Amid a slumping stock market and increasingly dim economy, a torrent of chief financial officers have resigned in recent weeks--particularly from technology and e-commerce companies. Many have resigned under bleak circumstances as companies fail to meet Wall Street expectations, come under scrutiny from financial agencies or struggle to keep business plans afloat.
"The company reports bad numbers and executives anthropomorphize it in terms of the CFO: He could have done more, he should have warned earlier, he's warning too much so we're getting rid of you to find someone else who's not too dire," said career strategy expert John Challenger, founder of Chicago-based outplacement firm Challenger Gray & Christmas. "The CFO is assuming an increasingly precarious position."
The list of technology company CFO departures seems to be growing daily.
Last week, the CFO of PeoplePC resigned amid a major senior management shakeup and the CFO of Franklin Telecommunications, which manufactures high-speed voice-over Internet protocol telephony equipment, also stepped down. In recent weeks, CFOs have resigned from online research company iWave.com, Web directory company LookSmart, e-tailer Buy.com and Gateway.
CFOs resign for a variety of reasons, but experts say that many recent resignations have a common root: The role of the technology company CFO during the stock market boom of the late 1990s and 2000 differed from the stereotypical staid, bureaucratic "bean counter" CFO of bricks-and-mortar companies. Instead of spitting out financial results, the New Economy CFO was seen as a creative numbers cruncher--often pushing Security and Exchange Commission rules to their limits, raising the ire of independent accountants and financial researchers.
But with the stock market mired in a sustained slump and investors' demanding real profits, the CFO is under increased pressure to show results. It's no longer sufficient to wave off profits in favor of market share, "eyeballs," "stickiness" or other marketing-driven metrics used in hopes of inflating stock prices.
Late last year, a number of senior executives at Network Associates, including CFO Prabhat Goyal, CEO Bill Larson and President Zach Nelson, resigned amid a shareholder lawsuit. The lawsuit accused them of using questionable accounting practices, according to attorneys at the San Francisco law firm of Lieff, Cabraser, Heimann & Bernstein.
In early March, Network Associates agreed to pay $30 million to settle the lawsuit. The stock reached $66.25 per share on Dec. 31, 1998, but dropped to $11.06 by April 20, 1999, after "the defendants' fraud had been fully revealed," according to the attorneys. During that time, the CFO and others sold more than 1 million shares of stock for more than $39 million.
Another reason the CFO quits: He or she has advanced knowledge of impending doom for the broader organization. Human resource specialists say the CFO's departure may be a red flag for layoffs, disappointing earnings announcements or a broader management shakeup.
"CFOs are the first to see the reality," said Steve Parker, partner of Atlanta-based recruiting firm Hailes and Associates. "I don't think it is the investors putting pressure on the CFOs so much as the CFOs quitting because they see the handwriting on the wall. Or, the CEO fires them because they don't like what they are hearing."
The Internet consulting sector, which has been badly bruised in the downturn, has been a veritable minefield for CFOs. Jeffrey Kaplan, CFO of consulting firm Rare Medium, quit last month "to pursue other business opportunities" as his company and other online consultants struggle to maintain clients. Only days before Kaplan's resignation, Gary Rhea, CFO of consulting firm U.S. Interactive, also resigned.
DSL equipment maker Copper Mountain announced March 9 that CFO John Creelman resigned "to pursue other opportunities"--along with Joseph Markee, chairman and general manager of Copper Mountain's public network business unit. The Palo Alto, Calif.-based company simultaneously announced that it would lay off about 25 percent of its 450-person workforce to cut down on expenses.
On March 1, customer relationship management software maker Kana Communications laid off 220 employees, or 20 percent of its staff, in an effort to cut costs and streamline operations. One week before the layoffs, the Redwood City, Calif.-based company named Art Rodriguez interim CFO to replace Brian Allen, who quit in February, citing "personal reasons."
Although a CFO's resignation often accompanies tough times for the company, it doesn't necessarily mean that the executive was doing a bad job. Board members often fire executives in an attempt to mollify investors, targeting the financial managers as particular scapegoats.
Open Plan Systems, the largest independent remanufacturer of work stations in the United States, announced Tuesday that an annual audit would not be filed on time with the Securities and Exchange Commission. In a news release, the company blamed the delay on the CFO. He resigned "unexpectedly" in December, leaving "unresolved issues regarding inventory balances and certain other items."
The increased rate of turnover among CFOs may also be a byproduct of higher turnover among all ranks of technology company workers. It's also a reflection of an increasing number of financial professionals who have become quasi-entrepreneurs, specializing in specific periods of a company's history.
If a CFO accepts a role to secure funding for a startup, why should he or she stay after the initial public offering? That's especially the case at companies whose stocks have tanked, providing little loyalty for CFOs, who often rely more heavily on at-risk compensation such as stock options than rank-and-file workers. (John Labbett, CFO of Internet retailer Egghead.com, quit on March 19, after the company's shares had bombed 93 percent in the past year.)
Robert Clinard, director of financial recruitment for New York-based recruitment firm Stephen-Bradford, says his clients are increasingly demanding short-term CFOs--a phenomenon he calls the "hired gun" approach to financial management.
"A lot of them are there to guide the company through the IPO process, and when that's done, they'll look for similar ventures and move on their own," Clinard said. "Companies want CFOs with specific skills sets. The person who has those specific skills will always be in demand."