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In a time of increased regulation, can CFO candidates with no previous finance-department experience be successful?
Alix Stuart, CFO Magazine
August 1, 2003
Three years ago, Morningstar founder, chairman, and CEO Joe Mansueto and human-resources head Martha Dustin Boudos spent five long months interviewing external candidates to fill the CFO slot at the Chicago-based investment research products firm. Replete with accounting expertise, each was technically qualified for the job. But Mansueto found them a bit too narrowly focused for his taste. In fact, he would often joke to Boudos that she would be better at the job, even though she'd never worked a day in finance.
As the interviews plodded along, Mansueto began to seriously consider giving the former product manager and director of marketing the job. "When the idea first occurred to me, it seemed wild, because she didn't have the traditional background," he says. "But she knew the company and its people so well, she was clearly at an advantage in my mind."
Boudos was skeptical. "I wanted to be sure it was the best thing for the company," she says. "It's such a beyond-reproach decision to [promote] someone who's been a treasurer or controller; to take someone from a less-conventional background could be a risk."
That sort of risk has become all the more pronounced thanks to the intense accounting scrutiny that new regulations have put on public companies and on private ones, like Morningstar, that hope to go public. And while in the past decade large companies like Alcoa, DuPont, and Northwest Airlines have successfully installed CFOs with no previous finance-department experience, some experts wonder whether "nontraditional" candidates will get future consideration. "Everyone wants a CFO who can positively impact their business, but I think people are more concerned these days about finding someone who's not going to get caught by [the] Sarbanes-Oxley [Act of 2002]," says White Plains, New York-based executive recruiter Rich Dowd.
Mansueto convinced Boudos (and the board) that her familiarity with the company would be a greater asset than accounting expertise, and she took the position in December 2001. "We've been thrilled with her performance," he says. Even so, the board initially continued to discuss possible risks associated with Boudos's background in conjunction with the potential for an initial public offering, concerned that external investors might not take such a holistic approach.
In reality, though, experts are hard-pressed to name CFOs who have stumbled simply because they didn't have technical expertise. "It's not clear to me you have to be a CPA to be a CFO," says Robert E. Mittelstaedt, director of executive education at The Wharton School of the University of Pennsylvania and a director for three public-company boards. "A good CFO is someone who knows when to bring in technical help, but not necessarily someone who possesses all of it."
Alcoa Inc. CFO and executive vice president Richard Kelson, an attorney who was previously the company's general counsel, would agree. "You're trading deeper knowledge in accounting and other areas for leadership and judgment, with the idea that accounting can be taught, or purchased from technical experts," he says. He has relied on various controllers and the 25-person controllership group since taking over as CFO (his first finance job) in 1997, and hasn't found it necessary to otherwise deepen his understanding of accounting as a result of Sarbanes-Oxley. Accounting "has more time on my agenda," says Kelson, but only because more constituencies are asking more about it.
Adding to their comfort level is the fact that many nontraditional CFOs had some accounting exposure in their previous roles. Kelson's involvement as a general counsel in M&A work, for example, often meant deciphering the accounting for such transactions, he says. Larry Weick, a patent-holding electrical engineer who recently became CFO of Syntroleum Corp., booked accruals and made revenue estimates for his business unit when he worked at Arco, and tracked the accounting implications of potential partnerships as vice president of business development at Syntroleum. And as head of HR, Boudos was already reading Financial Accounting Standards Board bulletins to help account for a new stock-options program, and had helped construct an economic value-added-based bonus system.
Still, it requires a concerted effort for a newly minted CFO to get up to speed. At the extreme end, there's the customized six-month "cram course" that Jerry Henry took at Wharton when he became DuPont's CFO in 1993 at age 52 with no prior formal finance experience. Now chairman and CEO at Johns Manville, Henry recalls poring over DuPont's financial statements, learning everything from how to assess working capital to when to sell off an underperforming business unit. "I don't know if such a course is necessary for everybody, but it certainly helped me," he says.
Having a seasoned CFO as a mentor can also help. Henry says one of the reasons he agreed to be finance chief was because his predecessor, John Quindlen, was available to teach him the ropes. And Mansueto nominated former RR Donnelly CFO Cheryl Francis to Morningstar's board last spring in part "because I thought she'd be a good mentor" for Boudos.
Perhaps the most important factor, though, is "knowing what you don't know," says Kelson. Boudos, for example, often asks her accounting staff to explain decisions in great detail, going so far as to have them write out debits and credits, or give her full rationales for the size of a bad debt reserve. "I drive them crazy," she adds, "but I think they've come to appreciate my background, because it makes their expertise more valuable."
And in the end, it's that ability to probe basic assumptions and adapt to new challenges that helps most CFOs keep their jobs. Should Morningstar go public, Mansueto says the board would no doubt support Boudos. "Martha would be a great public-company CFO," he says. "She's got a track record now."
Where some nontraditional CFOs started
|CFO (date appoint.)||Company||Career Path|
|Yahoo||Was global head of research at Donaldson, Lufkin & Jenrette (had been at DLJ since 1986)|
|Rouse||Was global co-head of Deutsche Bank's health-care investment-banking group.|
|SPSS||Was SVP of business development at SPSS; previously a product manager; has a PhD in political science.|
|MeadWestvaco||Was VP for corporate strategy at MeadWestvaco; formerly an engineer and manager at General Motors and TRW.|
|Source: Company Websites|