A CFO Blacklist?

Are some sell-side analysts circulating a list of companies whose CFOs have close ties to the big accounting firms?

If history teaches one thing, it’s that people rarely learn anything from history.

How else can you explain the existence of a corporate list that appears to be currently circulating among some sell-side analysts in New York and London? According to sources, the common denominator of the companies on the list: All employ CFOs who have close ties to Big Five accounting firms.

That’s right, a kind of blacklist of Big Five-trained CFOs. The possibility that such a list exists conjures Kinescope memories of the witch hunts conducted by the House Un-American Activities Committee — and Sen. Joseph McCarthy. And while CFO.com was not able to obtain a copy of the list, several sources vouch for it existence. They also say the same sell-side analysts are also circulating a list of companies that engage in numerous off-balance-sheet transactions.

If Enron Corp. weren’t in Chapter 11, it would no doubt be on both lists. In fact, Barry Bregman, managing partner of search firm Heindrick & Struggles’s CFO practice, believes the finance chief blacklist is a “knee-jerk” reaction to the spectacular demise of the giant Houston trading company.

Indeed, following the collapse of Enron in October, the reputation of Enron’s auditor, Arthur Andersen, took a beating — particularly since so many finance staffers at Enron came from Andersen, including former chief accounting officer Richard Causey.

Other less-than-inspiring audits by Andersen — most recently at the Arizona Baptist Foundation — have not helped to restore AA’s good name in the eyes of the public.

And given the recent parade of corporate restatements, shareholder lawsuits, and missed earnings, the taint from “Accountinggate” may well be spreading to other Big Five accountancies (Deloitte & Touche, Ernst & Young, KPMG, and PricewaterhouseCoopers). In fact Barry Honig, president of executive search firm Riskon Inc., says finance staff candidates with strong Big Five ties can expect heightened scrutiny during interviews.

Such scapegoating of the Big Five accounting firms does not sit well with James Drury. Drury, principal of executive search firm James Drury Partners, is outraged that top accountancies are being blamed for aggressive corporate bookkeeping. By Drury’s lights, senior management teams and Wall Street — and their fixation on quarterly earnings — are behind the creative accounting employed by some companies.

To Drury, the idea of heaping abuse on auditing firms in general seems ludicrous. “It’s hard to imagine,” he says, “that a blacklist of Big Five-trained executives would taint career searches.”

Farm Team

It would shorten the list of candidates for finance jobs, that’s for sure. Thousands — if not tens of thousands — of corporate finance executives cut their teeth at Big Five accounting firms.

Many CFOs, in fact, view audit firms as a sort of development system — farm teams, if you will — for the finance function. But if CEOs come to believe that sell-side analysts may lower their ratings on companies employing Big-Five trained CFOs, such a development system will likely be shot.

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