b'responses coordinated across different central banks.There is this perception that its going to be too much of The paper, Unconventional Monetary Policy anda burden, that the CFO is too busy to be on another board, Disaster Risk: Evidence from the Subprime andbut there are some benefits to being on that board, Mauldin COVID-19 Crises, appeared in the Journal of Interna- says. Boards and organizations like the National Associa-tional Money and Finance. tion of Corporate Directors might want to weigh the cost Why CFOs Should Serve on Outside Boardsand the benefit and lighten up that restriction. Over the past few decades, the role of the chief financialThe paper, Benefit or burden? A comparison of officer has expanded beyond budgeting and financialCFO and CEO outside directorships, appeared in the reporting. Today, a CFO might also focus on strategy,Journal of Business Finance & Accounting.optimize investments and influence operational deci- A New Way to Predict Internal Control Quality sion-making.When players in the capital market are making allocation Elaine Mauldin would know. Before she was the BKDdecisions or when auditors are planning financial statement Distinguished Professor in the School of Accountancy ataudits, they evaluate a firms internal control deficiencies the Trulaske College of Business, she was a CFO. Whento manage financial risk appropriately. But they often dont the CEO of the company retired, he told Mauldin that shehave access to this information until after the fiscal year is would need to get more operational experience to assumecomplete. the position of CEO. Mauldin decided to go into academicsStevie Neuman, associate professor and Tax Excellence instead.Professor in the School of Accountancy at the Trulaske So how do CFOs develop the skills for these modern rolesCollege of Business, and her colleagues have discovered a and responsibilities? Mauldin and her colleague wonderednew way to identify firms with ineffective internal controls if serving on outside boards might offer CFOs the expe- in a timely manner: interim effective tax rate estimates. rience necessary. Even though you might be on the auditEvery quarter, companies are required to issue finan-committee, youre a full board member, so youre in on thecial statements, which include an estimate of their annual strategy conversations, and you might be learning some- effective tax rate, or the rate at which they expect to pay tax thing that could improve your own firm, she says.on all of their earnings for the entire year. At the end of the Historically, CFOs dont usually sit on outside boards. Asecond quarter, armed with more information, companies do sample of firms from 2003 to 2014 shows that only aboutanother forecast and revise their effective tax rate. 9% of CFOs, compared to about 24% of CEOs, haveIts basically a forward-looking estimate for earnings, outside board directorships. Using CEOs as a baseline, theNeuman says. It should really contain information about researchers found that when a CFO sits on an outside board,where the company is headed. their home board is less likely to underinvest in capitalAnd it does. The researchers found that if a company is and to hold excessive cash, ultimately improving the firmsgood at forecasting its effective tax rateif theres not a lot long-term performance. Prior research found that CFOsof volatility from quarter to quarterit suggests that the are typically associated with more conservative financialfirms forecasting systems are good and it has better internal policies. So these new findings suggest that having widercontrol systems. On the other hand, if there is a lot of vola-exposure to a variety of business practices through outsidetilitysay the company estimates its interim tax rate to be board experience provides a channel for knowledge transfer20% in the first quarter, 15% in the second quarter and 30% and enhances the skill sets of the CFO.in the third quarterthen that company is much more When the CFO serves on another board, they getlikely to have significant internal control weaknesses. exposed to broader concepts and theyre less likely to do thatIf theres a lot of volatility, it might suggest that theres a underinvesting in their own home firm, Mauldin says. Inlot of operational volatility going on, Neuman says. There contrast, when the CEO serves on another board, they didare changes in the company, theyre buying or acquiring not have much effect on their home firms policies.another company, or the systems they use to forecast earn-Currently, about 77% of large firms maintain some restric- ings just arent that good and they dont really have a good tions on their executives service on outside boards, oftenidea of what the income is going to be, which would then because of concerns about additional time commitments.imply that internal control systems arent very good, that Yet the findings show that not only should organizationsthose financials-generating systems arent very good. support CFO outside board service but also that CFOThe volatility of the effective tax rate not only predicts outside directorships provide more benefits to home-firmtax-related internal control issues. The researchers also policies than do CEO outside directorships.found that it predicts non-tax-related weaknesses. 2022 Newsmagazine 15'