In the Eye of the Storm

Have chief financial officers ever mattered more—or been less prepared?

To their newness, add narrowness. In the late 1990s CFOs were increasingly hired for their expertise in capital markets and financial engineering, as shareholders and chief executives demanded ever higher short-term profits—paving the way for disasters such as the collapse of Enron and WorldCom, in which star CFOs Andrew Fastow and Scott Sullivan played central roles. However, this changed after Sarbanes-Oxley, when there was instead a “massive focus on people with technical accounting skills”, says Eric Rehmann, head of the CFO practice of Korn Ferry, a recruitment firm. “There was a preference for people who had been financial controllers or certified practising accountants,” he says. Audit committees wanted candidates with “technical experience and a track record, not breadth”.

True, in the past few years many CFOs have seen their roles expand to include overseeing departments such as property, information technology and procurement, says Kurt Reisenburg, who heads the finance practice of the Corporate Executive Board, a support network for managers. But this was mostly about shifting the administrative burden from the chief executive, rather than playing the broader role in leading corporate strategy that Mr Reisenburg says is needed. “All these activities are cost-control focused, not about supporting growth decisions,” he says. The few CFOs who have “learnt about operations, and have got relationships with key operating executives, are better placed than those who have focused on Sarbox compliance and financial engineering.”

For example, the downturn will probably lead to tension between finance and sales in many firms—finance wants to keep prices high as commodity prices fall, whereas sales wants to cut prices to increase market share. A CFO who has spent time with the sales department, rather than just hanging out with the financial controller, is more likely to be able to resolve this conflict, says Mr Reisenburg.

There needs to be a return to the CFO’s role as “manager of the company’s balance sheet, overseer of corporate risk, insurer of the financial health of the enterprise”, says Bill George, the former boss of Medtronic and author of “True North”, a book on leadership. “A strong, conservative CFO is needed now more than ever, and should be given greater authority within the executive suite,” he says, citing the roles of Don Humphreys of Exxon Mobil and David Viniar of Goldman Sachs. (Mr George is a director of both firms.)

As it happens, Mr Viniar is identified as the “most relatively highly paid CFO” in a recent paper by Graef Crystal, a compensation expert. (Mr Viniar took home $23.2m in 2007, according to Mr Crystal, though Salary.com reckons it was $42.2m.) As the American economy sinks, CFOs are “having to look at whole lots of unpalatable numbers. But there’s one set of numbers they still find thrilling to examine: their own pay,” observes Mr Crystal dryly.

Although they take home less than chief executives, CFOs can get rich fast. Sharilyn Gasaway, the CFO of Alltel, a phone company, is reportedly now the highest-paid female executive in America. Overall, “CFOs are enjoying larger pay gains than other C-level executives”, concludes the latest annual review of compensation trends by CFO Magazine, a sister publication of The Economist. Median direct total compensation (base pay plus incentives) rose by 5.4% for CFOs in 2007, but fell by 1.4% for chief executives and by 1.7% for chief operating officers.

Still, CFOs face a lot just now. After the dotcom crash, more CFOs were fired than chief executives. If history repeats itself, the CFOs who survive to take home a fat pay packet will probably have earned it.

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