More CFOs Are Calling It Quits

thePoint
June 3, 2005

A growing number of chief financial officers (CFOs) are resigning, retiring, or getting fired, according to a recent article in USA Today. A buildup in the demands, pressures, and risks has turned the position into what some describe as a thankless chore. And corporate cost cutting has shrunk finance staffs, leaving CFOs with less help to shoulder heavier workloads.

Meanwhile, boards of directors, facing personal liability if a company's numbers prove to be faulty, are pushing out old CFOs to make room for those with more experience to handle the new rigors of accounting reform regulations, such as the Sarbanes-Oxley Act.

The result: a spinning revolving door. CFOs at more than 200 companies were fired or replaced between December 2004 and January 2005, according to 10-K Wizard's analysis of thousands of Securities and Exchange Commission filings. That's up from the 85 who departed during the same period a year earlier.

Many CFOs grumble that the pressure is reaching break-point proportions. Sixty-eight percent of CFOs polled by CFO Magazine late last year said they're feeling more pressure on the job than they did two years ago. They're also working longer hours: 52.9 hours a week on average vs. 49 two years ago. And 63% think of all this work and pressure is hurting their health, the poll found.

Suzanne MacCormack used to be one of those stressed-out executives. As a CFO for software maker Moldflow, her brain was stuffed full of financial ratios. But the calculation that prompted MacCormack to quit February 3 had nothing to do with revenue or earnings. It was what she calls the imbalanced "risk-reward and fun ratio" of the CFO job.

"So many of my peers have said the same thing, so I'm watching and waiting for them to leave the ranks as I have," says MacCormack, who's now working at a venture capital firm. It's a private company and doesn't have to comply with Sarbanes-Oxley rules. Plus, she's now working 55 to 65 hours a week, which is more manageable than the 60 to 70 she spent as CFO.

Gone are the days when CFOs could do what attracted them to the profession in the first place: pore over numbers and help division managers prudently grow their businesses.

Instead, new regulations and other pressures are turning the CFO into the corporate narc, more of a police officer than an accountant.

The recent churn in chief financial officers has come on suddenly. Last year, only 13% of companies in the broad S&P 1500 index changed CFOs, according to a USA Today review of data from Reuters. That's down from 14% in 2003.

The turnover has touched large companies such as Microsoft, where CFO John Connors resigned in January to join a venture capital firm. But most of the changes occur in smaller companies, which have tiny finance staffs that must tackle some of the same requirements larger firms have armies of accountants to deal with.

One factor is a long-dreaded portion of the Sarbanes-Oxley law, called Section 404, which kicks in this year. The rules require companies to research their "internal controls" and disclose any shortcomings. That might sound like a routine task, but for CFOs managing publicly traded companies that often have units scattered around the world, it's like inspecting a lot full of used cars looking for a tiny oil leak.

The rules require CFOs to be corporate detectives, looking for places where an employee could pursue fraud. CFOs must document the movement of every material amount of money, down to the petty-cash account used in the mailroom, says Julia Homer, editor-in-chief of CFO Magazine. They must audit individual expense reports, looking for justification, for instance, if an employee spends just 3% more on travel than in the year before.

To make the deadline, CFOs have had to pile the additional work onto their existing responsibilities and on their support staff. Many have even called in consultants to help. The task is so onerous that the Securities and Exchange Commission this year again extended the deadline until July 15, 2006, for foreign companies that meet conditions and small companies valued at less than $75 million.

One effect of stricter oversight is a three-fold increase in late annual reports filed with the SEC. Bloomberg News reported this week that at least half of the 357 late filers blamed Sarbanes-Oxley for the delays.

Another complicating factor is the high turnover in corporate auditors. More than 2,500 companies changed auditors in the last two years, says financial research firm Glass Lewis. More than 300 companies have switched auditors or have been dropped by their accounting firms since January 1, according to AuditAnalytics.com.

Racing to meet the Section 404 deadline by the end of the year influenced David Gamsey's decision to leave his job as CFO of business-service firm Innotrac. He says he endured all of the rigors of the other portions of Sarbanes-Oxley, but it was Section 404 that finally shifted the risk-reward ratio out of balance.

"404 is all that matters," says Gamsey, who adds that he turned down another offer from a publicly traded company to instead become a partner at a privately held firm, Beecher Carlson Holdings. He hadn't been thinking about leaving, but when the offer came along, he was eager for the change.

"Boy, it's tough on people," says R.T. Pigott, who recently quit his job as CFO at Texas Regional Bancshares. He emphasizes that he did not leave the company over any problems with its books. He says the company's audit fees grew 35% just to get ready to meet the requirements of Section 404.

Pigott, who says he decided to resign for family and personal reasons, adds that the new environment is putting a strain on CFOs beyond the costs and work. The CFO's responsibilities breed distrust from the other members of the executive team, especially the CEO, he says. "The CEO is focused on growing the company, then you handcuff to him a CFO who needs to be a gatekeeper," Pigott says. "That leads to an unnatural tension between the two."

It's not that Pigott was shirking responsibility. In fact, he personally had been signing off on the company's financial statements since it was required in 2002.

But he laments the growing distrust of CFOs and the assumption that they're up to no good. "We're just people,” he says. “And people do make mistakes. When you have a law strapped to you, boy, it's a lot to consider and worry about."

So Pigott is taking time off to think about what his next move will be. One thing he does know: "I'll think long and hard about going to a public company again," he says. "There are just too many risks."

Some say the increased CFO turnover isn't just because of burnout. Many companies, seeing the increased role and importance of the CFO, are upgrading their CFO ranks, says Brian Sullivan, CEO of executive placement firm Christian & Timbers.

"There's an awful lot of CFOs leaving the job, claiming they've had it," he says. "But many are actually getting pushed out."

Another example of the pressures to push out CFOs came last November when online car seller Autobytel announced the resignation of its longtime CFO.

The resignation came as the company announced that its audit committee had completed a massive internal study of the financials and found errors. As a result of the problems, the company's financial statements for the second, third, and fourth quarters of 2003 and the first and second quarters of 2004 needed to be restated.

It's an example of how boards of directors are holding CFOs to greater scrutiny. Sullivan says many members of boards of directors, who have suddenly realized they can be held personally and financially responsible if a company blows up, are urging companies to get CFOs with more experience.

"A lot of CFOs aren't up to speed and don't have the ability to recruit top staff and deal with this level of sophistication," Sullivan says.

This article was prepared by the staff at the Point for Credit Union Research and Advice and is published online at http://thepoint.cuna.org/. Reprinted with permission.