Bail Out: CFOs Struggle With High Turnover Rates in the Wake of Sarbanes-Oxley
Today, the average tenure for a cfo is 28 months, according to Tatum cfo Partners, an Atlanta-based temporary employment firm.
Despite this quick churn rate, many finance officers aren’t aware that their predicament is commonplace. Bob Hostetler, area managing partner for Tatum in Washington, DC, said that former cfos are often defensive when they appear at an executive placement firm with a resume that shows five jobs in 15 years. “We don’t even question it,” he said. “That’s just the way the industry is. It’s kind of a revolving door…. If you weren’t looking for a job last year or this year, you will be soon.” “It’s a general symptom of the entire C-level marketplace. There is such change and such pressure that cfos are frequently the first to go. Frankly, it’s easier for the ceo to blame them first,” said Donald W. Rutherford, a temporary cfo in Los Angeles.
In the wake of this trend, a number of temporary cfo placement firms have cropped up across the United States. These include Tatum cfo Partners, cfo Selections, cfo2Go and Resource Connections, among others. Industry experts point to a number of reasons for cfo turnover.
Historically, top executives have been victims of turnover when companies merge or go public. Yet, increasingly, experts say that more top executives are leaving of their own volition in order to preempt shakedowns on accounting irregularities or to avoid a staffing crunch.
cfos used to rely on their auditors for advice on compliance issues. Today, however, compliance and accounting have been separated to the point where some cfos are not able to find the advice they need, Rutherford said.
The fallout is felt via increased scrutiny in all finance procedures, and some cfos can’t stand the pressure. “I’m hearing people say: ‘Our staff is burned out. We’re spending millions of dollars to implement [Sarbanes-Oxley]. On top of it all, we have this tremendous amount of remediation,'” Hostetler said.
In December 2004, 11 major financial services ceos left their jobs, compared to seven in 2002. According to a report by Challenger, Gray & Christmas, the financial services industry ranked second in chief executive departures in 2004. Only the service sector had a faster churn rate.
Some 129 ceos left their jobs, with 56 departures in December 2004 alone. Fifty of the exits were described as retirements and 30 as resignations, the Challenger report said. In fact, according to the Wall Street Journal, more ceos are turning down board seats in order to prevent potential litigation.
While there are no national surveys that provide current numbers on cfo turnover, anecdotal evidence suggests that cfos are suffering even faster burn-through rates than their chief executive counterparts.
“I think [cfo turnover] is very high right now. Boards are becoming more active, demanding much more information. The cfo is seeing it there as well. Auditors are taking much more aggressive stances. That puts the cfo in the crosshairs,” said John A. Challenger, ceo of Challenger, Gray & Christmas, Inc.
“I think that there’s a lot of change going on today with what’s being asked of cfos with Sarbanes-Oxley. There’s a bit of ‘shoot the messenger’ when the cfo is being blamed for things that they may not have control over,” Challenger said.
Given the high rate of cfo turnover, the Corporate Executive Board recently examined several factors that contribute to finance officers’ stress. The report found that only 5 per cent of cfos are promoted directly to the position of ceo.
In order to improve a c-level career trajectory, analysts at the Corporate Executive Board suggested that cfos should work to develop operational expertise to improve relationships with general managers. “Operational knowledge improves how helpful cfos can be to their general managers,” said Eisha Tierney Armstrong, research practice manager for the cfo Executive Board, a division of the Corporate Executive Board, based in Washington, DC.
“Poor corporate performance is driving cfo turnover. In the past eight years we found that the largest driver was negative stock price performance when compared to the industry average,” Armstrong said.
Ideally, the ultimate goal of the cfo should be to move toward the chief executive’s office. However, in order to do this, a finance officer may need to shed a few responsibilities. First, identify which functions should report to the cfo and which functions should not. “Human resources, IT and procurement are functions that we do not think should be reporting to the cfo, unless there are reasons to streamline costs,” Armstrong said.
Companies that want to retain c-level executives should develop a succession plan. It is important to hire from within, whenever possible, in order to groom a successor who is familiar with the company’s needs. “Internally hired cfos perform better than externally formed cfos,” Armstrong said. Even though Congress is considering legislation to reform portions of Sarbanes-Oxley and some public companies are going private in order to avoid regulation, it’s still crucial to maintain a good offense. It’s also important to cross-train finance staff members, Challenger said.
Finally, it is vital to make sure the company’s ceo is in the loop on all problems. “Accounting problems are not ones to sweep under the rug. Talk with another audit firm, if necessary,” Challenger said.
Copyright 2005 by the Association for Financial Professionals (AFP). Reproduction of this material is prohibited without prior permission by AFP. All rights reserved in all countries.