For years, companies have complained about the short-term focus of Wall Street. Now Wall Street has good reason to complain right back about them. Reeling from the Sarbanes-Oxley blues, backdating scandals, and intense pressure to perform, CFOs (and their bosses) are vacating their offices at an alarming clip. Various surveys estimate the average tenure of a CFO at anywhere from four and a half years to a mere 17 months.
This can't be good. As Bob Brust, former CFO of Eastman Kodak, comments (see "The Tenure Track"), "If you stay with a company for only three years, you never get to see whether the decisions you made were good or bad; it usually takes five to seven years to really see the results."
New evidence suggests corporate executives aren't interested in waiting that long. In the most recent Duke University/CFO Business Outlook Survey, nearly 90 percent of respondents admit that business decisions are often based on tenure considerations. That is, people don't develop strategies for the long term, because they don't expect to be around to see them reach fruition. If tenure averages two to four years, investments must pay off very quickly indeed.
It becomes a vicious circle: as executive teams rotate through companies, each successive "generation" is more limited than the one before in its options for creating real value. Why develop new products or install a complex management system that won't pay off until three years after you've left?
Little wonder that private equity looks more and more appealing to CFOs, with its longer time horizons — and bigger paychecks. But as departments editor Joseph McCafferty reports in our cover story, "The Buyout Binge," the glory days of private equity may be numbered, as more capital chases fewer desirable targets. Perhaps that shouldn't come as a surprise: the current boom has lasted — you guessed it — about three years.