Ted Martin is the founder and chief executive officer of Martin Partners LLC, an executive-search firm in Chicago.
How have requirements changed for chief financial officers in the wake of corporate accounting scandals?
The new recruiting requirements are tied to what’s going to happen at the board of director level and then trickle down. The finance and audit committee is under more scrutiny than ever. Given that, a new and valuable credential for [chief financial officers] in publicly traded corporations is a stint in the audit function.
In the past, you might have had finance and audit committee members who didn’t have financial backgrounds. They would rubberstamp the reports because of this lack of experience. Now you’re going to need heavily finance-oriented board members who will be tearing apart and peeling back the onion on all the financials. That creates implications for the CFO because all reports will be under more scrutiny than in the past. That’s going to require more detail in reporting, so companies will need CFOs who are used to delivering at that level. They’ll also need a heavy emphasis on budget and cost accounting. They must know what every single item in an organization costs, because they’re going to be accountable for every dollar. The days of relying on your controller and treasurer to support you are gone. CFOs are going to have to be knowledgeable and go deeper into the details because the board is going to ask for it.
A CFO who has a deal orientation may not be qualified for the job today. This type of background was once appropriate, especially in companies making acquisitions. For these CFOs, relationships with investment bankers might have been a primary attribute. But now, a CFO with deal experience will have to be as savvy as the controller on the details behind the numbers. That’s tough because a heavily deal-oriented CFO wouldn’t have come up through that side of finance.
CFOs also need an operational understanding so they can’t be snowballed by the numbers. A finance executive who comes from a “non-siloed” organization will be more in tune with today’s opportunities than one from a vertically structured organization who gets numbers dumped on him. CFOs will be responsible for fraud and deceit, so they have to be able to see it. Culpability is going to flow all over the place, and the CFO and CEO will be responsible for making sure the numbers are right. Saying, “I didn’t know” won’t be an excuse for a CFO in the future. We aren’t talking about executives who intentionally misled others, such as [former Enron CFO] Andy Fastow. Now, even if you didn’t know, you’ll still be as guilty as an Andy Fastow.
Will there be more emphasis on candidates’ ethics or morality?
That’s a good question. Everything will be “back to basics,” including an emphasis on integrity. I think what happened is that during the big dot-com run-up in stock prices, executives at traditional companies began asking why those folks were getting rich when they felt they deserved it more. They decided to go find riches so they wouldn’t be outdone by 28-year-olds who got on the cover of Red Herring.