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A CFO needs to be made of stern stuff to take on a CEO bent on aggressive revenue reporting.
David M. Katz, CFO.com | US
May 7, 2002
Backbone and leverage. The successors to Shields and Yarnell?
Actually, CFOs say there's nothing funny about backbone and leverage — particularly if you don't have either. Yet grit and clout are crucial to survival — particularly when a chief executive starts to push for better numbers than a finance chief feels comfortable booking, according to a number of veterans of failing companies.
And make no mistake: That's not an uncommon scenario. According to an exclusive CFO.com poll, more than 40 percent of respondents say they have engaged in aggressive accounting practices to improve their company's reported financial performance. In another poll, about one in five respondents admit that they've misrepresented their company's performance with aggressive accounting. (See the results for yourself in "Funny Numbers," at right.)
Ironically, the economic downturn seems to have decreased the leverage finance chiefs possess — at a time when they most need to be able to hold their ground against unreasonable requests. The relative scarcity of good CFO jobs makes it harder for finance executives to vote with their feet, explains Joel Getzler, president of Getzler & Company, a New York-based turnaround consultancy.
At companies where CEOs push for aggressive bookkeeping, a scrupulous finance chief might be torn between producing the desired numbers or delivering a true picture of the company's situation. And entrepreneurial chief executives often don't want to see desirable revenue reports disputed, says Getzler. "The CFO is under tremendous pressure to help make profits be there," he adds.
Then again, the abundant bad news about Enron and other financial scandals might give CFOs the ammunition to defend their positions. "It gives CFOs a much better environment for saying that this whole idea of financial reengineering is not getting us anything," says one finance chief who did not want to speak on the record. "A lot of CFOs that felt they were pushed too far have a lot of vindication."
Still, it's unclear how much of an effect cautionary accounting tales will have on CEOs if profits plummet and their own jobs are suddenly at risk. In that event, suggests Getzler, friends in high places might be better career insurance for a CFO.
For instance, he says, he knows of a finance chief at a major insurance company who was able to sharply disagree with the CEO on a matter before the board. That's because the CFO was friendly with the chairman and had "major lines of communication with board members on the auditing committee," Getzler adds.
Since the CFO had routinely talked to board members, he avoided the appearance that he was going over the CEO's head, Getzler says. The result? The CFO still has his job.
To mitigate career risks during tough economic times, CFOs need to be alert to warning signals about their own standing, as well about the company's culture, experts say. Here are some bad signs: