Backbone and leverage. The successors to Shields and Yarnell?
Actually, CFOs say there’s nothing funny about backbone and leverage — particularly if you don’t have either. Yet grit and clout are crucial to survival — particularly when a chief executive starts to push for better numbers than a finance chief feels comfortable booking, according to a number of veterans of failing companies.
And make no mistake: That’s not an uncommon scenario. According to an exclusive CFO.com poll, more than 40 percent of respondents say they have engaged in aggressive accounting practices to improve their company’s reported financial performance. In another poll, about one in five respondents admit that they’ve misrepresented their company’s performance with aggressive accounting. (See the results for yourself in “Funny Numbers,” at right.)
Ironically, the economic downturn seems to have decreased the leverage finance chiefs possess — at a time when they most need to be able to hold their ground against unreasonable requests. The relative scarcity of good CFO jobs makes it harder for finance executives to vote with their feet, explains Joel Getzler, president of Getzler & Company, a New York-based turnaround consultancy.
At companies where CEOs push for aggressive bookkeeping, a scrupulous finance chief might be torn between producing the desired numbers or delivering a true picture of the company’s situation. And entrepreneurial chief executives often don’t want to see desirable revenue reports disputed, says Getzler. “The CFO is under tremendous pressure to help make profits be there,” he adds.
Then again, the abundant bad news about Enron and other financial scandals might give CFOs the ammunition to defend their positions. “It gives CFOs a much better environment for saying that this whole idea of financial reengineering is not getting us anything,” says one finance chief who did not want to speak on the record. “A lot of CFOs that felt they were pushed too far have a lot of vindication.”
Still, it’s unclear how much of an effect cautionary accounting tales will have on CEOs if profits plummet and their own jobs are suddenly at risk. In that event, suggests Getzler, friends in high places might be better career insurance for a CFO.
For instance, he says, he knows of a finance chief at a major insurance company who was able to sharply disagree with the CEO on a matter before the board. That’s because the CFO was friendly with the chairman and had “major lines of communication with board members on the auditing committee,” Getzler adds.
Since the CFO had routinely talked to board members, he avoided the appearance that he was going over the CEO’s head, Getzler says. The result? The CFO still has his job.
To mitigate career risks during tough economic times, CFOs need to be alert to warning signals about their own standing, as well about the company’s culture, experts say. Here are some bad signs:
- Lack of respect from other senior executives. When the CEO and other senior managers make significant capital investments in the business without telling the CFO, there’s a problem, says Stephen Wasko, CFO of Perceptual Robotics in Evanston, Illinois. Something also could be amiss if the top officer makes financial presentations to the board without asking the CFO to be present. As soon as such things happen, the finance chief should say, “Give me the straight story about why I’ve been excluded,” adds Wasko.
- Loss of standing with the board of directors. Gauging how well a CFO is doing with the board is a subtler matter than sounding the depths of senior management, according to Wasko. “The signals might be tougher to discern because you don’t see them that frequently,” says Wasko. “But if the board is asking for outside, independent information, interpretation, and analysis, and not asking for the CFO, there’s something wrong.”
- Lender discontent. “The more you can get lenders on your team, the better off you are,” says Miles Stover, a principal with Crossroads LLC, an Irvine, California-based turnaround management firm. But poor or untimely communication with bankers — not to mention faulty projections — can quickly alienate CFOs from their good graces. And the consequences can be dire. “I have absolutely seen lenders terminate a CFO,” says Stover.
A complacent culture. “If you’ve found irregularities and concerns and the CEO says, ‘We’ve been doing it this way for years, so its OK’,” says Ted Martin, CEO of Martin Partners, a headhunting firm in Chicago, “that’s an indication that the CEO doesn’t want to hear bad news.”
Another sign of corporate inertia is the lack of honest, regular post-mortem meetings, says Laura Resnikoff, an associate professor at Columbia University. It’s also a bad portent if the meetings amount to a rubber-stamping of existing procedures by a group of “good old boys,” she says. Adds Resnikoff: “Part of what happened in Enron is taking to the nth degree this ‘wanting to fit in’.”