its goals, and a very real commitment to its success. In addition, a strong background in finance and/or accounting can help. On the other hand, board and finance committee members should have a thorough understanding of what’s expected of them in terms of financial support, attendance, level of engagement, time commitment, responsibilities, etc. New board and committee members should be aware of, and clear about, their fiduciary responsibilities. Putting it all in writing assures that there are no misunderstandings on either side of the table.
Experience matters, but the intangibles can make a key difference in any finance committee or board member. The ability to identify and solve problems quickly, ask the right questions at right time, and take action and responsibility are all important attributes when it comes to helping to guide the financial health of an organization.