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Leaving a large company for the CFO spot at a smaller company can be a great move — as long as you do your homework.
Scott Leibs, CFO Magazine
March 15, 2006
Having amassed more than 15 years' experience at IBM Corp. on a steady ascent toward the top finance job, J. Donald "J.D." Sherman did what any sensible executive would do: he chucked it all to become CFO at a company 1/300 the size of IBM.
Sherman's experience is not at all peculiar; many senior finance executives get to the top spot in just that way. A recent study by executive search firm Christian & Timbers found that fully 87 percent of new CFOs at small technology companies took those positions after holding senior (but non-CFO) jobs at large-cap tech firms. In many other industries as well, those who have accumulated significant big-company experience are logical candidates to assume the helm at smaller firms, and many are eager to do so.
The move, however, is not for everyone, and those who would emulate Sherman's march to the top need to proceed carefully lest their first CFO post prove their last. "Many people want to get 'CFO' on their résumés," says one executive recruiter. "But while the title may be nice, there are many things to consider. Your work life can change dramatically."
Large companies typically offer large advantages, including stability, lots of resources, and juicy perks. At a smaller company, first-time CFOs may find themselves confronting anything from a turnaround situation to an impending initial public offering to some nasty corporate-culture crosswinds as the business matures from start-up to established player.
That, in fact, tends to be the primary appeal. When Sherman left IBM for Akamai Technologies Inc., a provider of Internet hosting and E-business services, he saw "an opportunity to make more of a difference than I ever could have made at IBM. On the other hand, my finance staff at IBM was larger than Akamai's entire payroll."
CFOs who move down in order to move up seem almost universally game for the challenge, which is for the best, given that recruiters agree that to be a CFO at a big company you must first be a CFO at a smaller one. As controller for the corporate business group at Dell Inc., Lloyd R. "Skip" Sorenson received plenty of calls from executive recruiters. "Ninety-five percent of them were for jobs that didn't appeal to me," he says, "so I'd recommend other people. But then one day you do get that call that makes you take notice."
For Sorenson, that call came from Vought Aircraft Industries Inc., a company that may have been close geographically, but that was a good long way from being the sort of Fortune 50 high-tech giant Sorenson was used to. While taking the top finance spot at Vought represented a return to an industry he knew well, having worked at McDonnell Douglas Corp. and at the aerospace-equipment systems division of Allied Signal Inc., annual sales at privately held Vought barely surpass what Dell racks up in a week. What was the allure? "The explosion in private-equity deals," he says, "has created a lot of opportunities for people who want flexibility, autonomy, and the chance to make a large contribution to the success of the company. Of course," he adds, "you have to deliver."
And you'll probably have to deliver using far fewer technical resources than you're accustomed to. Executives who bid farewell to global giants also bid farewell to large staffs, sophisticated information systems, and well-established controls and processes. In fact, their first order of business may be to lead the charge in developing the systems they need to make the strategic contribution that attracted them in the first place. John Rickel, who left a senior post at Ford Motor Co. in September to become CFO at Group l Automotive Inc., a publicly traded network of car dealerships and repair facilities, says that his current staff is "smaller by an order of 100 compared with my position at Ford," and admits this poses a challenge. "A smaller staff means fewer people to worry about, which can be less stressful," he says. "But it also means you have less bench strength, and every hire becomes very important."
Access to data can also be an issue. At Dell, says Sorenson, "we had systems that allowed us to look at orders on a minute-by-minute basis, sliced by customer, margin, you name it. It was spectacular." He plans to build better systems at Vought, but that's just one item on a long to-do list.
Taking Things to the Next Level
Moving to a smaller company may also entail sacrifices of a more personal nature. Akamai's Sherman notes that "when you reach a certain level at a company like IBM, you get coddled. You have incredible administrative support, you have a huge office, you use the corporate jet, you even get an executive physical from the company doctor. If you like all that, the culture of a smaller company may not be for you."
Most freshly minted CFOs seem happy to give up the perks in exchange for the reins. "This was a chance to come to a company at a key transition point," says Robin L. Washington, who became the CFO at software maker Hyperion Solutions Corp. in January after serving as senior vice president of finance and corporate controller at PeopleSoft Inc. "It's not a start-up looking to go public; it's an established company that's approaching $1 billion in sales, and I can help take things to the next level."
To get that chance, these first-time CFOs say it's critical to acquire as broad a skill-set as possible. "You have to be a generalist," says Washington, "but with depth." Experience overseas, serving as a divisional CFO, and a solid rotation through core finance functions such as tax, treasury, audit, and controller are all important. For that reason it's enormously helpful to work for a company that stresses employee development. L. David Mounts, for example, "never held the same job at UPS for more than two or three years." Five overseas postings, experience with mergers and acquisitions and supply-chain issues, and "the chance to constantly serve on new teams and address new challenges" served him well when he left the company last November to become CFO at Domino's Pizza.
But no matter how much experience a candidate brings to the job, first-time CFOs invariably face a learning curve. Investor relations is the biggest issue for most, since, as Sherman says, "it's possible to go very high up at IBM and still not deal much with external investors." His advice: use your ignorance to your advantage. "I wasn't shy about admitting to people that there were things I needed to learn," he says. "It doesn't undermine people's confidence in you; it actually enhances your credibility."
These executives agree that no one should leap at the chance to become a CFO without doing a lot of homework. "I'd say it takes a minimum of two months," says Rickel. "It's a brave new world, with lots of personal risk for a CFO, so a prospective employer expects you to ask a lot of questions and conduct plenty of due diligence. It doesn't raise any eyebrows." Multiple meetings with the CEO, board members, and other senior executives are essential. Mounts says he spoke to people in the audit, banking, and legal communities, and read all of Domino's recent public filings.
Even with such research, Sorenson says, "you will find some challenges when you look under the covers," but, one hopes, no unpleasant surprises. And don't bother asking about the corporate jet. Settle for a reserved parking space, and expect your car to spend plenty of time in it.
Scott Leibs is a senior editor at CFO.
Before You Leap...
Senior finance executives who have left large companies to assume the CFO post at smaller companies say such a move requires substantial due diligence. Here are some useful tips:
CFOs on the Move
After 15 years at the company, James Beer has left AMR, parent of American Airlines, to become CFO at software firm Symantec. AMR has launched a search for a replacement.... Kimberly Cline is the new CFO at the State University of New York.... Bruce Riggins takes over as finance head at Interstate Hotels & Resorts, rejoining the company after leaving last year to take the top finance post at Innkeepers USA Trust.... Money Concepts, a financial-planning company, has promoted Barry Rittman to finance chief from his role as controller.... TRC has tapped Carl Paschetag Jr. to head up finance at the engineering and construction-services firm.... Thomas Scott replaces Sandra Thomas as CFO at First Avenue Networks, a wireless-service provider.... Rambus, a technology-licensing firm, is looking for a new finance head after the resignation of Robert Eulau. CEO Harold Hughes is filling the role in the interim.... Windrose Medical Properties Trust has appointed Paula Conroy CFO. Conroy joins from Roche Diagnostics, where she was director of finance.... C.E. Andrews has become finance chief at student-loan provider Sallie Mae.... Alfred Novas will lead the finance department at Whitney Information Network, a provider of postsecondary education.... Ford Motor Credit has named K.R. Kent vice chairman and CFO. He succeeds David Cosper, who has left to join Sonic Automotive.