Alas, poor Yorick! I knew him, Horatio...CFO turnover...

A recent conversation with Ken Sargent of the local Tatum office (a high end financial services firm) got me thinking about executive turnover and more specifically CFO turnover. My personal experience is that the rate of turnover has increased over the past decade.

My world is typically companies of <$100M in revenues and data for this group is hard to come by. Heidrick and Struggles reports that almost 25% of Fortune 1000 CFO slot’s were open at some point in 2007. Tatum predicts continuing acceleration in CFO turnover as well.

Why is this, and what does it say about what's happening in corporate America?

My sense is that the increase in turnover is driven by two fundamental forces: (1) an increase, and change in the nature, of the demands on the CFO, and(2) a general loss of patience by boards and investors (which will drive turnover amongst all classes of executives).

Perhaps uniquely, the CFO's role reflects the increasing complexity of the business world. One of the best things about the CFO's gig is having insight and responsibility into all aspects of the business--this upside may now be becoming a liability.

Traditionally, CFO's have been responsible for accounting and finance and frequently for HR and legal. As the overseers of corporate assets today's CFO's often have at least some responsibility for:

1. International activities--which were rare in smaller companies a decade ago and increasingly common today.
2. IP and IP strategy.
3. IT and technology spend.
4. Serving as the CEO's business partner on a broad range of strategic and operational issues.
   

Traditional CFO responsibilities have simultaneously become more complex: Accounting has come to include activities as SOX, IFRS, 409A Valuations, and Fair Value Accounting. Risk management and legal cover increasingly difficult issues in HR, business development and contracts, and regulatory compliance. Board level and audit committee interactions are more formal. Auditor relationships are much more difficult. And budgeting and reporting have become more complex (though not always better) as a result of the availability of more sophisticated tools.

These increasing demands have arisen during a time in which companies are under constant pressure to enhance returns and manage costs. And most CFO responsibilities represent overhead costs without obvious positive ROI.

In this environment, it isn't surprising that CFO turnover is up. The job is harder, the expectations higher, and the resources available have not kept up. My guess would be that this is especially true in smaller companies where "best practices" goals trickle down from larger public companies.

The costs for both employees and companies is obviously high. Executive turnover is always a major corporate event and if the turnover was proceeded by a period of executive ineffectiveness (often implied by turnover) the costs are magnified.

Is there a solution? Probably not. But there are some areas that can be addressed.

If corporations believe that "people are our most important asset" then allocating sufficient resources to prevent burnout would be a good step. Concretely, companies might consider hiring appropriate specialists such as General Counsels and FP&A professionals earlier.

Reasonable expectations would also help. As an example, 20% of the job descriptions I see for early stage companies call for CFO's to create "SOX compliance" even though the likelihood of an IPO if very low for most companies.CFO's should be clearer about the cost/risk trade-offs they face daily. Educating stakeholders on the tasks they face and the costs of those tasks can mitigate demands for doing more with less.

Ken Sargent suggests looking at the CFO's function as the "Office of the CFO". The implication being that corporations and boards shouldn't expect a CFO to have all the tools to manage an overgrowing work load and that outsourcing specific skills can be effective.

All this said, for the right person the CFO's seat remains a great place to be. The requirement to be conversant in all aspects of the business, the board visibility, the diversity of tasks, and the opportunity to make a difference, are all great draws.