The Wall Street Journal ran an article recently on what firms are looking for in hiring their Chief Financial Officers or CFOs. The article was called “New Job, New Steppingstones”. The point was that as company CFOs’ roles become more strategic some of the traditional skills, or jobs they would take along the way become less important.
Having been a CFO for a mid-sized private firm and two large public firms, I viewed this with interest. Since, as you have learned by now if you follow this blog, I have strong opinions on a Lot of subjects, what qualifications a CFO should possess could be a hot button for me!
The article, with some well thought of recruiters and experts’ comments, made a number of valid and thoughtful suggestions that I even Agreed with. Today’s CFO better have a Strategic and Deal background since that is a huge amount of what he or she will encounter. It is also true, as we have written earlier, that a CFO (and every other senior person) needs to have an International state of mind to participate in this global business world. A new skill the article listed was the ability to “mine big data”. This used to be part of Systems or the Chief Information Officer’s role but now it is a critical part of everyone’s job and may require a bit of a statistics background.
The one thing the article touched on that I Disagreed with was that the traditional accounting or CPA background is often being moved back on the required list for CFO candidates. There has been a movement over the years to downplay the accounting or Controller’s role in lieu of the Treasury function. Accounting can sound boring versus doing some common stock offering or a debt financing Treasury deal. And, now, the article implies using your Strategy or Corporate Development background to do some big Merger or Alliance may be the next new trend.
I have problems with this on several fronts. First, the title CFO contains the word financial. So if you are a CFO or a candidate to be one, you better understand financial concepts and principles. This is understanding accounting, period.
Second, I believe some firms, like Enron, got partially into their troubles become their senior financial people were primarily Treasury or Deal people and did not fully understand some basic accounting concepts. Like what you ask? The last firm where I was the CFO almost did a deal with Enron. My company had large chemical plants. My company also always needed more cash. Enron came to us and proposed to lend us millions, secured by the future cash flow of one of these chemical plants. In a meeting, I stated that sounded fine but our existing bank arrangements limited how much debt we could have on our balance sheet. Enron said, no problem, the debt for this deal would not be on our books. I, almost jokingly said, oh, it will be on your books then. They said no, not on either of our balance sheets. Rather the debt would be on a “special purpose entity” we would create. Well we never did that deal, although they gave us all very expensive Enron pens. (Note to self: See if the Enron pen can sell on Ebay!)
Third, I strongly believe that any CFO should be able to understand and discuss very complicated accounting concepts with their staff. I was always pleased that some of the people who worked for me, whether a Controller or an Assistant Controller could come and discuss some new accounting rule with me and get my input on it and its impact on on financial position. Nowadays everyone love buying their competitors and often at huge premiums. So the accounting world created a test to see if you could actually earn back the price you paid over a period of time. And if not you have what is called an “impaired asset” that you must record as a loss on your books. The rules for these tests are complicated and involve a lot of theoretical assumptions. I could work through it with my staff but I wonder how someone without much accounting background ever could.
So, before our Human Resource buddies latch onto to these new qualifications for Senior Financial people we better make sure we understand all the issues!
bradszootales 
Post that pen on eBay! I would bid on just the ink cartridge, too!
Perhaps strategic deals do not depend on accounting principles until after the fact, just as recent deals like the Autonomy acquisition were not subject to the “impaired asset” accounting test until some time after the deal was complete. CEOs need accounting backgrounds, too. Thanks for a great post.
Keep ’em coming Brad! I love ’em!
Fantastic And very interesting. It’s a delicate balance between the CFO and or in smaller companies the Accountant that can be overbearing and sometimes stifle growth because the fear of taking on more debt. Debt can inspire you to work harder.
Another example and I’m assuming this is a true story, when Walt Disney wanted to explore building a theme park in Florida and as they were gathered around the conference table in Anaheim, the accountant was one of the first to point out that its not a good idea because it rains everyday in Florida. Walt quickly came forth with….we will just have to have a rain parade everyday in the rainy season! And to this day Goofy leads that parade.