Does a CFO’s office befit someone who drives a Bugatti Veyron, drinks Dom Pérignon champagne, and smokes $400 cigars?
Some companies may soon find out. More than 50,000 investment bankers could be pruned from Wall Street firms in 2008, as many as 7,000 from Bear Stearns alone. And it’s more than likely that some of these erstwhile Masters of the Universe will seek positions at the head of corporate-finance departments.
There is ample precedent for that kind of career shift. Many investment bankers have become CFOs, including such current finance chiefs as Richard Galanti of Costco, Robert Wiesenthal of Sony Corp. of America, David Johnson of The Hartford Financial Services Group, and Blake Jorgensen of Yahoo. (Jorgensen’s predecessor as CFO, Yahoo president Susan Decker, was also an investment banker.)
There are good reasons to consider hiring an investment banker as CFO. The ability to find cheap funds in today’s financial markets is one. “Alternative capital structures, alternative capital-raising strategies — it’s all bread-and-butter stuff for an investment banker,” says Dylan Roberts, a principal at management-consulting firm Oliver Wyman. Also, many bankers have plenty of experience evaluating merger-and-acquisition (M&A) prospects and steering global deals. Roberts says a CFO’s principal functions are balance-sheet manager and strategic adviser to the CEO, and he notes that many investment bankers already fill those roles for their corporate clients.
Mitchell Gordon, president of merchant bank Morpheus Capital Advisors and a former CFO, says he was a much better finance chief for having been a banker. As CFO of container leasing firm Interpool Inc. from 2000 to 2003, “I knew when the bankers were telling me the truth and when they weren’t,” Gordon says. “I was able to tell in a nanosecond who had substance and who had nothing to bring to the table.”
But in the eyes of many CEOs and directors, the typical investment banker is a flawed CFO candidate. Many companies want an executive with years of hands-on experience navigating Sarbanes-Oxley, other reporting and compliance issues, and complex accounting treatments. Given those needs, the typical CV of an investment banker “might be laughed at,” says Terry Gallagher, president of retained executive search firm Battalia Winston.
Another concern is that investment bankers may lack some desirable softer attributes — the willingness to subjugate their ego for the good of the organization, for example, or patience. “A lot of investment bankers need the ‘juice’ of a deal,” says Gordon. “It’s as much a personality fit as anything else.”
Kip Clarke, managing director and co-head of mergers and acquisitions at KeyBanc Capital Markets, says that most CFO slots don’t offer the continuous action that dealmakers thrive on. Clarke himself discovered this a few years ago when he was a CFO at Inverness Partners, a private-equity group. An automotive-parts supplier in Inverness’s portfolio was having cash-flow problems and consolidating manufacturing plants when the CEO and CFO suddenly resigned. Clarke stepped into the CFO spot to auction off pieces of the company and raise equity financing.