CFO Turnover Slows, But Remains High

Promotion rates for controllers soar, while treasurers are passed over.

The musical chairs game among CFOs has slowed down, according to a new study by Russell Reynolds Associates. Turnover among Fortune 500 CFOs decreased by 32 percent in 2006, compared to a 19 percent increase in 2005. The slow down is largely due to a 68 percent decline in the rate of promotions in a year when only 13 percent of Fortune 500 companies changed CFOs (compared to 19 percent in 2005.)

Chris Langhoff, an executive recruiter in the Russell Reynolds Associates’ Financial Officers Practice, says the decrease can be attributed to the fact that CFOs are getting more comfortable with the new regulatory procedures of the Sarbanes-Oxley Act (Sarbox). Nevertheless, he says turnover rates are relatively high among finance professionals. “If you ask any CFOs if 13 percent turnover is acceptable they would say no,” he adds. “It actually surprised me that the rate decreased because it doesn’t feel like the market is slowing.”

The study also found that the number of CFO resignations increased by 41 percent from 2005. Langhoff says the number includes CFOs that were fired, which can be ascribed to the rash of backdating scandals, poor corporate performance, and merger and acquisition activity that occurred last year.

The CFO realm is also being affected by a rise in private equity firm activity. One of the first things that happens when a private equity firm takes control of a company is to appoint a new CFO, notes Langhoff. He says private equity owners usually prefer to work with someone they know and trust. In addition, the firms tend to offer very lucrative deals to attract CFOs who have experience dealing with tough regulatory issues. “[CFOs] can get away from some of the [Sarbox] 404 stuff and be more results focused, true business partners,” says Langhoff, of finance chiefs that make the move to private equity.

The study also revealed a turnover slow down among controllers and treasurers as well. Only 13 percent of controllers changed positions last year, compared to 18 percent in 2005. Unlike CFOs, the number of controllers who were promoted internally jumped 35 percent, which study authors attribute to the way companies value the knowledge and regulatory know-how that controllers bring to the table. As a result companies are increasingly promoting controllers or improving their compensation packages.

However treasurers were not as popular. Though this group has the lowest turnover rate among all senior finance roles, treasurers also suffered a 43 percent drop in promotion rate. The study claims that the decline can be pegged to the idea that treasurers are more distant from a company’s core financials — such as operating and regulatory issues — than CFOs and controllers, therefore limiting their affect on corporate results and giving them less clout, and less of a chance to step up.

In all, Langhoff expects turnover of corporate finance executives to continue to be a major concern for companies and predicts that more companies will be making succession planning, recruitment, and development a top priority this year.

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