30 Years of Finance

A short history of finance since 1985, as chronicled in cover stories of CFO magazine.


In February 1985, Ronald Reagan was settling into his second term as President; he would turn 74 on February 6. Madonna’s album Like a Virgin was number one on the charts. The price of a first-class stamp rose from 20 cents to 22 cents, and Coca-Cola introduced Warren Buffett’s favorite drink, Cherry Coke. On February 13, the Dow Jones Industrial Average reached a record close: 1297.92.

15Feb_30Years_p34February 1985 also saw the debut of CFO magazine. Our inaugural issue featured a story on turnaround experts and a buyer’s guide to “lap portables” (one computer weighed only 10 pounds, we noted). “Why start a new business magazine?” asked founder Neil Goldhirsh in his publisher’s letter. “For me, the answer is easy: I realized that despite the number of good business magazines around, not one addresses the needs of the chief financial officer.” That wasn’t surprising, he continued, “because until recently, the CFO was the invisible man of the corporation.”

All that has changed. Today, finance chiefs are prominent members of the C-suite; many, of course, are women. Meanwhile, other publications have discovered the importance of the CFO. Yet over the years, one thing has remained constant: CFO magazine’s devotion to the needs of the chief financial officer.

For the past three decades, we have covered the events, trends, and changes that have shaped the chief financial officer’s world. Here, to mark our 30th anniversary, we present a short history of corporate finance over the past 30 years, as told through 21 cover stories of CFO.

Corporate raiders had their heyday in the 1980s, and none were bigger than T. Boone Pickens. His notoriety put him on the cover of Time magazine in 1985; his finance sidekick, 36-year-old David Batchelder, appeared on the cover of CFO. Batchelder defended the unsuccessful but profitable takeover bids (some called it greenmail) that Pickens made for companies like Cities Service, Phillips Petroleum, and Unocal, bids that depended on the large stock positions that Batchelder’s financial team quietly acquired. “When you look at the boards of the top oil companies in America, and the top managements, they own generally less than 1 percent of the stock of their corporations,” Batchelder noted disapprovingly, anticipating Gordon Gekko’s famous “Greed is good” speech in the 1987 movie Wall Street. (November 1985)

In the summer of 1986, Lotus was in full bloom — Lotus Development Corp., that is. The company’s Lotus 1-2-3 spreadsheet software was a disruptive technology that revolutionized finance, enabling managers to analyze deals far more rapidly and effectively than before and to collaborate on setting financial strategy. CFO’s own Spreadsheets column, based on Lotus 1-2-3, was a popular feature in the magazine for years. But Microsoft’s Excel spreadsheet software began to grab more and more market share, and Lotus couldn’t keep up. In 1995 IBM bought the company, more for its Lotus Notes application than for its fabled spreadsheet. (June 1986)

Once, the accounting world was ruled by the Big Eight: Arthur Andersen, Arthur Young, Coopers & Lybrand, Deloitte Haskins & Sells, Ernst & Whinney, Peat Marwick, Price Waterhouse, and Touche Ross. In August 1987 we published a guide to the services these mighty firms offered, in 12 U.S. cities. Today, the Big Eight has become the Big Four, thanks to mergers and the demise of Arthur Andersen in the wake of the Enron bankruptcy. (August 1987)

Offshoring hadn’t entered the CFO’s vocabulary in 1987, when we wrote our first major story on the subject, “Not Made in the U.S.A.” We looked at a small Illinois electronics manufacturer that said it owed its existence to the practice, by relocating production facilities first to Mexico and then to Hong Kong. “If it weren’t for the low labor rates overseas, we couldn’t compete,” said the company’s CFO. Seventeen years later, in June 1994, we would devote much of an entire issue to the now widespread, if controversial, practice. (September 1987)

On October 19, 1987, the Dow Jones Industrial Average fell 508 points, or 22.6%, to 1738.24. It was the Dow’s worst one-day percentage drop ever. Although Black Monday didn’t signal a recession — the five-year-old bull market soon got back to its feet, and the economy kept growing for another three years — the crash slammed the IPO window shut, forcing growth companies to seek funding elsewhere. (April 1988)

After the recession of 1990–91, bankers tightened their lending standards, and many companies found it difficult to find financing. What’s more, the loans they did procure often came with so many strings attached that CFOs began to feel like puppets. “We’re running the company for the banks,” complained one finance chief in “My Banker, My Boss.” Smaller companies desperately seeking credit from tightfisted lenders would become a recurring subject of CFO’s coverage in years to come. (January 1992)

In the summer of 1994, public concern over derivatives was growing, thanks to a string of sizable corporate losses from deals gone bad. We provided a reality check, noting that derivatives had many legitimate uses and at bottom were simply “tools for managing risk.” Speculation, we pointed out, was an integral part of hedging, since somebody with an opposing view needed to take the other side of the transaction.

1994July_CoverChances are, lower Manhattan is not going to sink under the weight of bad derivatives deals,” we said. But four years later derivatives would play a key role in the rise and fall of Long-Term Capital Management, and in 2008 derivatives helped sink Wall Street, if not the island of Manhattan itself. (July 1994)

Over the years, the Financial Accounting Standards Board has frequently come under fire because of its unpopular stands on accounting issues. Never was opposition to FASB more ferocious than in 1994, when the accounting standards setter wanted to require companies to recognize the value of stock options as an expense on their income statements. “People say we’ll lose all support from the business community and die a natural death,” FASB chairman Dennis Beresford told CFO at the time. “Others say Congress will take over the standards-setting process.” Neither happened, but FASB finally backed down, requiring companies to disclose cost estimates of options as a footnote. (September 1994)

Every two years since 1996, CFO has asked tax executives to rank the 50 states in terms of fairness of their tax environment, aggressiveness in asserting nexus, and so on. “Certain states are out-and-out aggressive,” noted a tax planner in “State Tax Audit 1998.” “But in most, you can drive a Mack truck through the revenue department and no one will notice.” In 1998 Massachusetts, California, Pennsylvania, New York, and Louisiana ranked as the states with the least fair tax environments. In 2014 California, New York, and Massachusetts were the least fair, followed by Illinois and Michigan. (June 1998)

With typographical flair, we called it the “New @ttitude.” What was this attitude? You could express it in four words: growth now, profits later. That was the guiding mantra for dot-com start-ups during the Internet boom of the late 1990s, and while the strategy paid off for Amazon (whose CFO, Joy Covey, appeared on our cover) it failed at many others. “There are going to be a lot of skeletons out there when this shakes out,” predicted Lycos CFO Ted Philip. Indeed, the Nasdaq Composite Index has never recovered the ground it lost when the Internet bubble burst in March 2000. As for Lycos, which was profitable, Terra Networks bought the publicly traded web portal for $12.5 billion in stock in 2000. Four years later, Terra sold the business for $95 million in cash. (June 1999)

The famous crooked E appeared on our cover in February 2002, two months after Enron filed for the largest Chapter 11 bankruptcy in U.S. history (subsequently topped by the WorldCom and Lehman Bros. failures). It was a shockingly swift fall for the nation’s seventh-largest company, whose stock peaked at $90 in August 2000. In October 2001 Enron was forced to unwind off-balance-sheet partnerships devised by CFO Andrew Fastow to keep hundreds of millions of dollars in debt off its books, contributing to a $1.2 billion reduction in shareholder equity. In November, Enron restated its financial statements for the previous five years to account for $586 million in losses; in December it was bankrupt. Fastow, CEO Jeffrey Skilling, and audit firm Arthur Andersen were convicted on felony charges. (February 2002)

The spectacular meltdown of Enron led to passage of the landmark Sarbanes-Oxley Act of 2002, which, among other things, created the Public Company Accounting Oversight Board, limited auditor and analyst conflicts of interest, and required public companies to establish and test internal controls over financial reporting (the onerous Section 404). It was the price tag for compliance with the latter that gave CFOs like EMC’s Bill Teuber a bad case of sticker shock. (September 2003)

The corporate accounting scandals of the early 2000s gave rise not only to new regulation but also to shareholder activism, as shareholder proposals mounted and investors withheld support for board nominations. Over half of finance chiefs surveyed by CFO during the 2004 proxy season said that activists such as the California Public Employees’ Retirement System and proxy-services firm Institutional Shareholder Services (ISS special counsel Patrick McGurn was featured on our cover) had gone too far in their quest to improve corporate governance. (September 2004)

So close, and yet so far. When we showed FASB chairman Robert Herz and International Accounting Standards Board chairman Sir David Tweedie sitting back-to-back in 2005, the convergence of U.S. generally accepted accounting principles and international financial reporting standards seemed just a matter of time. The differences were “being eliminated faster than anyone, even Herz or Tweedie, could have imagined,” we reported. Today, although many FASB and IASB rules have been harmonized, convergence has ground to a halt. (December 2005)

In the fall of 2008, following the bankruptcy of Lehman Bros., the nation’s financial system fell into a deep freeze. The federal government rushed to the rescue with programs like the Troubled Asset Relief Program and the Term Asset-Based Securities Loan Facility, injecting hundreds of billions of dollars into the banking system. But as it happened, most of the money sat in the banks’ coffers. Most respondents to our survey of CFOs in our story “The Big Freeze” said they saw no evidence that the government’s bailout measures had improved credit conditions. (March 2009)

“I never would have envisioned having to worry about the financial strength of my bank group,” said a finance chief in our 2009 cover story, “Hard Lessons.” But that and many other things changed as a result of the financial crisis. Among the lessons CFOs learned were to monitor cash inflows and outflows more closely; keep higher levels of cash on hand; make more-frequent forecasts and shorten planning horizons; strengthen contingency planning; and keep a closer eye on customer credit. (September 2009)

Even CFOs, who were in high demand during the 2000s, found it hard to find a new job during the Great Recession. Turnover was low, and “companies want someone who is a 100% fit,” said one frustrated finance-job seeker. With the unemployment rate hovering near 10%, we wondered whether the so-called natural rate of employment had changed. “The days of 5.5% to 6% unemployment are behind us,” said one CFO. Fortunately, he was wrong: unemployment fell to 5.6% at the end of 2014, although that was in part because many people had given up looking for a job. (November 2010)

Just eight years after Sarbanes-Oxley, Congress delivered even more sweeping reforms to clean up the nation’s financial sector. The 848-page Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 created a raft of new rules regarding banks, rating agencies, hedge funds, over-the-counter derivatives, and much more. But it’s one thing to pass legislation, another to implement it, we noted in “Unfinished Business.” Two years after Dodd-Frank became law, regulators had finalized only 110 of the 398 regulations they were tasked with crafting and had missed 148 deadlines, as lobbyists and Congressional Republicans worked to dilute, if not eliminate, key parts of the act. (July/August 2012)

Two years before Michael Lewis’ exposé in Flash Boys, we reported on high-frequency trading in our cover story on the evolution of the equity markets. The New York and Nasdaq stock exchanges had become bit players, as the real action now took place on electronic trading networks, broker-dealer platforms, and dark pools. High-frequency traders accounted for an estimated half of equity trading volume in 2012. And every now and then, something would go haywire, such as the “flash crash” of 2010, when the Dow fell 1,000 points and recovered within minutes, or when rogue trading algorithms produced a $440 million loss at Knight Capital in 2012. “Anyone following the recent headlines coming from Wall Street would be forgiven for thinking that U.S. equity markets have become increasingly alien — if not downright hostile — to investors and issuers alike,” we noted. (October 2012)

Over the past three decades, Corporate America steadily moved away from the traditional defined-benefit pension plan to the defined-contribution plan, transferring the responsibility of providing for retirement to the individual employee. Still, many large companies retained their old-style pensions, with their thousands of participants and chronic funding headaches. To eliminate or “derisk” their pension liabilities, they began using a variety of tactics, such as liability-driven investment strategies, lump-sum payouts, and, more recently, annuitization. The latter two methods enabled General Motors to move $28 billion in pension liabilities off its books in 2012. The retirees who chose an annuity “get the same check every month they previously received,” said GM treasurer Jim Davlin, “only now the name of the company paying is Prudential.” (April 2013)

After the financial crisis of 2008, many experts called for the breaking up of America’s largest banks into smaller institutions. Bank of America, Citigroup, JPMorgan Chase, and others had become too big to fail, they charged; the government would always bail them out in an emergency. Ending too big to fail became a stated aim of the Dodd-Frank Act, which created the Financial Stability Oversight Council to oversee “systemically important financial institutions,” including all banks with more than $50 billion in assets. Yet today banks are bigger than ever, and despite more stringent regulations and capital requirements, many observers believe that too big to fail is far from ended, as we reported in “Sizing Up Banks.” (September 2014)


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