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CFO.com, August 13, 2002

What Makes CFOs Tick?

by Marie Leone, CFO.com


The trail of accounting scandals has led some to question the judgment -- not to mention the motives -- of finance chiefs. So, why do CFOs do what they do?

Former CFO Philip Varley still feels the pressure.
But now, the tension is less about revenue recognition and more about landing his 1998 Cessna 182 on a 9,000-foot sidewalk known as Telluride Airport. The Telluride strip, which sits amid 14,000-foot mountain peaks in Colorado, offers only 6,000 feet of runway. "The most exciting airport I've landed at," says Varley.

Varley knows a little something about nerve-wracking landings. A CPA and U.K. chartered accountant, he spent nearly 22 years navigating a maze of quarterly closings and regulatory requirements.

But last October, Varley turned his back on the corporate world, choosing instead to take the job of CEO of Barrington Air, a small, Denver-based air-charter operator. How small is small? Well, Varley's not only the Barrington CEO -- he's the airline's chief pilot and owner.

A sane observer might well ask why a well-trained and well-paid financial manager would trade in the corporate high-life for IFR landings through treacherous mountain passes. But Varley asserts that he swore off the big-time business world for a simple -- and disturbing -- reason.

The former chief financial officer says he refused to deliver what CEOs were demanding of him: tarted-up financial statements. In fact, Varley says his insistence on playing by the rules earned him the label of troublemaker, a tag he claims made some employers and executive search firms nervous about hiring him.

Other CFOs and finance managers have faced similar career pressures. According to an exclusive survey of finance chiefs conducted by CFO magazine (see "The Fear of All Sums"), around 17 percent of the respondents said that, over the past five years, they have been asked by their boss to misrepresent their companies financial results at least once.

A few have succumbed; most haven't. Interestingly, experts in corporate culture, including psychiatrist and author Ari Kiev, say finance officers tend to possess enough self-assurance to say no to unreasonable (or illegal) demands. Indeed, self-confidence is one reason these executives have attained such high positions within their organizations. Without a doubt, Kiev believes that aggressive CEOs need the counsel of equally strong CFOs, not corporate sycophants.

But ironically, an over-developed ego, often plumped up by career success, can push a CFO to go beyond the bounds of accepted behavior -- let alone GAAP. Often, finance chiefs rationalize their lapses in judgment by telling themselves that they're just doing what they're bosses want them to do.
In fact, psychologists point out that some finance chiefs have an overwhelming desire to please their bosses -- no matter what the consequences. In some cases, CFOs actually view superiors as paternal influences.

Anecdotal evidence certainly suggests that WorldCom's former CFO Scott Sullivan saw Bernard Ebbers as something of a father figure. And employees at Enron Corp. have testified they were reluctant to question then-CFO Andrew Fastow's role at the company because Fastow was "Skilling's boy," referring to onetime CEO Jeffrey Skilling.

Learning to go along with what a powerful CEO wants may make life easier for a finance chief, especially if the chief executive has been the chief architect of the company's success. To be sure, a finance chief who challenges a meglomaniacal CEO often winds up in a drama worthy of the Globe Theater. "The CFO must draw the darkest line in the sand," insists Robert S. Smith, finance chief at PointServe Inc. "The CFO should be the conscience of the company."


"Hostility, Contempt, Threats"

The CEO, on the other hand, is usually the star of the company. Michael P. Kelly, managing director of The Directorship Search Group in New York, says some high-profile executives have clearly been living the life rock stars, photographed by the paparazzi, hob-knobbing with celebrities at movie premieres, and playing in charity golf tournaments.

By contrast, Kelly says CFOs are typically more conservative in nature. "Remember, CFOs operate by looking backward -- even their projections are based on historical data," says Kelly. "Their job is to stay rooted in the present and short term."

Part of that narrow focus, Kelly asserts involves telling the CEO what he or she can't do. Such advice may not always be welcome, however.

Take the case of Wade Cook Financial Corp. (WCFC). In March, Cynthia Britten resigned as CFO at the investment seminar operator after the company apparently failed to comply with terms of a settlement with the Federal Trade Commission. At the time, the company issued a statement noting that Britten's departure "affords (her) a well-deserved rest after four years of service at WCFC."

But according to Bloomberg News, three out of four members of the company's audit committee -- including a retired finance chief -- also resigned from the WCFC board in recent months.

The resignation letter of WCFC Audit Committee Chairman Janice Leysath, which was part of an 8-K filing by the company, may possibly provide a glimpse of what CFO Britten experienced in her time at WCFC -- and perhaps why she needed a rest.

"The audit committee members, both individually and collectively have made many recommendations to the board to bring WCFC to a greater level of fiscal accountability and responsibility, and to provide guidelines to make more sagacious business decisions," Leysath wrote. "We have been met, a majority of the time, with hostility, contempt, threats, or total disregard." (CFO.com attempted to contact WCFC for this story, but did not get a response.)
When faced with a less-than-friendly boss, some CFOs begin looking for other employment. But the decision to quit a prestigious (and often high-paying) job cannot be an easy one.

What's more, a finance director who leaves one company may have to explain that decision to a potential employer at another company. A veiled or evasive answer may cast doubt on a candidate's truthfulness. An honest response, however could lead the interviewer to view the prospective hire as a loose cannon -- exactly what happened to Varley.


On the Parapet

Instead, some CFOs simply chose to endure. While defending the interests of investors against a powerful boss can leave a finance chief with few allies in the boardroom, psychologists say CFOs may be uniquely qualified to stand watch.

Steve Berglas, a Los Angeles-based executive coach and author of Reclaiming the Fire: How Successful People Overcome Burnout, says many CFOs have high self-esteem because they boast demonstrable and transferable skills. In fact, Berglas believes the top finance post is the only position in the executive suite with a legitimate, skilled-based criteria.

A finance chief's ability to master accounting principles and tax codes is important in a larger context too. Unlike many over-achievers who succeed because of intangibles such as charm and charisma, Berglas argues that CFOs can pinpoint why they've achieved success.

In fact, a CFO's ability to forecast and take advantage of accounting principles, among other financial wizardry, is a tangible asset to a company. The more complex the organization, the more powerful the CFO becomes, posits Berglas.
Problems seem to bubble up, though, when a skills-based financial executive graduates to the penultimate post within a corporation -- and is expected to straddle two worlds.

Tom Saporito, a management psychologist and senior vice president at Wood Dale, Ill.-based RHR International, says that, after leaving the black-and-white world of accounting, financial chiefs often struggle to balance the needs of a broad range of constituents, including bosses, directors, shareholders, employees, and Wall Street analysts.
Saporito likens the CFO's job at a high-profile company to a game of 3-D chess. The winner must be nimble enough to operate in a changing environment, but principled enough to play within the rules.

That balancing act often pushes CFOs to the limit. Dick Strayer, psychologist and CEO of Strayer Consulting Group in Los Gatos, Calif., points out that the classic controller, treasurer or accountant, is analytical, detail-orientated, and results-driven. Once bumped up to CFO, however, the finance executive must go beyond closing books and balancing budgets. A good finance Number One, he argues, must demonstrate strategic thought, creativity, and intuition.

If a newly promoted CFO doesn't have the emotional fortitude to deal with the burdens of the job -- or the specter of failure -- Strayer says moral beliefs may quickly get put to the test.


The Weakest Link

That test becomes doubly difficult if a finance chief is seen as a lesser-partner in the CEO-CFO tandem. Executive recruiters say its not uncommon for a chief executive to fill the top finance slot with someone the CEO can easily dominate. Notes Strayer: "Some chief executives smell the weakness and take advantage of it."

Experts say CEOs at startups and privately held businesses are more likely to intentionally hire weak CFOs. In many cases, chief executives at those kinds of entrepreneur-led companies view finance chiefs as bean-counters -- and not strategic partners.

But other consultants argue that a CFO's job is to create, secure and ensure the funding of a CEO's vision, and not just make sure there are enough beans in the jar. Brian Holloway, an executive coach and onetime All-Pro linebacker for the New England Patriots, insists that a CEO and CFO must be the closest of friends. "You shouldn't be able to tell the two apart," he argues.

Holloway concedes that such a bond must be built on brutal honesty, however. "Show me a CFO who fears the CEO, and I'll show you a dying company," he says. "Show me a CFO whose number one job is to impress the CEO, and I'll show you another dying company."

In fact, Holloway counsels CEOs to strive for authentic partnerships with their CFOs. But as some psychologists point out, that's not always the case. A few chief executives, they note, actually create a dysfunctional corporate culture, and then expect the company CFO to clean up the mess again and again.
In time, this cycle becomes a living nightmare for finance chiefs. Holloway has a simple piece of advise for all corporate executives: "You see it, you own it."


The Whole World's Watching

While owning a problem is a good start, it doesn't necessarily solve it. And as Bob MacDonald, chairman and former CEO of Allianz Life North America, points out, the hard reality is, the market still rewards short-term gains and often punishes truth tellers. A market that demands good news tests the integrity of senior officers, and can lead to tension between the most compatible of CEOs and CFOs.

To complicate matters, a CEO and CFO's compensation -- not to mention their continued employment -- is often predicated on short-term stock price performance. Thus, every 12 weeks a company must report bigger and better news, asserts MacDonald, or face the wrath of stakeholders and shareholders.

In that scenario, the temptation to game the system -- that is, to help an employer meet earnings forecast through creative bookkeeping -- can lead a finance chief to make some extremely poor decisions. Perhaps more problematic, says management psychiatrist Kiev, is setting goals on the front end with the understanding that results can be finagled on the back end.

PointServe's Smith, who served as CFO of several Internet startups, recognizes the pressure finance chiefs face in putting the best face on corporate performance. But he feels strongly that CFOs should ask themselves whether they want to work for a CEO who manages only for short-term gains.

"If you want to play the WorldCom shell game, that only works for a little while," he asserts. "It catches up to you and hits you like a sledge hammer right between the eyes."

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