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Short-term CFOs Equal Short-term Planning

Turnover in the C-suite is leading to short-term corporate investments, says a new survey of CFOs.
Helen ShawMarch 9, 2007

Job pressure is driving finance chiefs out of their positions sooner these days. And that, along with shorter CEO tenures, is affecting corporate investment decisions, a new survey says.

The March 2007 survey, conducted by Duke University and CFO magazine, found that CFOs blame their own increasing turnover rate on extreme pressure to deliver strong results in a shorter time frame, and the responsibility and tedium that accompany the greater compliance burdens of the post-Sarbanes-Oxley era.

The findings are worrisome, comments John Graham, director of the survey and a finance professor at Duke’s Fuqua School of Business. “Ideally, we’d rather that the CFOs were spending their time strategizing about the future, rather than on compliance,” he says. “Even more disturbing, however, is the effect that short C-level tenure is having on companies’ real investment decisions.”

An overwhelming majority — 87.6 percent — of finance chiefs reported that companies have shortened the payoff horizons of their investment decisions to coincide with the shorter tenure of executives. That result does not augur well for the U.S. economy in the long run, notes Campbell Harvey, a Duke professor. “Investments should be chosen based on their contribution to firm value, without adding an arbitrary constraint tied to CEO or CFO job tenure,” says Harvey. “This is yet another unintended consequence related to Sarbanes-Oxley and related regulations.”

The survey, which concluded March 2, included responses from 454 U.S. finance chiefs from public and private companies, plus 169 CFOs from Asia and 118 from Europe.

The survey also revealed that CEOs are more optimistic than finance chiefs about all aspects of life. The survey found that half of U.S. finance chiefs said CEOs are more optimistic and have a brighter outlook. Just under half of the CFOs, about 45.4 percent, reported that the two C-level executives have the same level of optimism. Only 5.3 percent believe the CFO is more optimistic. The findings in this country mirrored those in Europe and Asia.

Why the disconnect between CFOs and their bosses? “We had expected to learn that optimism is driven by CEOs being less exposed to the nuts and bolts and operations of the firm, and their focusing on the long term,” says Joseph McCafferty, an editor at CFO. “Instead, the implications are more troubling.”

Only 13 percent of respondents said the chief executive knows less about the nuts and bolts and operations than CFOs. Most cited other reasons for the difference in outlook: 36 percent said that CEOs are by nature more optimistic about almost everything, while 31 percent reported that CEOs are expected to project an optimistic view to customers and employees. Twenty-one percent said CEOs have more of a big-picture or long-run view than CFOs.

The results, says Graham, “makes one wonder whether people change their outward persona to become more optimistic when they become CEO, or whether people who are optimists are more likely to rise up the corporate chain of command because of their inherent positive outlook. Our survey results suggest the latter interpretation.”

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