When CFOs leave: Perception is Reality

Followers of this blog know that we keep track of CFOs on the Move. We have been doing this feature every week for almost a year now, and have watched many CFOs be promoted, hired, fired, resigned and replaced. Our feedback on this blog has been very positive, and knowing that our clients, candidates and competitors follow our reporting of these moves shows the importance and appreciation of this relevant and timely information.

What fascinates me in each and every one of these moves is the story behind the press release. Being that we are involved in CFO moves with our clients and being privileged to be aware of the real story behind the moves, we know that each story is unique as well as interesting.

A recent article in the Financial Times by Francesco Guerrera, Fears Over CFO Changes on Wall Street discusses what happens when people do not know the reason of departure of CFOs – they think what they want to think. Knowing human tendencies, thinking that “leaving for personal reasons” means the worst is not surprising. Charles Elson, director of the Centre of Corporate Governance at the University of Delaware was quoted in the article:

“The departure of a CFO is a reason for concern and investors need a full explanation of their reasons and rationale to allay their fears,”

While I agree with Mr. Elson’s logic that investors need a full explanation, I believe that is naïve to think that a “full explanation” will ever be given.

First, as anyone who has been through (or has had close friends who have been through) a divorce knows, there are 3 sides to every story – the husband’s story, the wife’s story, and the truth. I don’t believe a “full explanation” is possible to be determined and agreed upon. When a CFO leaves for “personal reasons”, it could mean practically anything.

Second, privacy concerns dictate that a “full explanation” is not possible. Could the CFO have believed that there were ethics issues at the company? Could the CFO have a health problem? Could the CFO and the CEO not be getting along? Could the CFO have been sexually harassed? Yes, Yes, Yes and Yes. These are all possibilities. But can we expect a “full explanation”? I don’t believe so.

I do believe that the more information that is provided upon a CFO departure will make investors comfortable. The challenge CEOs and Boards face on this topic, as we see in this article, is that when you provide less information, there is a perception that something is going on. And with this lack of information, the perception is that things are not going well.

My advice to the CEO and Board on a CFO departure: Manage the perception better for a better reality.