VideoHaving spent two years as CFO of EPIX Holdings Corp. before becoming CEO last year, Thomas Taylor knows exactly what he is looking for in a finance chief: someone just like him.
It would be a tall order. Taylor was valedictorian of his MBA class at Notre Dame, is a CPA who spent seven years at Price Waterhouse, and was a former controller at Fortune 500 company Central Soya.
But Taylor's wish list for CFO attributes offers a glimpse as to why internal candidates — usually, treasurers and controllers — often get passed over when companies are looking to fill the top spot in the finance department. "I want someone with an accounting background first and foremost," says Taylor from the Tampa, Florida-based headquarters of EPIX, an HR outsourcing specialist with $1.8 billion in revenue.
But that's not all. An MBA "would be nice, too," he adds. "That's not as critical as an accounting background, given the training and structure one gets with a CPA. I'd like the candidate to have been a controller and have some treasury experience. Also a stint in some strategy function, since a CFO must be a business partner to the CEO. And leadership skills — that's crucial, too — a strong-willed personality who will stand up for what is right, and who knows the difference between right and wrong."
Omniscience would be swell, too. But Taylor's not alone in asking a lot of EPIX's next finance chief.
In the post-Enron era, the CFO's role has taken on a whole new level of importance — nearly as important as the chief executive's job. The new reporting rules instituted by the Sarbanes-Oxley Act mandate that CFOs and CEOs sign off on their companies' financials not once, but twice. The certification puts CFOs at risk of criminal penalties for materially misrepresenting the numbers. That alone makes the CFO position more daunting.
The extra reporting requirements may explain, in part, why companies often go outside their own payrolls when looking to find new finance chiefs. In this post-Enron, post-WorldCom, post-dotcom world, boards are now seeking exceedingly well-rounded candidates to fill open CFO slots.
Indeed, the ideal CFO candidate these days is a strange beast — a combination of treasury, control, operations, sales, marketing, and HR, with enough leadership skills to partner with business units and enough courage to shout down misguided investments. It appears nobody wants another Andrew Fastow.
Getting to this level professionally requires a set of skills beyond the world of numbers, including operational experience and managerial know-how. On their own, treasurers and controllers often lack that breadth of expertise. Says Peter McLean, vice chair of executive search management firm Spencer Stuart and co-head of its financial officer practice. "If you could meld the controller and treasurer together experientially, you'd have the essence of a good CFO."
Even then, that may not be enough. "You then need someone who has found his or her way into the inner circle of strategic discussions and debates, working alongside CEOs, COOs, division presidents, and business unit heads to create and execute strategy," says McLean. While McLean says it's not impossible for a treasurer who has specialized in treasury to make the jump to CFO, or a controller, "it's just harder."
And it won't get any easier in the foreseeable future. David Nosal, head of the CEO practice at another large executive search management firm, L.A.-based Korn/Ferry International, says Sarbanes-Oxley has changed everything. The added reporting requirements will make it even more difficult for internal candidates "who heretofore thought there was a seamless succession path to the CFO position," assets Nosal.
Recruitment specialists say boards of directors and CEOs are looking ever more skeptically and stringently at internal candidates before they promote them. "Credibility in the job is everything now, and boards and CEOs are just so exposed if their CFOs fail," Nosal asserts. "They're not going to take a risk on someone who does not have the experience required for the task. The old days of 'someone not ready but apt to prove himself' are gone."
Prep Tests
So why is it that some treasurers, controllers, and VPs of finance manage to convince boards that they are in fact CFO timber, while others get passed over?
To answer the question, we asked some of America's top CFOs how they made their climb, which skills they accumulated along the way that helped guide their journey, and how those in treasury, control, and other finance positions can follow their examples.
Interestingly, their responses color a portrait startlingly similar to the ideal candidate Taylor is seeking to fill the CFO slot at EPIX. There are deviations — some CFOs cite an MBA and operational experience as vital, while others insist that a CPA background is essential. Above all, these CFOs maintain that functional expertise isn't crucial to the job. It's the ability to lead.
Take Bob Agate, for example, the retired former CFO of New York-based Colgate-Palmolive. A native of Britain, Agate left school at 16 to work for a chartered accountancy and qualified as an accountant five years later, whereupon he hired on at Deloitte in London. In 1961, he became an assistant accountant at Colgate.
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