Andrew Fastow. Scott Sullivan. David Myers.
It hasn’t exactly been a banner year for finance executives.
Yet, as more companies restate their financials, and as the Securities and Exchange Commission, the Justice Department and Congress launch more probes of corporate accounting, guess whose expertise is becoming more sought out?
This ironic development was underscored Monday when computer storage specialist EMC Corp. said it elected Gail Deegan to its board of directors Gail Deegan. Deegan is the former executive vice president and chief financial officer of Houghton Mifflin Co.
“Deegan has built a career on guiding corporate financial policy and accountability to shareholders, a critical asset for any board in today’s environment,” said Mike Ruettgers, EMC’s executive chairman. “She has distinguished herself as a CFO at three companies in distinctly different industries, has considerable experience as a board member, and promises to be a very valuable addition to EMC.”
The board appointment of Deegan, an experienced and well-respected finance manager, is the culmination of widespread shareholder activism. Back in May, a number of institutional investors, led by Walden Asset Management, which champions socially responsible causes, successfully got EMC to include a resolution at its annual meeting calling for an independent board of directors.
The resolution passed. Although it wasn’t binding, EMC management agreed to add two outside directors to its board.
Enter Deegan. EMC management pledges to add another outside director by year-end, according to The Wall Street Journal.
The fact that Deegan’s background is in finance is no coincidence. Although scores of bureaucrats and talk show hosts are calling for the heads of CFOs, a number of companies are very quietly recruiting veteran finance executives for their boards.
“Companies are saying ‘Get us a CFO!’” Peter McLane, vice chairman at executive search firm Spencer Stuart, told Bloomberg. “With the scrutiny that boards are under, the premium for financial expertise has risen.”
In fact, two dozen corporations named CFOs, accountants or controllers to their boards in the first quarter of this year, double the number last year, according to Spencer Stuart.
The need for more board members with financial expertise will become more critical later this summer when new rules go into effect requiring CEOs and CFOs at the top 945 companies to certify financial statements.
Bloomberg said that recruiters have been asked to search for a third more directors than last year. And as much as 40 percent of their current board searches are for finance executives.
Anecdotal evidence seems to support Bloomberg’s assertion. Earlier this year, auto-parts maker Delphi Corp. appointed Eastman Kodak Co. finance chief Robert Brust to its board of directors.
Others have also sought to add finance muscle to their corporate boards. Adobe named EDS CFO James Daley to its board. Pepsi Bottling Group tapped Bic Group SA CFO Blythe McGarvie for its board. And Sonic Automotive added former DaimlerChrysler Treasurer Thomas Capo to its board. In addition, last October, CVS Corp. finance chief David Rickard joined Harris Corp.’s board.
Interestingly, Brust, McGarvie, Rickard and Daley (a former co-chairman at PricewaterhouseCoopers LLP), all serve on the audit committees of the boards they’ve joined. Management at Computer Associates Inc. convinced Walter Schuetze, a former SEC chief accountant, to head up that company’s audit committee.
Of course, one reason finance executives are being sought for board positions is because many CEOs are maxing out with their director commitments.
Hence, many CEOs are eager to lighten their loads, as pressure mounts to hold top executives and boards of directors accountable for corporate financial statements.
Of course, with the increasing number of shareholder lawsuits these days, board pay could almost be considered hazard pay. Bloomberg reported that the average retainer fee for a director at a company in the S&P 500 Index was $36,937 in 2001, citing figures provided by Spencer Stuart. Directors who chair committees, such as audit or compensation, were paid another $5,354, on average.
One recruiter told the wire service: “A lot of directors are doing risk-reward calculations and focusing on risk they didn’t see prior to Enron. I can’t remember any time where we have seen such concern among directors.”