Why Is CFO Turnover So High?

With the job getting tougher, one in four Fortune 1,000 companies bid adieu to its finance leader in 2007 alone.
David McCannFebruary 29, 2008

For large-company finance chiefs considering job switches, the good news is that a lot of CFO positions are opening up. The bad news is that those who land one of them might not have it for long.

In 2007 almost a quarter of the CFO posts at Fortune 1,000 companies — 234 of them, to be precise — were open at some point during the year, according to new data from executive-search firm Heidrick & Struggles.

To be sure, only about 22 percent of those remained unfilled at the beginning of 2008, and more were filled shortly thereafter. But the churn rate continues to be high, with 33 new openings in just the first few weeks of the year. As of February 29, 47 of the big companies were seeking a new CFO.

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Turnover at smaller companies isn’t nearly as brisk. According to Liberum, a research firm that tracks management changes, at the approximately 16,000 public companies in the United States and Canada, there were 2,313 CFO changes of all kinds in 2007. But Liberum counts every promotion, resignation, hiring, and firing as one change: the actual turnover rate was a bit less than 10 percent.

Even within that larger database, however, activity has picked up markedly: the number of CFO changes last year was up 24 percent from 2005, the first year for which Liberum collected data. The industry sector with the greatest turnover in 2007 was banking, followed by pharmaceuticals/biotech and metals/mining.

Being a CFO at a very large company is a precarious position indeed. “The average tenure of a [Fortune 1,000] CFO right now is less than three years,” said Michele Heid, co-managing partner of the finance practice at Heidrick & Struggles. “Five years ago, it was closer to five years.”

The degree of change was particularly high in 2007 at biotechnology, pharmaceutical, energy, mining, and financial services companies, another Heidrick partner, Bryan Proctor, told

The reasons for this are many. But put simply, the job of such a CFO is getting bigger and harder at the same time the risk inherent in the position is rising. That results in more departures, both voluntary and forced.

The bigger uptick has been among those leaving voluntarily, according to Bill Behn, National director of staffing and Atlanta general manager for SolomonEdwardsGroup, a firm that provides technical and staffing services for corporate finance and accounting departments. The increased regulatory demands that were triggered by Sarbanes-Oxley certainly have influenced some of those decisions. “The workload has gone up 20 to 25 percent just because of the new regulation,” Behn told

Also because of the altered regulatory environment, CFOs’ legal liability for errors has skyrocketed. Behn said a shift in their value systems is under way, whereby more are coming to believe that the financial rewards just aren’t as attractive in the face of this elevated risk.

In addition, as CFOs get older, their wariness may grow sharper. “Increased exposure has been very dramatic, and CFOs may be thinking that the longer they stay, the greater the potential that there will be some kind of issue,” Jonathan Schiff, a professor in Fairleigh Dickinson University’s graduate accounting program and a longtime adviser to large global corporations, told “So people are leaving their CFO positions not at 65, but at 50 or 55.”

Those who soldier on and become embroiled in Securities and Exchange Commission investigations and financial restatements — not to mention those who backdate stock options — are almost invariably tainted beyond repair. “Even if you win your case, you’re finished,” said Schiff. “The reputational issue is much worse than it used to be.”

For some CFOs, another effect of the heightened regulatory demands is that they spend more time on technical accounting issues and less on strategic planning and decision making, which may have been the opportunity that moved them to take a particular job. “They don’t even get to do the fun stuff. When you know that carrot is out there but you can’t grab it, there can be a lot of frustration,” said Behn.

At other companies the opposite situation prevails, where the level of strategic performance demanded of CFOs is so high that fewer executives today are up to the challenge.

Also a factor in the high turnover rate is “the robustness of private equity,” said Heid, “which is recruiting CFOs out of public companies to run their portfolio companies.”

For many CFOs, their span of control across the organization has increased, with such functions as information systems and human resources now reporting to them. “That puts a strain on someone whose sweet spot is finance, accounting, and treasury,” said Schiff.

Similarly, globalization is turning up the heat. Since it’s not uncommon now for Fortune 1,000 companies to have half of their finance and accounting staffs abroad, CFOs must acquire a grasp of, or at least an appreciation for, diversity and cultural issues — something else that may be out of their comfort zone, according to Schiff.

Finally, there’s that great big bear called ERP. Many of the enterprise-resource-planning systems on the market in the past several years showed a lot of promise up front but ended up being highly problematic in their delivery, according to Schiff. “There was a very pressured sell on these systems,” he said. “But their level of difficulty and complexity were often understated. Many CFOs signed on to enormous projects that violated their own rules of capital budgeting and planning. If these projects had been coming out of their own businesses, they would have been scrutinized much more.”

The result was that implementations that should have taken two or three years in some cases took five, six, or more. “That tends to burn a person out,” observed Schiff.