Controllers couldn’t make all the numbers work out for them this time. New research shows that as of April 2006, the number of Fortune 500 CFOs hired from outside of their new companies total 190. While 58 percent were plucked from the ranks of existing corporate or divisional CFOs, a paltry 4 percent were sitting controllers.
That’s because controllers are rarely viewed as CFO material outside their own companies, according to research was released on Monday by executive search firm Korn Ferry International at the CFO Rising conference in Orlando. Rounding out the survey of external CFO hires, 17 percent of big company finance chiefs were chief executive officers and general managers immediately before being named to the CFO slot, 9 percent were senior financial generalists, 3 percent were treasurers, 4 percent were involved in strategy and corporate development, and 5 percent came from “other” disciplines.
Outside controllers aren’t prime candidates for finance-chief spots because they lack leadership experience, says Korn Ferry managing director Charles Eldridge. Most controllers haven’t done much in the way of presenting their cases in front of constituents like the board, Wall Street analysts, and large investors and instead focus on communicating behind closed doors, adds Eldridge.
The numbers were very different for 310 big companies that promoted insiders to the chief financial officer spot. Thirty-three percent of the insiders were controllers, demonstrating strong succession planning in those companies, says Eldridge.
The study revealed that among the insiders promoted at Fortune 500 companies, 19 percent were former treasurers and 14 percent were one-time senior financial generalists. CEOs, and general managers, and divisional CFOs, each accounted for 10 percent of the promotions, while 8 percent of the CFOs were promoted after heading up strategy and corporate development roles.
Controllers who were passed up during external searches were hurt by the Sarbanes-Oxley Act, Eldridge thinks. Before Sarbox went into effect, controllers were on a more direct route to the CFO slot. But the attention to internal accounting machinations required by Sarbox turned many corporate controllers into internally focused compliance experts. The change was necessary and crucial to a public company’s survival, but their “super controller” status shoved such executives off the path to the CFO office, observes Eldridge.
Further, says Lorraine Hack, a partner at Heidrick & Struggles, a search firm: “Companies don’t want to replicate in a CFO what they already have in a controller.” What’s more, the Sarbox “pendulum has swung the other way,” and large company management and their boards are comfortable with regulatory compliance, she says. That means that search committees no longer demand that CFO candidates be certified public accountants, according to the headhunter.
Still, Hack says, Sarbox has made boards and management much more conservative, and many Fortune 500 companies thus only want to interview candidates that have large, public-company expertise. For now, that doesn’t present too great a risk. The average tenure of a CFO in the United States is about 3.2 years, so there is a decent-sized pool of available applicants, says Korn Ferry’s Eldridge.