Companies Appointing Fewer Finance Chiefs With Accounting Skills

by | Apr 9, 2020 | Career, Future of work, Leadership, Talent Development

At the 1,000 largest U.S. public companies, the portion of CFOs who are certified public accountants fell to about 36% last year, according to organizational consulting firm Korn Ferry. PHOTO: ISTOCK

Strategic, operations-minded finance chiefs are finding favor, with specialists increasingly taking care of the books

Directors of Hannon Armstrong Sustainable Infrastructure Capital Inc. congregated in the boardroom in late 2018. On the agenda: the ideal résumé of their next finance chief.

They wanted to fill the impending vacancy with someone who had expertise in raising debt and equity—a priority for the Annapolis, Md.-based investment firm.

The board also decided they could do without one particular qualification. Having appointed a chief accounting officer in 2017, they didn’t care if the new chief financial officer had an accounting background.

“It was almost counterintuitive, almost backwards,” said Steve Osgood, a board director at Hannon Armstrong and chairman of its audit committee. “But that freed us up to get a capital-markets-focused CFO.”

CFOs have traditionally emerged from the accounting ranks, with reputations as masters of cost management, corporate finance strategy, accounting standards and reporting requirements. But the role has morphed to the point that accounting expertise is often no longer required.

At the 1,000 largest U.S. public companies, the portion of CFOs who are certified public accountants fell to about 36% last year, according to data from organizational consulting firm Korn Ferry. That is the lowest figure in the six years Korn Ferry has been collecting the data, down from 46% in 2014.

Finance chiefs today often oversee more than just the books. They are increasingly in charge of human resources, information technology and elements of enterprise risk management. As a result, companies increasingly want skilled general managers who possess strategic savvy and a firm grasp of operations in the CFO seat.

“Technical accounting is becoming a smaller percentage of the job,” said Andrej Suskavcevic, chief executive of professional organization Financial Executives International.

Executives and recruiters trace this evolution to the aftermath of the global financial crisis, when companies increasingly wanted strategy-focused CFOs who would promote transparency and operational changes to spur growth and guard against threats. That was a change from the years after the 2002 Sarbanes-Oxley Act, when companies—under pressure to improve their financial reporting—often picked chief accounting officers as their finance chiefs.

The shift has had a ripple effect on the career trajectories of junior finance executives and others who were traditionally groomed for the CFO role.

Changing Role, Evolving Expectations
As the role of the CFO has broadened, some traditional areas of finance—tax, treasury and investor relations, for example—have grown increasingly complex, demanding more focused expertise.

“There’s no way a CFO can truly be a technician in all areas,” said Chris Stansbury, CFO of Centennial, Colo.-based electronics distributor Arrow Electronics.

The nuts and bolts of accounting are therefore increasingly being handled by chief accounting officers and controllers, executives say.

That played a role in Hannon Armstrong’s choice of Jeff Lipson, who has a background in issuing debt and equity securities but isn’t an accountant, as CFO early last year. Mr. Osgood, the audit committee chairman—and a CPA himself—said the board reasoned that chief accounting officer Charles Melko could take care of the books and research the accounting implications of new types of transactions.

Mr. Lipson, who was previously the chief executive of Congressional Bank and held treasurer roles at CapitalSource and Bank of America Corp., said having a strong accounting chief factored into his decision to take the job.

“We maintain a very close and constructive working relationship,” Mr. Lipson said. The relationship has enabled him to embrace a capital-markets focus. He helped the company obtain a corporate debt rating from S&P Global Inc. and Fitch Ratings Inc., and he led the issuance of $500 million in green bonds, which fund environmental projects—both firsts for the firm, which invests in energy efficiency and renewable energy companies.

The progression of the CFO role could also reflect changing expectations from Wall Street.

Analysts spend more time questioning a company’s business lines, future growth and potential acquisitions than they do scrutinizing its accounting, said Richard Bove, an analyst at Odeon Capital Group LLC. “The Street doesn’t care about accounting functions any longer,” Mr. Bove said. “They don’t get into the nitty-gritty anymore.”

Whether or not a CFO has an accounting background only tends to rise to the top of investors’ minds when the company faces an accounting problem or has a history of those problems, said Noah Kaye, an analyst at Oppenheimer & Co. Inc.

Advocates of the accounting profession say CFOs who lack accounting credentials could pose a risk to companies and investors.

Public companies registered with the U.S. Securities and Exchange Commission are required to have independent certified public accountants review financial statements to regulators. And while there is no regulatory requirement for internal CPAs to review financial statements, having a CPA in the finance chief seat can boost credibility, analysts say.

CPAs are held to a code of professional conduct. If they breach it, they could be suspended or lose their license. “If you believe that ethics bring value to an organization, the accountant offers something more,” said Michael Bryant, CFO of the National Association of State Boards of Accountancy, which serves more than 50 U.S. accounting boards that issue licenses and regulate the profession.

Building Know-How
To be sure, many CFOs-in-training still desire accounting backgrounds. Many boards still prefer an accounting-focused CFO, even if they don’t require it. And some boards still insist on a CFO with accounting credentials.

“The person in that position just needs to have an evolving skill set,” regardless of their initial training, said Bob Ryan, an executive adviser at Shields Meneley Partners, a career-transition firm that advises executives.

Finance chiefs without accounting backgrounds are still often responsible for the books and financial disclosures, so they must develop familiarity with accounting rule changes and reporting requirements. Exposure to the accounting side of the operation also helps them ask more probing questions about an enterprise, executives said.

“You need an appreciation of accounting,” said Kirkland Andrews, the CFO of NRG Energy Inc. “You want to be closely aware of all of the new provisions.”

Mr. Andrews spent 15 years leading debt and equity deals at Citigroup Inc. and Deutsche Bank AG before joining the Houston-based energy company in 2011. He developed a working knowledge of accounting over the years, gleaning expertise from an external audit partner and consulting with an enterprise resource planning expert on issues such as switching accounting systems after a company merger.

Lloyd Howell Jr. also had to build accounting know-how when he was promoted to finance chief of Booz Allen Hamilton in 2016. Mr. Howell, a veteran of the McLean, Va.-based government consulting firm, started his career at Booz Allen as an engineer and went on to lead business segments at the company. But he’s not a CPA.

To strengthen his understanding of accounting, he leaned on internal finance personnel as well as a cadre of experienced CFOs outside the company. That, plus the experience from previous roles, he said, has helped him serve as an effective adviser.

“CEOs seek a business counselor as much as a financial counselor in a CFO,” Mr. Howell said. “That candidate can speak to broader issues facing the company. The board seems more accepting of that.”

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