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What It Says about a Firm

High CFO turnover is becoming an increasingly common fact of corporate life.

1Jan

iVillage: six CFOs in five years. Delta Air Lines: four in four years. Hastings Entertainment: four in two years. Why all the churn atop corporate finance departments?


In Delta's case, at least, two CFOs (Warren Jenson, now at Amazon.com, and Ed West, now at Internet Capital Group) were lured away by dot-coms. A third (Tom Roeck) was replaced in 1997 when a new CEO came aboard, not an unusual turn of events. So, while high CFO turnover may be a traditional symptom of a troubled company, often it is simply a fact of modern corporate life.


In the recent past, according to William Sihler, a professor at the University of Virginia's Darden Graduate School of Business, the average tenure of a CFO has been five to seven years. "CEOs often turned at about that rate," he explains, "and wanted to bring in their own CFOs." But, adds Sihler, co-author of Financial Turnarounds: Preserving Value, a Financial Executives Research Foundation study, "just as companies need CEOs with different skills, CEOs need CFOs with different skills for different stages in a company's life." One CFO to perform triage, say, another to prescribe treatment, and a third to expand again, not to mention a CFO who specializes in going public.



Fall Guys

Boston recruiter Laurence Stybel says most finance positions he's been asked to fill recently involve tenures of two to four years. "The market is offering project-oriented assignments of that duration," he says. "Companies are thinking short term."


In such an environment, a growing subset of CFOs-for-hire specializes in short stints — especially to repair broken companies. But clearly, any finance executive hunting for a new post must consider working for a shorter term, and can't ignore a good opening just because of past turnover.


The adjustment may not be easy. "CFOs tend to like stability and consistency, probably more than other functional groups," says Stybel. "But most companies today are guided by exit strategies such as mergers, in which case the CFO's job is going to be eliminated."


Get used to it. Shorter terms will increasingly be the rule. Certainly, "in a big, mature company, CFO tenure can be 10 to 15 years," notes New York­based executive recruiter Harry Higdon. But "in a dot-com, it can be 10 months." The IPO market's collapse increases the turmoil — and the turnover in finance. "Somebody's got to take the fall," he says. And when Wall Street is disappointed, "usually the CFO is blamed."


Of course, some walk if their stock options become worthless, adding to the churn statistics, notes Higdon. Others leave for the opposite reason. Graham Mitenko, professor of finance at the University of Nebraska, Omaha, blames prosperity for some of the leave-taking. "If you have any options at all, suddenly you're worth $10 million; why do you need the hassle any more?" he asks.


In general, the rise of the short-term CFO isn't a pretty prospect, warns Scott Davis, United Parcel Service's vice president of finance. Davis, a 15-year veteran of the company, soon will succeed CFO Robert J. Clanin. "To be CFO for 1 or 2 years and jump ship doesn't add value for the company," says Davis. Clanin, who joined UPS in 1971, was named finance chief in 1994.



Attracted by Churn

Still, adds James O'Toole, a research professor at the University of Southern California's Center for Effective Organizations, "Sometimes a CEO has to replace top members of the management team. Where you have a sign of weakness is when it occurs continually. Just as a baseball team fires its manager because it doesn't know what else to do, a CEO may be frustrated [by poor performance] and not know what else to do."


Some CFOs are unfazed — and indeed are even attracted — by churn, even at troubled companies. That's if there's a visible upside. For example, Robert Sartor became CFO of The Forzani Group, Canada's largest sporting-goods retailer, in 1997, despite two years of losses. "This was the third money-losing organization I've joined," he says, laughing. "I snooped around the books extensively, and thought the company could be fixed."


Sartor remains Forzani's CFO, having engineered a turnaround. "The reason I am comfortable taking on assignments in money-losing organizations is that losses are catalysts for change," he says. "Change in how management operates, in how it defines its business, in how it measures itself, and in how it views the term 'win' for the future."


Still, it's proper to be skeptical about a company that has been churning its CFOs, advises Professor Mitenko. "Consider where departing CFOs are headed. If they're going to a similar job, or even stepping down [to a lower-level job], you don't want any part of it," he says. "But if every two or three years a CFO goes on to bigger and better things, that's OK." —Carol Lippert Gray



Turnover Tales


Why some companies have changed CFOs so often.
Sources: Companies, press reports

COMPANYCURRENT CFO (DATE NAMED)
The Walt Disney Co.Thomas Staggs (5/98)
Two CFOs between 1996 and 1998 made jumps to top operations posts elsewhere — Stephen Bollenbach to Hilton Hotels and Richard Nanula to Starwood Hotels & Resorts. Staggs moved up from Disney SVP.
Hastings Entertainment Dan Crow (11/00)
The fourth CFO since 1998, Crow must clean up four years of improper accounting and deal with possible Nasdaq-Amex delisting at the entertainment multimedia retailer. Hastings also failed to file its last 10-K report.
iVillageScott Levine (Acting CFO; 4/00)
Craig Monaghan, who quit last April to become AutoNation CFO, was the fifth iVillage CFO since 1997. Levine took over as losses continued and one former CFO was being probed over questionable financial practices.
Medical Resources Inc.Geoffrey Whynot (4/98)
CFO John O'Malley was "removed" in 1997, when the COO and general counsel resigned. A temporary CFO served four months before Whynot took over as co-CEO and CFO. He is managing a bankruptcy-court reorganization.
National Steel Corp.Glenn Gage (7/98)
Carl Apel was fired in '97 after an earnings-management inquiry and restatements; NSC has had two CFOs since.
Unisys Corp. Janet Brutschea Haugen (7/00)
Something of a CFO proving ground, Unisys had four since 1995, with "graduates" migrating to H&R Block, Siemens Nixdorf, and Kodak. Haugen moved up from Unisys controller.


In Search of Skills

Some churn can result as companies pass through stages that require various CFO talents.
Source: Financial Turnarounds: Preserving Value, , by William Sihler and Henry A. Davis (Financial Executives Research Foundation, 2000

Developmental Stage: Stabilization
Skills Required

  • Foster open communication
  • Establish management team
  • Conserve cash
  • Identify and safeguard assets

Developmental Stage: Reorganization
Skills Required

  • Assess financial condition
  • Review business strategy
  • Review management processes/support infrastructure
  • Analyze operations

Developmental Stage: Restructuring
Skills Required

  • Develop and implement business strategies
  • Choose among informal restructuring, sale of business, bankruptcy proceedings, or liquidation


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