As an exciting and evolving role towards the top of the corporate totem pole, working as a CFO is a great opportunity that takes years of persistence and hard work. However, this is also arguably the most precarious role in an organization, as CFOs in recent years have been on the firing line like never before. For the past two decades, many experienced and highly qualified CFOs have found themselves out of a job that took years to acquire, and even neck deep in fines and career-ruining legal trouble. Given the relatively new volatility of this role, CFOs should understand the main reasons turnover rate has been so high for the past couple decades, in order to ensure the longevity of their employment, and avoid complacency when making certain mistakes.
5 Reasons CFOs Got Fired in Recent Years
1. Inappropriate Relationships & Workplace Misconduct:
Inappropriate personal relationships, alcohol/drug use, harassment, are all some of the last things you need as an indispensable role player in any organization. Such misconduct is a sure way to quickly arrive on the firing line, or even behind bars in particularly scandalous situations.
An example that epitomized the scope of disaster that can result from engagement in behavioral misconduct (specifically, inappropriate relationships) was the jailing of former Boeing CFO Michael M. Sears in the mid 2000s. Sears improperly offered a US Air Force procurement official a job at Boeing, with the intent to seal a $23 billion air force deal to acquire 100 aerial refueling tankers from Boeing. The result: Sears received a federal sentence of 4 months in prison, a $250,000 fine, and the reputation as the man who spearheaded the biggest Pentagon procurement scandal in decades.
The takeaway: behavioral misconduct is the biggest mistake you can make in an executive level position, no matter how experienced or powerful you may perceive yourself to be. In the 1990s, Sears was President of a Douglas Aircraft Company division, and led the successful development of a naval fighter jet. None of that mattered in the end when he was terminated from his job, and convicted with a federal prison sentence.
2. Fraud & Corruption:
This is another reason behind termination which can land you in serious legal trouble on top of losing your job. It can also result in brutal financial costs to yourself and your organization.
Such a disaster occurred in the early 2000s with Measurement Specialties Inc, when Kirk Dischino was fired as CFO. Dischino overstated earnings by capitalizing overhead expenses into inventory that was inconsistent with Generally Accepted Accounting Principles (GAAP), and concealed the company’s default under loan agreements. The resulting consequence was Measurement Specialties being charged with accounting fraud, whereas Dischino received charges for accounting fraud and insider trading. Dischino also ended up paying disgorgement of $215,734, and a civil penalty of the same amount. In other words: this kind of dishonesty will not only cost you your job, but will spell out other severe consequences that can occur with something as serious as a legal case against the US Securities and Exchange Commission.
3. Higher Volatility Due to New Responsibilities & Scrutiny:
It should be noted that the CFO turnover rate has been consistently high for the past three decades. To name some figures; In the 1990s, CFO turnover went from 12 percent to 26 percent, with missing a quarter being the primary reason why. In the 2000s, CFO turnover was consistently exceeding 20%, with the average tenure going from 5 to 3 years. In recent years, the turnover rate has continued to be between 15 and 20 percent.
Why has this position become so volatile? Much of this has to do with how the responsibilities of the role itself have changed since the integration of technology in the 1990s. The CFO position has transitioned from number crunching and bookkeeping, to company leaders tasked with new and crucial responsibilities, the performance of this role has been increasingly under the spotlight. An aggressive campaign by the Securities and Exchange Commission to curb earnings management, a slew of relatively new accounting pronouncements, and the unbridled expectations of a long-running bull market have also added to this new level of scrutiny.
Nowadays, the faintest hint of an accounting problem sends stocks spiraling down and has plaintiff lawyers swarming. Lower-than-expected earnings trigger the same response. Meanwhile, the SEC has called on the board audit committee to take a more activist role in reviewing the financial reports, and most CFOs have their fingerprints all over the deals that companies increasingly rely on to expand strategic opportunities and grow revenues. It makes for a volatile mix that leaves little room for mistakes or second chances.
4. Averseness to change/Lacking adaptability:
In 2019, former CFO of Microsoft John Rex illustrated the importance of adaptability through his anecdote of almost getting fired as a CFO in a Forbes article. Rex describes three things he took away from his experience of nearly losing a position he had worked years to acquire and perfect:
“1. Never get comfortable with your recipe for success... 2. Embrace humility... 3. Reinvent yourself, then do it again...”
All three of these tips can be boiled down to a single common theme: be an adaptable leader.
For CFOs in today’s world of corporate finance (which is rapidly changing largely due to technological innovations), this is arguably the most important characteristic. An executive role-player like a CFO can’t expect to lead their team and organization to success if they aren’t willing to learn new skills, spearhead the effort to reskill their subordinates, and even re-invent themselves in the face of extreme adversity.
An example of an important adaptation for a CFO to make learning to use new technologies. High tech resources like FP&A software have been adopted by many organizations’ finance teams in recent years, resulting in increased efficiency, productivity, and accuracy in corporate finance. To gain a competitive edge, CFOs cannot afford to overlook the importance of adapting to this particular development in corporate finance.
5. Vulnerability with a Founder CEO
In the late 2000s, in a study published by the American Accounting Assn, Andrew J. Leone, accounting professor at the University of Miami School of Business Administration, and Michelle Liu, assistant accounting professor at Pennsylvania State University’s Smeal College of Business, studied a sample of 96 public companies that announced accounting restatements. They segregated the companies into two groups — companies with CEOs who were founders, and companies with CEOs who were not. Liu and Leone then tracked the post restatement fates of both the CEOs and CFOs.
In cases where a company had a founder CEO, CFOs departed about 60% of the time, compared with about a 30% departure rate for CFOs working with non-founder CEOs who remained. Leone and Liu hypothesized that founder CEOs may be viewed as being more important to the firm than non-founders, and that ostensibly independent board investigations of wrongdoing may be somewhat biased to make a less-valued executive (i.e. the CFO) the scapegoat for the problems.
Although this is a condition that is out of your control, the higher CFO turnover rate in organizations with a founder CEO is important to note. You’ll want to pay more attention to detail and be on your toes than usual, if you are working in a company with a founder CEO, and understand that your position is even more volatile than that of CFOs with non-founder CEOs.
Improving Performance in Light of High Standards
Adaptability is arguably the most critical characteristic of a CFO, as it is what enables finance professionals to use new tools to drive performance in the age of technological innovations. Adopting technology like FP&A software enables adaptable CFOs to yield better results from their work, and hence maximize their longevity at the position. Companies like CashWeb Community, Pureshare Activemetrics, and DataRails offer some of the best software for highly motivated CFOs looking to maximize their contributions to their organizations.