What do CEOs want in their CFOs? Would you believe finance expertise, leadership--and impeccable Little League credentials? James Lavelle thinks so. The chairman and CEO of Cotelligent Inc., a $327 million San Francisco IT consulting and outsourcing-services firm, recently spent more than a year searching for a new finance chief. Cotelligent's CFO had to be "someone special," says Lavelle. "He had to have outstanding technical skills. But he also needed the talents of a diplomat, while being tough enough to raise red flags."
After interviewing more than 20 candidates, Lavelle thought he had found a candidate with just the right skills, experience, and temperament. To make sure, though, he called a few references. Lavelle discovered that in his hometown, the candidate had earned a terrible reputation as a baseball coach. That was all Lavelle needed to hear. "If he's hated on the Little League diamond, think about his reception in the business world," he explains.
Welcome to the brave new world of CFO searches. Like Lavelle, an increasing number of CEOs are looking for superstar CFOs-- executives who are not just financially nimble and visionary, but also above reproach. Lavelle finally found his man in Herb Montgomery, the former CFO of the construction firm Guy F. Atkinson Co., in San Bruno, California. He describes Montgomery as having "25 years of seasoned financial experience," as well as "the demeanor and personality that was compatible with my team." Montgomery, he adds, "had a top-flight name and reputation in the San Francisco Bay area"-- an asset that was critical to the then newly public company.
As Lavelle's experience attests, CEOs are demanding a lot more than financial acumen in their CFOs. These days, CEOs want finance chiefs who can fill a multitude of roles: confidant, champion, communicator, creator of value.
Invariably, they say they want a finance chief who can bring their company to another level. And they are loathe to settle. "In a perfect world, you want it all," admits Lavelle. "I can find a financial mechanic anywhere. What I want is a financial ambassador."
To better develop the portrait of today's model finance chief, CFO magazine recently surveyed 500 CEOs about their expectations. The CEOs surveyed, drawn from companies on CFO's readership list, represent a wide spectrum of businesses, from small nonprofits to large multinationals. Despite their differences, they share common insights into what they want in a CFO. Most--75 percent-- hired their current CFO; 40 percent did so within the past three years. A whopping 39 percent fired their last CFO.
Their wish lists, as it turns out, are long and all-encompassing. In addition to finance expertise and personal integrity, CEOs say they want CFOs with strategic vision, communication skills, and a broad business background that includes operating experience.
Most important, the personal chemistry has to be just right. "This is still a very personal business," says Bjorn F. Lindgren, president of BFL Associates Ltd., a Houston-based executive search firm. "CEOs will almost always overlook experience and credentials for that strong, trusting personal relationship." Ultimately, adds Howard Karr, president of Howard Karr & Associates Inc., a San Mateo, California-based executive recruiter, "basic personality will make or break a deal. If you're an ass, you're an ass."
Strategic Partner (with scars)
When CFO magazine last asked CEOs what they wanted in a finance chief (see "Measuring Up," February 1994), they were just beginning to mention strategic vision. Today, it has become a routine request. "CEOs will almost always say that what they want most in a CFO is a strategic partner, a business partner," says E. Peter McLean, senior director in the New York office of executive recruiters SpencerStuart. What that means, says Gary DiCamillo, CEO of Polaroid Corp., the $1.8 billion imaging company, is that a CFO must be a "navigator of the business, not just a custodian." He or she must help the CEO "anticipate the icebergs, and steer clear," adds DiCamillo, who hired Judith Boynton, former controller at Amoco Corp., in April 1998, to be his chief navigator.
In the CFO survey, CEOs consistently ranked strategic vision as more important than such traits as experience within the industry, capital-raising, and IPOs. "CEOs clearly want competence, judgment, and counsel over specific expertise in, say, IPOs," says executive recruiter McLean, who reviewed the survey results. Basically, he says, "they're looking for overall competence, with the implication that judgment and style will make up for lack of specific experience."
The best strategic partners, however, have weathered some adversity. "CEOs want to see a demonstrated track record," says Bob Gorog, managing director of Boston-based recruiters Sullivan & Co. "They look favorably at candidates who list two, three, or four places of employment rather than just one. And the more battle scars, the better."
For proof, witness the parade of seasoned CFOs who have taken top reins recently--many in new industries. Debby Hopkins, a former General Motors finance executive, is now tackling problems at aerospace giant Boeing after successful finance stints at Unisys, Ford Motor, and First National Bank of Detroit (see "Fearless in Seattle," April). General Mills recently tapped James Lawrence, the former CFO of Northwest Airlines and PepsiCo, as its first CFO since 1996. Ingersoll-Rand, manufacturer of construction and industrial machinery, installed David Devonshire, the former Owens Corning CFO and controller of Honeywell, as its CFO in January 1998. And Allstate Insurance just turned to John Carl, a veteran finance executive for such companies as Amoco, Kraft, and American Hospital Supply, as its new finance chief.
Carl's diverse business background and his ability to think strategically are what sold him to Ed Liddy, chairman, president, and CEO of Allstate. At Kraft, where he had served as controller, Carl worked in a thick-margin business in which consumer advertising and marketing were crucial. At American Hospital Supply, which distributes hospital products, he experienced a more aggressive company with thin margins. And at Amoco, he gained valuable international experience as head of the company's acquisitions and divestitures. Armed with such credentials, says Liddy, Carl's inexperience with insurance is insignificant. "Would I be ecstatic if he had insurance experience, too? Of course I would. But I'm not worried a bit," Liddy says.
Not everyone agrees, however, that specific experience is expendable. Michael Marquez, CEO of Manatee Memorial Hospital, a Bradenton, Florida-based, 512-bed hospital with $300 million in gross revenues last year, says industry experience is a must when hiring a CFO in health care. "They have to be familiar with reimbursements and billing--and that's just the financial side. They also have to understand what is going on in hospitals," says Marquez, whose CFO, John Paul Christen--a veteran of Valley Hospital, in Las Vegas--came to Manatee in late 1995, shortly after Baptist Health Systems, of Phoenix, sold the hospital. For example, he says, Christen's ability to integrate the hospital's two financial systems and prepare a budget immediately upon joining would have been impossible without a health- care background.
What They Really Want
The acid test for strategic vision, however, is the way a CFO transforms a CEO's vision into action. While most--98 percent--of CEOs surveyed said their CFOs create value, the mechanisms to measure that value varied immensely. Many said that earnings per share was the primary indicator, but others pointed to such measures as "the amount of work I have to do" and "the synergies achieved with department heads." One CEO simply said he calculated his finance chief's value "daily."
What's apparent is that speed counts. Peter Jacobi, former president and chief operating officer of San Franciscobased Levi Strauss & Co., wanted quick results when he hired William Chiasson as the company's CFO in August 1998. Jacobi was looking for a strategic thinker to help get Levi Strauss-- which saw 1998 sales shrink by 13 percent, to just under $6 billion--out of a rut. And since joining the company, Chiasson, the former senior vice president for finance at Kraft Foods Inc., has launched a shared services group in the Americas, changed compensation and incentive scales, revamped the planning process, and reorganized the finance office. "He asked why we report the way we do and why we invest in what we do, and developed a scorecard for how we do business," says Jacobi. In addition, "Bill is challenging long- held assumptions and looking at things from a different perspective. But he does it in a way that works with our unique culture," says Jacobi, adding that part of his recent decision to retire was based on Chiasson's arrival.
At Toronto-based Cott Corp., Frank Weise III is banking on Raymond Silcock's "record of results" to help fuel a speedy turnaround. Weise, who took over the reins last summer, says he needed a finance chief with the "courage and stamina" to help stem a six- year-slide. Silcock, who was hired in September, was also a known quantity: he had been Weise's CFO when the latter headed Campbell Soup's $1.7 billion bakery and confectionery division from 1995 to 1997, and was "instrumental" in a turnaround that ultimately tripled revenues.
At Cott, says Weise, Silcock has already created value by implementing strong financial controls, helping to reengineer the company's supply chain, and spearheading its divestiture process. And although Cott reported a net loss from continuing operations of $29.7 million in its past fiscal year, Weise believes Silcock has helped lay the groundwork for future earnings growth, adding that their relationship is based on "trust, openness, and a shared sense of urgency."
The Character Issue
Five years ago, strategic capability was the big news in CFO recruitment. Today, character trumps strategy--and not just on the baseball field. Some 84 percent of CEOs ranked personal integrity as second only to finance expertise in importance. For evidence of the primacy of character, one need look no further than the recent uproar at Delta Air Lines Inc.
When Warren Jenson joined Atlanta-based Delta in March 1998, he replaced Thomas Roeck, who, after surviving a conflict with the prior CEO, lost his job when new CEO Leo Mullin declared he was looking for more of a strategic partner in his CFO.
Over the past year, says Mullin, "Jenson has led an incredible revamp of the finance department." At the same time, the former finance chief of NBC and investor-relations director at General Electric Co. initiated an examination of Delta's revenue structure that quickly located "spillage" the company had overlooked, and introduced Mullin to some GE- type tools, such as the "revenue waterfall," which involves starting with gross revenue and working down to net, as a means of identifying and minimizing lost revenue sources. The result: Net income rose 15 percent in 1998, to $1.1 billion, and profit records continued to be set in the first quarter of this year.
Then Jenson was severely criticized in April, after his children and their friend reportedly displaced four first-class passengers at the last minute, thereby delaying a flight by 24 minutes. A venial transgression, as such things go, but Jenson was rumored to face losing his job despite his splendid strategic performance--a possibility that helped send Delta's stock tumbling 5.4 percent when the rumors hit Wall Street.
The growing focus on character is driven by several factors. First, increased pressure from the Securities and Exchange Commission is causing companies to worry about any appearance of wrongdoing, especially in the finance department. Second, shareholders and corporate-governance advocates are demanding that the guardians of corporate financials be of impeccable character.
Moreover, CEOs agree that character is integral to the job. Says George Fellows, CEO of Revlon Inc., who recently promoted internal finance executive Frank J. Gehrmann to CFO: "Personal integrity is the cost of entry to this position." "When you hire a CFO," adds Cott's Weise, "you want that person to reek of integrity." Executive recruiter Susan Landon, a partner with New Yorkbased LAI Worldwide, who also reviewed the CFO research, agrees. "In most executives," she says, "CEOs look for personal character; in a CFO, it is an absolute requirement."
Ultimately, that requirement fosters peace of mind, says Robert Madge, chairman and CEO of Madge Networks NV, a networking-solutions provider in London, who recently promoted his finance director, Chris Bradley, to CFO. "There may be 90 percent of the CFO job that I don't want to know about," he says, "but I want to be 100 percent sure that nothing unusual is going on."
The Talking Game
Most CEOs surveyed believe their CFOs possess the necessary character and financial expertise for the job. What they singled out for improvement, however, were the softer, yet crucial, skills of communication and interpersonal relations. Forty-four percent of CEOs surveyed said their CFOs need to make more progress in people-development skills; 33 percent saw them lacking communication skills.
These days, the strong, silent type just won't do. "CFOs need to be able to represent the company in a first-class way to all stakeholders, from the board and analysts to employees and shareholders," says McLean. To do that, he says, "CEOs look for presence."
Rodney Nichols agrees. As president and CEO of the New York Academy of Sciences, strong communication skills top his checklist. "Our CFO has to have a broad understanding of science and technology and be able to communicate with our members and make numerous presentations," he says. "I depend on résumés comparatively little. I want to see if [job candidates] have imagination. I evaluate the quality of their minds, and the way they express themselves," Nichols says.
But "presence" isn't easy to find. "You never really know about a person's ability to communicate effectively until you test it in the heat of battle," says Polaroid's DiCamillo. Because Boynton joined the company at the onset of a turnaround, she was under intense pressure from analysts, the board, and the media as soon as she showed up for work.
DiCamillo lauds Boynton for establishing a credible rapport with all the various stakeholders. He adds that Polaroid's recent $250 million bond offering was oversubscribed because of Boynton's ability to rally investors. "Judy was the key person in the road show; she was the anchor person. She tailored every presentation to the right audience," he says.
For public companies, such skills are particularly essential. "CEOs want someone who has dealt with Wall Street, and can help operate the company so that it is, and is perceived to be, a well-run organization," says recruiter Howard Karr.
Cotelligent CEO Lavelle adds that communication skills are just as important internally as they are externally. At Cotelligent, he says, CFO and senior vice president Herb Montgomery "does a great job of communicating his expertise to the finance side and gaining the respect of everyone else." The keys to his success? For one, says Lavelle, Montgomery at the outset "had a respect for the contributions managers had already made." In addition, says Lavelle, "he is a great listener."
Why So Few?
Finding CFO candidates who measure up to CEO standards--strategic thinkers with broad experience, personal integrity, sharp financial skills, and those elusive "people skills"--has become increasingly difficult. Says W. Marston Becker, CEO of the Farmington, Connecticut-based $1.6 billion property-and- casualty company Orion Capital Corp., who recently hired his second CFO in 18 months, "I found people with strong communication skills but no common sense; some had common sense but no technical skills, and others had strong technical skills and no communication skills."
Lavelle says he thinks part of the shortage of qualified people is due to the increased number of public companies in search of top talent. "The enormous crush of IPOs has absorbed financial and technical talent," he says. In addition, the vesting options of CFOs at successful companies have made it increasingly difficult and expensive to pry the best people away. "There is a big expense to companies looking for the best candidates because those people are locked into expensive handcuffs," says McLean.
Several CEOs, however, lay the blame for the shortage on finance departments themselves. For the most part, says Weise, "America hasn't trained finance executives to have the broad- based experience that CEOs are looking for." The only way finance executives are going to develop into leaders, he says, is if they are "trained and encouraged and challenged as younger executives, and given the opportunity to fail." Except for such companies as Procter & Gamble Co. and GE, he says, companies don't adequately develop their finance talent, and instead "pigeonhole them."
That attitude may partly explain why only 45 percent of CEOs believe their current CFOs have the qualities to be company leaders. But some CFOs believe it is their own responsibility to gain the necessary experience. CEO standards are not too high, insists Cotelligent's Montgomery. "I strongly believe that having a broad vision of the whole company picture is part of my responsibility," he says. "And to gain that vision, says Weise, the former CFO of Campbell Soup, "you need to establish a record of making a difference in every job you have. And that difference has to be recognizable and sustainable."
----------------------------------------------- --------------------------------- Short-Term Stays
How long has your CFO been in his/her position?
- More than 10 years: 25%
- 46 years: 25%
- 13 years: 23%
- Less than 1 year: 15%
- 7-10 years: 13%
Perform or Get Out
If less than three years, why did the previous CFO leave?
- Was fired: 39%
- Left to join another co. in a similar position: 21%
- Retired: 18%
- Changed careers: 11%
- Other: 11%
How did you recruit your current CFO?
- Personal recommendation: 30%
- Inside promotion: 29%
- Outside search firm: 21%
- Other: 16%
- Internet search: 4%
How long did your CFO search require?
- 03 months: 56%
- 36 months: 31%
- 6-12 months: 13%
- More than 12 months: 0
The Right Fit
How important was personal chemistry in your decision to hire a CFO?
- Important: 36%
- Crucial: 30%
- Somewhat important: 24%
- Not a factor: 10%
Skills That Count
Which skills and qualities are the most important in a CFO?
- Financial expertise
- Personal integrity
- Communication skills
- Strategic vision
- Industry experience
Assets in Hand
In which skills and qualities does your CFO excel?
- Financial expertise
- Personal integrity
- Strategic vision
- Line experience
- Industry experience
Does your CFO play a role in any of the following nonfinancial functions?
- Business dvlpmnt.: 54%
- Human resources: 49%
- Information tech.: 31%
- Reengineering: 31%
- Marketing/Sales: 25%
- Supply-chain management: 13%
The Vision Thing
Which skills and qualities do you believe are most lacking in CFOs in general?
- Strategic vision
- People-dvlpmnt. skills
- Communication skills
- Interpersonal skills
In what areas do you believe your CFO needs to make more progress?
- People-development skills
- Communication skills
- Strategic vision
- Interpersonal skills
Talk to Me
Is your CFO your main professional confidant?
- Yes: 53%
- No: 47%
Powers of Persuasion
How often do you have serious disagreements with your CFO?
- Rarely: 92%
- Regularly: 5%
- Never: 3%
- Always: 0
How often do your CFO's arguments change your mind?
- Rarely: 48%
- Regularly: 48%
- Never: 3%
- Always: 0
Not Ready for Prime Time
Does your CFO have the qualities to be CEO?
- No: 52%
- Yes: 45%
- Not sure: 3%
----------------------------------------------- --------------------------------- Is It the Money, or Isn't It?
Once they reach the upper echelons of finance, many CFOs say they are no longer basing their career choices on money. In many cases, they have reached a comfortable financial plateau and are looking for a job that challenges and satisfies them.
"I'm certainly not going to work for free, but compensation wasn't a top priority," says John Carl of his decision to accept the job as CFO of Allstate Insurance Corp. "I wanted to find a situation where I could make a meaningful contribution, where I worked with people I liked."
The sentiment is nice, but the facts reveal that while money may not top a CFO's wish list, plenty is being offered to them. In fact, 90 percent of CEOs who responded to our survey placed their CFOs among the top five highest-paid people in the organization.
Peter Crist, president of Crist Partners, a Chicago-based consulting firm that specializes in the placement of CFOs, contends that demand for seasoned professionals is accelerating salaries right now. "We're doing searches today for midsized and large companies that average $500,000 in cash compensation," he says. That's higher than the $435,000 CFOs took home on average in 1998, according to a Pearl Meyer and Partners Inc.'s survey of 51 companies with around $18.5 billion in sales. And it is substantially higher than the $362,100 CFOs pocketed, on average, in 1997 (see "As Good as It Gets," November 1998).
Reaping the benefits of the bidding war are such CFOs as Delta Air Lines Inc.'s Warren Jenson, who was hired in 1998 at a base salary of $500,000, plus a target bonus of 57.5 percent of his starting salary, with a guarantee of $100,000 in fiscal 1998 and $400,000 in fiscal 1999, as well as numerous stock options; and Debby Hopkins, who landed a signing bonus of $750,000 and a guaranteed $810,000 in bonus and salary for the first year when she signed on at Boeing Co. last December.
Aaron Lapat, vice president at Boston-based recruiting firm J. Robert Scott, contends that outbidding other suitors to lure top talent has become a major trend--at companies of all sizes. The driver at smaller companies, he says, is the amount of money being invested, especially in software companies. "People are now paying a premium for seasoned financial talent," he says.
CEOs, however, are unfazed about paying extra for experience. When Polaroid Corp. hired Judith Boynton as CFO in April 1998, her package included a base salary of $249,041, a signing bonus of $100,000, 15,000 stock options and 10,000 shares of restricted stock, plus a guaranteed bonus of $125,000 in 1998. Says CEO Gary DiCamillo: "I knew I'd have to pay for value added. You always pay for performance." But, he adds, "It's a long-term investment. And the longer-term incentives not only motivate strong performance, they also encourage CFOs and other executives to stay with the company longer."
Such incentives bolster the argument that money is what it's all about. But Crist cautions that most seasoned finance executives these days are in a position to downplay it. "They can say, 'I'm not in it for the money,'" he says, "but that's because they're sitting on $5 million to $10 million already. The money thing takes care of itself."
----------------------------------------------- --------------------------------- Randomly United
CFO magazine surveyed 500 CEOs--the direct supervisors of 500 CFO readers--about their attitudes toward finance executives and their CFO hiring practices. The results represent a 12 percent response rate.
Because the sample was randomly drawn from our readership, the companies represented were diverse. For example, 61 percent were private companies, 23 percent were publicly traded, and 11 percent were not-for-profit. They also varied tremendously in size. For instance, 59 percent were companies with less than $50 million in 1998 gross revenues, 24 percent had revenues of $50 million to $500 million, and 11 percent were over $1 billion.
The CFO population described in the survey, however, was not as diverse: 90 percent were male, 10 percent were female.