Job Hunting

Top Finance Officers Must Be ”Squeaky Clean”

In the wake of recent accounting scandals, executive recruiter Ted Martin explains the type of background that candidates need in order to qualify ...
Perri CapellDecember 12, 2003

Ted Martin is the founder and chief executive officer of Martin Partners LLC, an executive-search firm in Chicago.

How have requirements changed for chief financial officers in the wake of corporate accounting scandals?

The new recruiting requirements are tied to what’s going to happen at the board of director level and then trickle down. The finance and audit committee is under more scrutiny than ever. Given that, a new and valuable credential for [chief financial officers] in publicly traded corporations is a stint in the audit function.

In the past, you might have had finance and audit committee members who didn’t have financial backgrounds. They would rubberstamp the reports because of this lack of experience. Now you’re going to need heavily finance-oriented board members who will be tearing apart and peeling back the onion on all the financials. That creates implications for the CFO because all reports will be under more scrutiny than in the past. That’s going to require more detail in reporting, so companies will need CFOs who are used to delivering at that level. They’ll also need a heavy emphasis on budget and cost accounting. They must know what every single item in an organization costs, because they’re going to be accountable for every dollar. The days of relying on your controller and treasurer to support you are gone. CFOs are going to have to be knowledgeable and go deeper into the details because the board is going to ask for it.

A CFO who has a deal orientation may not be qualified for the job today. This type of background was once appropriate, especially in companies making acquisitions. For these CFOs, relationships with investment bankers might have been a primary attribute. But now, a CFO with deal experience will have to be as savvy as the controller on the details behind the numbers. That’s tough because a heavily deal-oriented CFO wouldn’t have come up through that side of finance.

CFOs also need an operational understanding so they can’t be snowballed by the numbers. A finance executive who comes from a “non-siloed” organization will be more in tune with today’s opportunities than one from a vertically structured organization who gets numbers dumped on him. CFOs will be responsible for fraud and deceit, so they have to be able to see it. Culpability is going to flow all over the place, and the CFO and CEO will be responsible for making sure the numbers are right. Saying, “I didn’t know” won’t be an excuse for a CFO in the future. We aren’t talking about executives who intentionally misled others, such as [former Enron CFO] Andy Fastow. Now, even if you didn’t know, you’ll still be as guilty as an Andy Fastow.

Will there be more emphasis on candidates’ ethics or morality?

That’s a good question. Everything will be “back to basics,” including an emphasis on integrity. I think what happened is that during the big dot-com run-up in stock prices, executives at traditional companies began asking why those folks were getting rich when they felt they deserved it more. They decided to go find riches so they wouldn’t be outdone by 28-year-olds who got on the cover of Red Herring.

It’s very possible that the desire for the same riches among Fortune 500 executives may have led to a loosening in moral standards. Back then, no one was talking about ethics. No one said, “How’s the integrity and moral fabric of corporate America doing?” The word “integrity” didn’t show up a lot, and because of that, it got stretched. The greed factor surfaced in light of all the money dot-comers were making.

It could be argued that what was called “managing earnings” — what corporations used to do to massage earnings in the quarterly reports — is now called deception. There’s a tighter screen now. CFO candidates will be scrutinized more than ever. They’ll be asked if they worked at companies that managed earnings or were squeaky clean and what their personal position is on this. There’s a fine line between financial acumen and astuteness and deceit, and the line has moved back. We’re going to be looking for squeaky-clean backgrounds. M.B.A. degrees from top schools also will increase in importance, because schools have added ethics courses.

What can executives emphasize in their background to highlight their integrity?

From a recruiter’s perspective, it’s all about references. I would emphasize community activities. We’ll be looking for proverbial “Eagle Scout” backgrounds. We’ll conduct community and integrity references in addition to corporate references. We’ll now be calling ministers, priests, teachers and Boy Scouts leaders. Those references were often skipped over in the past.

One strategy for candidates might be to offer such references up front to support their corporate references. At the end of the day, a high sense of integrity must be in the fabric of a person. Whether at work or in the community, they’re going to exude the same ethics.

How do recruiters find references who will tell them these things about a candidate?

We call friends of our firm who may have worked during an overlapping period with the candidate. We ask them to give us names of the best CFO they ever worked with, without telling them the candidate’s name. If a reference doesn’t mention the candidate’s name after being asked to name the best CFO, you learn something. It’s through this informal reference process that you learn the real story. It’s tougher when the candidate provides a list of references, because those people know the candidate has supplied their name and are very cautious about what they say. But this is a free country, and I can talk to anyone. We also have to call people to get information about the references to make sure we eliminate someone who just might not like the candidate for some reason.

What other qualities and skills are required now for top finance executives?

You need an ability to read the CEO’s mind and be comfortable with ambiguity. This nuance separates great CFOs from good ones. It has to do with knowing what the CEO wants to communicate inside and outside communities. You need to get it right in terms of what you disclose, while still operating with integrity.

The ability to read the CEO’s mind means knowing when to give certain numbers to the CEO so he’s never caught off guard. It’s like having a sixth sense that tells you when to say, “Let me take you through this quarter.” You sense that he or she doesn’t have enough information and needs to be more updated on the numbers. When you can do this, the CEO says, “That’s great information.”

How do you detect this quality?

Again, you find this through references, not through a personal interview. When you talk to the CEO a candidate worked for, he’ll say, “I was never caught off guard, never surprised. I always knew what the issues were and had an explanation for why the numbers were off.” That is a really subtle skill.

If I worked at an organization with a tarnished reputation, can I avoid being painted with the same brush?

You will need references who will say you fought against the transgressions. It also depends on how tarnished you are. Once the organization reaches a certain size and level, it depends on the transgression. If it’s deep enough, no one will touch a CFO who says he didn’t know about it.

In fact, there’s a double-edged sword to coming from a tainted company. If you claim you didn’t know about the problem, you show you weren’t valued enough to be in on what was going on. It means your head was so far in the sand, you were removed from the day-to-day details. If you did know about the transgression, then you won’t be wanted.

Do CFO candidates need international backgrounds?

It adds to their desirability. We’re continuing to evolve into a global manufacturing society, with continued emphasis on finding the cheapest place to produce goods and services. The global trend will continue, and international experience will be increasingly valued. Two years in Hong Kong will be positive to a Fortune 500 company. You have to think in terms of the Global 500 companies. In the middle market, needs are different. Executives who have never left Peoria may run successful $250 million businesses.

The best place to work is Asia. China is an amazing country, and a lot of Fortune 500 companies want to outsource all their manufacturing to it over time. Demand will grow for Americans who speak Chinese. Companies such as Motorola have had big presences in China for a long time. Others will follow suit. It’s likely they’ll shift to hiring Chinese-born-and-raised employees who went to college in the U.S. These people have the language ability, plus they speak English and know our culture. I think we’ll give up trying to teach Americans to speak Chinese because enough Asians are coming here to college, and they’ll be the hot ticket. And they’ll be in charge of the entire supply chain and manufacturing over time for U.S. firms.

What’s your favorite question to ask a CFO candidate?

I have three. The first is, “Give me an example of when you should have communicated more information to the CEO, and you didn’t. What happened and why?” Someone who hasn’t erred in this area hasn’t discovered the line between saying too much and too little. I want to know if after such an incident, they over-communicated and had to back off. That will tell me they found the right balance.

The second is, “Give me an example of when you over-communicated and the result of that.” This allows you to get at this “sixth sense” thing. Sometimes they say, “Look, I just know” how much to say. And you can believe that.

I also ask, “How do you get the right balance; how do you walk the fine line of giving enough information when your CEO is overloaded and running at 90 miles an hour?”

They all say, “That’s a good question.” They have trouble putting this into words. I know they have that sense when they head nod and say, “I just do it.”