Can finance and legal teams get along? Per a recent white paper by the Association of Corporate Counsel, it appears they get along pretty well most of the time, and when they do, it tends to be good for business.
In an April survey of 326 chief legal officers, 57% of respondents said they have an “excellent” relationship with their organization’s CFO, while another 26% said they have a “good” relationship with their finance chief. Just 3% said they had a “fair” relationship with their CFO, and only 2% described it as “poor.”
“This strong collaboration, characterized by trust and effective communication, suggests a prevailing sense of partnership,” ACC officials wrote in the paper.
Association officials said that a good CLO-CFO partnership goes beyond good vibes in the office; legal chiefs and finance chiefs who get along can “proactively manage risks, capitalize on strategic opportunities, foster innovation, and enhance overall enterprise value,” per the white paper.
Most of the CLOs surveyed (74%) said they reported directly to the CEO. Just 14% said they reported to their CFO, and another 12% said they reported to another person on the executive team. Those reporting structures matter for the CLO-CFO relationship. ACC researchers found that 60% of CLOs who “report directly to the CEO describe their relationship with the CFO as ‘excellent,’ compared to just 48 percent among those who report to another executive.”
It’s worth noting that CFOs can and do play a role in legal matters. Attorneys interviewed by CFO.com earlier this year highlighted the ways that finance chiefs can impact litigation and intellectual property matters, to name just one example.
The chain of command also has implications for communication styles. “Those CLOs reporting to an executive other than the CEO or CFO indicated less effectiveness in their communication with the CFO,” ACC’s report stated. “Intriguingly, there was no significant difference in perceived communication effectiveness between CLOs who report directly to the CEO versus those who report directly to the CFO. This suggests that direct reporting to either of these top executives fosters comparable communication efficacy with the CFO, potentially due to shared strategic alignment at the top.”
ACC researchers, who wrote that the CLO-CFO relationship “directly impacts business growth, robust risk management, and optimal financial performance,” laid out several recommendations for strengthening bonds between the two teams. For one, association officials suggested, CLOs should prioritize a personal relationship with their CFO. Why? “Personal rapport fosters trust, which is crucial for navigating high-stress or high-risk scenarios and enables more candid and direct conversations,” ACC officials said. “Many respondents explicitly state the CLO and CFO should be ‘best friends, at least at work.’”
The report also suggested that finance and legal chiefs promote cross-functional collaboration among their ranks, not just between themselves. That could involve finance and legal leaders encouraging their team members to work together on company-wide initiatives, for instance.
CLOs would do well to brush up on financial and accounting principles, the report suggested. That means having a clear understanding of financial statements, revenue recognition, KPIs and budgeting. It also may help companies at large if CLOs can clearly “translate legal risks into financial impact,” the report said.
While the survey was primarily focused on responses from CLOs, researchers also conducted “in-depth” interviews with five unnamed CFOs.
“All five CFOs highlight extensive and effective collaboration with their CLOs, often at the senior leadership level (weekly meetings, board debriefs, executive committee participation),” the report stated. “This implicitly suggests that for them, the quality and frequency of interaction matter more than the direct reporting hierarchy when it comes to effective partnership and achieving shared goals.”
The ACC’s report is certainly not the first to cover the CLO-CFO relationship. Legal services giant Thomson Reuters issued its own similar white paper a month ago, for example. And the CFO’s relationship with other C-Suite leaders members has been well documented and dissected over the years.
