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Why CFOs Shouldn’t Come From Public Accounting

Make the controller responsible for accounting and the CFO for financing — and have them report separately to the CEO, an ex-finance executive advi...
Danny SevernsOctober 29, 2018

Editor’s note: This opinion article is adapted from the author’s comment on our recent article, “The Dark Side of Accounting Expertise.”

As a former CPA with public accounting experience and a former controller or CFO for three different public companies, I have long held that companies shouldn’t hire finance chiefs from public accounting.

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The controller is a company’s chief accounting officer and should have ultimate responsibility for all accounting and reporting. The CFO’s primary responsibility, on the other hand, should be to understand company operations well enough to provide the financing needed to operate and grow the business.

Consequently, in my opinion CFOs should come from the treasury function or the financial services industry.

CPAs have no real training, knowledge, or experience in the financial markets in order to fulfill that role. Trying to make one into a CFO usually doesn’t work well, in my observation.

I’ve seen companies with weak controllers hire a CFO under the assumption that he or she will function as a higher-level, more-trusted controller or chief accounting officer.

That happens more often at privately held companies, but it’s not uncommon for management at public companies to have the same mentality — and it’s a worse problem there, because those companies typically have higher-level treasury and financing needs and activities.

What these companies end up with are two accounting-focused executives with little or no experience in financial markets. The CFO is not well-positioned to plan for, secure, and manage the company’s financing activities without a lot of outside help from consultants. The problem is exacerbated by a relative lack of accounting and financial experience among many CEOs and board members. In some cases they need to be educated on the appropriate respective roles for the CFO and controller/chief accounting officer.

I submit that the two roles should report separately to the CEO, or no farther down the ladder than the president or chief operating officer.

I also submit that a company will typically be better served if the controller’s background and experience is from the management accounting side of the accounting spectrum, rather than the public accounting side — even at a public company.

The CFO certainly will contribute to the company’s financial statements and reporting, and will be a user of them. But if his or her background is, as I propose, in banking, financial services, or investment banking, the CFO should not be ultimately responsible for them.

Nor should the CFO be in a position to exert undue pressure or influence on the controller’s execution of his or her authority over accounting and reporting.

In that scenario, a CEO or outside auditor should feel greater confidence that financial statements are more accurate, in compliance with GAAP, and less likely to be misstated.

If the controller is too weak for this management structure, the position should be upgraded. If there is not enough financing work to merit hiring a CFO, use consultants with some direction provided by the controller until financing requirements increase.

Danny Severns, a former controller and finance chief, is the owner of Essential Integrated Data, which advises CFOs and controllers at smaller organizations on operational software and management systems.