For the past couple of years, when large companies went hunting for new CFOs they asked headhunters to find flinty-eyed finance specialists. But as CEOs and boards become more convinced that the economy is improving, broader skills are coming into demand, management recruiters say.
“There’s a lot of caution, but the mood is shifting to embracing new opportunities,” according to John Wilson, CEO of J.C. Wilson Associates, a San Francisco-based recruiter. “It’s been very much about preservation of cash for the last year or two,” he says. “That’s beginning to change. “
The change means that a wider perspective is in demand, says Michele Heid, a Philadelphia-based managing partner for Heidrick & Struggles who specializes in recruiting CFOs and other top financial officers. “There’s been much more emphasis on international,” she says. And hiring companies now often like to find CFOs with operational experience in general management roles as well, not just a pure finance background. “People,” she says, “want the CFOs to be more business and commercial minded.” [For a look at recruitment trends in the UK, read this take on the situation from our sister publication there.]
The Case of AMD
CFOs are often on the short list when companies do succession planning, and operational experience is a must. The value of a CFO with broad experience became apparent this month when the board of semiconductor-maker Advanced Micro Devices Inc. unexpectedly pushed out CEO Dirk Meyer and named CFO Thomas Seifert as interim CEO. Seifert, who lives in Austin, Texas, asked that he not be considered for the permanent post at the Sunnyvale, Calif., company. Nonetheless, his resume is the prototype for the very CFO that that so often is in recruiters’ sites today.
Seifert joined AMD in 2009 when it was in the midst of a wrenching turnaround. He had just finished a stint as chief operating officer and finance chief of semiconductor-memory maker Qimonda AG, where he helped spin it out from Infineon AG. A native German, the 47-year old Seifert also had long experience with Siemens AG and a joint venture between Siemens and IBM. Research by Heidrick & Struggles shows that in the first half of 2009, 23% of newly named CFOs had been in operational jobs before their promotion, up from 11% in the year earlier period.
If the economy really is on the upswing, it’s likely to bring much more CFO turnover. Richard Jacovitz, research director of Liberum Research, which maintains a database of executive changes, says that as the economy went into its tailspin, companies held onto existing C-level executives, rather than replacing them. While workers get laid off, executives stay. “It’s the opposite of what happens to everyone else. Top executives have remained rather static,” he says. Data for recent years from Liberum show that CFO turnover at public companies peaked in 2007 when 2,329 CFOs were replaced. The number fell sharply in each of the last three years, dropping to just 1,083 last year, less than half the 2007 level.
The End of “Survival Mode”
There are a number of reasons for turnover increasing as the economy improves. For one thing, rising stock markets mean that stock options become valuable enough to persuade some C-level executives to retire. Also, people are more confident about taking on new challenges. Jacovitz says that “in 2006 and 2007 the economy was humming and turnover was huge while unemployment was low.” But after two years of low turnover, “there’s a lot of pent up demand to move” by executives wanting to go to bigger companies or bigger jobs.
Executive recruiters, though, say that the biggest reason may be that corporate boards are no longer in survival mode. “With new budgets completed in the fourth quarter, this first quarter is more about opportunity,” says Wilson. Some companies that have been putting off investment in promising new areas are taking the plunge.
The change is visible in both large companies and in the small, venture-capital-funded start-ups in Silicon Valley, he says. “VCs have been watching the burn rate very carefully and forcing them to hold back expenses.” Indeed, VCs sometimes even held back companies from hiring a CFO, relying on a controller or finance director to track expenses, while avoiding the higher cost of a well-qualified CFO. “I hadn’t seen that in a very long time.” Wilson says.
Taking the COO Role, Too
Many CFOs will be de facto chief operating officers. Small and medium sized companies are dispensing with the COO role and dividing it between the CEO and the CFO, Wilson says.
Wilson says hiring companies will be putting other skills on their wish lists as business picks up further. Companies that have run low on cash during the recession will look for CFOs with money raising skills, who are familiar with debt and equity offerings. “Exposure to M&A will get more of an emphasis,” he predicts. And there aren’t many current signs of improvement in the IPO market, so other types of financing may be emphasized.
Heid of Heidrick & Struggles says it’s natural, as the broader economic and political environment shifts, for companies to evolve their thinking about what sorts of skill sets a CFO needs as the broader economic and political environment shifts.
In a blog post last March, Heid wrote: “There has been a distinct shift in the career path of “best in class” CFOs.” She said that after the Enron accounting scandal led to Sarbanes-Oxley, with its tighter financial controls, companies wanted CFOs who emphasized compliance. That meant they looked for executives who had begun their careers at a big accounting firm and then risen through finance department ranks, often serving as a controller before being tapped for the CFO job.
But in recent years companies want CFOs who are a kind of alter ego for the CEO. They seek a CFO who knows numbers but “is also strategic, able to work across the management team, get involved in operations, serve as a strong leader who grooms his/her successors and act as a true business partner to the CEO,” she wrote. Ambitious finance people are aware of this, and increasingly seeking operational experience and overseeing that exposure, she says.
Still, finding CFOs with all these traits, she wrote, “is a tall order, making for a very competitive market for finance talent.”
William M. Bulkeley, a former Wall Street Journal staffer, is a Boston-based business reporter.