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The Changing Role of the CFO
Old-school chief financial officers
would barely be able to recognize deposed
Enron chief financial officer
Andrew Fastow as one of their own.
Nonetheless, Fastow personified the
media caricature of a late-model CFO
– a flamboyant wheeler-dealer who
tossed aside traditional notions of balance-
sheet integrity in order to concoct
indecipherable partnership arrangements
and deceive Wall Street analysts.
Suddenly, like dot-com roof parties,
Fastow looks like a relic of the 1990s.
That's because following the Enron
meltdown, as well as high-profile failures
at places like Global Crossing and
Tyco International, companies are revisiting
what they expect of their
CFOs. Nobody wants to be the next
Enron, which means that hand-in-hand
with a renewed emphasis on ethics,
companies are once again demanding
hardcore accounting, financial reporting,
and risk-management skills. This
represents a shift back to the roots of
the CFO position.
"Companies will be looking for integrity,"
says Wharton finance professor
Franklin Allen. "They will be looking
very closely at people's records for
any kind of manipulations … They
will probably spend more time asking
other people about them and maybe
choosing more people from within
the company."
Barry Bregman, head of the CFO
specialty practice at Heidrick &
Struggles, one of the nation's largest executive-
search firms, says he is already
seeing this among Heidrick clients. For
example, he's currently doing a CFO
search for a publicly traded financial-services
company. An otherwise strong
candidate for this job once worked at a
banking firm that had liability-management
issues during the 1990s.
Bregman's client refused to even talk to
the candidate until they had assurance
that he wasn't employed anywhere
within the company at the time of the
crisis. "Companies want to make sure a
person is squeaky-clean, not just from
an ethical standpoint but also an appearance
standpoint," says Bregman.
According to Wharton accounting
professor David Larcker, renewed ethical
concerns will also affect where
CFOs come from. For example, he anticipates
that fewer companies will recruit
CFOs from their auditing firms,
noting that a number of people in the
finance function at Enron came from
its auditor, Arthur Andersen. Other
companies, he suggests, will want to
avoid a similar stigma. "The claim is
that these people were tight with
Andersen and brought these ties with
them to Enron," Larcker says. "I don't
know if that's true, but you might
nonetheless see more companies that
hire CFOs from the accounting profession
going to companies other than
their auditors."
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