The question now is not whether other CFOs will follow in Ryan's and Schoewe's footsteps, but whether there will be enough candidates to satisfy the demand of the nation's public companies. "Sitting and retired CFOs are simply being snapped up by boards," says Peter McLane, a senior partner who heads the CFO practice at executive search firm Spencer Stuart. "Soon, there's going to be a shortage of supply."

Just in the last several weeks, Wal-Mart named M. Michele Burns, CFO of Delta Air Lines Inc., to its board and beleaguered Tyco International Ltd. nabbed Sandra Wijnberg, CFO of Marsh & McLennan Cos. Inc. In fact, ever since the Enron scandal first began to percolate, there has been interest in recruiting CFOs–or at least people familiar with the audit process and good at sniffing out rotten numbers–as outside board members. That trend took off after the passage of Sarbanes-Oxley, with a list of additions to boards including William Hernandez, CFO of PPG Industries Inc., at Eastman Kodak Co.; former Seagram Corp. CFO Robert Matschullat at The Walt Disney Co., and Chuck Noski, the former CFO of AT&T Corp., at Northrop Grumman Corp. "I've been deluged with offers," says David Shedlarz, CFO and executive vice president of Pfizer Inc.

Given the inevitable competition to snag the best of breed among CFOs, companies are finding the price tag for recruiting one to be getting steep, running between $60,000 and $100,000. "A year ago, 10% of our work was finding financial experts to serve on boards of directors," says Charles King of executive recruiter Korn/Ferry International. "Now, it's 50% of our work."

So why will only CFOs or former CFOs do? There are plenty of CEOs who can dissect numbers adequately; some are even former CFOs themselves. Just ask Shedlarz; Pfizer has its current CEO and a former CEO on its board, and both had previously served as the drug maker's CFO–although obviously neither qualify as outside directors for Pfizer. And, according to the Securities and Exchange Commission, there are other numbers experts who could serve as outside directors, including senior partners of auditing firms.

Some companies are indeed pursuing these options. Still, there are a limited number of CEOs who were CFOs, and many companies are nervous about recruiting from the accounting industry after the revelations about the role played in the Enron scandal by its auditors, the now disintegrated Chicago-based firm of Arthur Andersen. That said, CFOs also bring a special appreciation to the table of the challenges companies face. "A CFO brings something more. It makes a world of difference if you've worked in the guts of a business and know how all that translates into the financial report," says Phil Livingston, who recently resigned as president and CEO of Financial Executives International to become CFO of Stamford, Conn.-based World Wrestling Entertainment, Inc. Livingston also served as CFO for both Catalina Marketing Corp. and Celestial Seasonings before joining FEI and recently was invited to sit on the audit committees of Cott Corp. and Insurance Auto Auctions Inc. Of course, as the former head of FEI, he brings to a board first-hand knowledge of Sarbanes-Oxley, having worked to help shape regulations.

The factor that elevates CFOs in the eyes of corporations looking for outside directors is operational experience. "I think a CFO with a global concern who is actively involved in strategic planning can bring a lot to a firm as an outside director," says Pfizer's Shedlarz, who serves as an outside director on the audit committee of Pitney Bowes Inc. For instance, Shedlarz brings his knowledge as an executive working in the highly regulated pharmaceutical business to his work for Pitney Bowes, a maker of business machines, which also faces regulatory hurdles. "At times I've joked with Pitney Bowes' CFO Bruce Nolop and said having me on his board's audit committee is his worst nightmare," laughs Shedlarz. "But the truth is, you want to be asked tough questions. I've gotten some very good questions from the two [former] CFOs on Pfizer's board."

Medtronic's Ryan agrees. "People can get very emotional on issues, but CFOs tend to illuminate things with facts," he says. Still, not all CFOs are perfect candidates. "It gets down to whether the outside director CFO is doing oversight or doing the work," Ryan explains. "If you have a CFO on your board who wants to do the work, you've got a problem. If you have a line on your financial statement with a reserve of $100 [million] and a range of $75-125 [million], your audit committee member should look at how you got there, not say, 'I think your reserve should be $125 [million].'"

Another reason why CFOs are a hot commodity is because of the shortage of CEOs. While CEOs once displayed board memberships on their CVs like the ribbons on a general's dress uniform, most find it necessary to limit the number of boards on which they'll serve because of the increased amount of work and liability entailed. This is particularly true for stints on the audit committee, which is now legally responsible for reviewing and signing off on quarterly statements. Experts estimate that the job of outside director on the audit committee can now require 100 to 200 hours a year of real work.

Because of the new rigors of the director job, boards are seeing an immense amount of turnover, and because many are also adding outside directors at the same time, demand has doubled from what it was just a year ago. During 2002, 401 new outside directors were added to boards of S&P 500 companies, a 44% increase over 2001, when 278 were added, according to the latest annual board index compiled by Spencer Stuart. Those numbers are likely to jump again this year, according to James Kristie, editor of the magazine Directors & Boards, which tracks such developments. "2002 was just the first year you had a proxy season after the passage of Sarbanes-Oxley," says Kristie. "I'm sure there will be considerably more outsiders added in 2003."

As CEOs have pared back on outside board obligations, CFOs are becoming the desired replacements. Whereas a CFO with outside director credentials was the exception only two years ago, nearly half of the CFOs of Fortune 500 companies are serving on the boards of companies other than their own today.

Who Benefits?

Even so, CEOs aren't the only ones busier these days. And they aren't the only ones concerned about increased liability. Some CFOs turn down offers because of the prospect of adding a heavy workload to their own intense schedules. "I've been approached by a few New York Stock Exchange-listed companies about being on their boards, but I've turned them down," says Jim Rogers, CFO and senior vice president at Eastman Chemical Co. "In order for me to justify serving on an outside board–and a sitting CFO shouldn't be on more than one or at most two outside boards–it ought to be beneficial to the people paying my salary, and I haven't seen how it would help Eastman shareholders. It would have to be a related industry or an industry we might want to move into." Currently, Rogers does serve on the board of Genencor International Inc., a company that is 42% owned by Eastman Chemical.

CFOs weigh this against the opportunities to see into the operations of other companies and learn new ways of approaching problems. To Ryan of Medtronic, serving on outside boards is beneficial to both the CFO and the CFO's home company. "You get to hear other companies' problems, and then you can bring new ideas back with you. It really broadens your experience."

Wal-Mart's Schoewe echoes the sentiment about his own 19 months of service on Centex's board. "Wal-Mart benefits because I see things that Centex does a lot better than we do, and I can bring that back," he admits. "Also, I'm able to think like a board member, and so I can anticipate the questions from our own board in advance. I'm seeing things from both sides of the fence now."

Eastman Chemical's Rogers acknowledges that having Robert Hernandez, a retired CFO of USX Corp., on his board has provided valuable expertise to board deliberations. "He has a lot of pension experience, for example, from the steel industry, and he has suggested some things that sent us down new pathways," says Rogers

Look Before You Join

Joining a board's audit committee is not a decision to be taken lightly, since along with the $5,000 to $10,000 extra annually for serving on the audit committee comes a good deal of personal liability. "The SEC bar takes the view that, since the audit committee is responsible for managing the auditors, they have a higher legal responsibility than the rest of the board," says Joseph Lunin, an attorney with the law firm Pitney Hardin Kipp & Szuch LLP. "You need to be absolutely comfortable that the company is making informed and reasonable decisions, and that they are being open about what they are doing. And very importantly, you want to know about the other directors and what the culture of the company and the board is. You want a team that gets along together, but that really gets to the bottom of things."

Medtronic's Ryan concurs. "You've got to look at management and come to some feeling about them," he advises. "Are these honest people? And related to that, you've got to understand the company's business model. I used to live in Texas and knew Enron, and several people at Enron, pretty well. I asked them how it grew so fast, and no one could tell me. That kind of thing was a problem."

Eastman Chemical's Rogers recalls being grilled by Hernandez before he agreed to take a board seat. "He spent at least one full day doing due diligence," says Rogers, "and he didn't stop with me. He talked with our controller and our corporate counsel. I'll tell you, it was some of the closest questioning we've ever had."

In general, this hasn't deterred people from serving on such boards–even on audit committees. But, says Lunin,

"They are being more picky and choosy. Good companies that want good board members will always be able to get them, though they might have to look longer. But companies with marginal cash flow or marginal futures will not get good people unless they are relatives or friends of management."

So will a savvier financial eye examining the numbers change things and make investors more comfortable with American business? Some suggest that it was not necessarily expertise that was lacking on boards before, but rather backbone. Board members simply lacked "the confidence and personal strength to sound off in a board meeting that some information doesn't smell right," says Ralph Ward, publisher of newsletter Boardroom Insider. "A CFO among a boardroom full of CEOs might feel too overawed to take such a stand."

But Medtronic's Ryan says making board members legally accountable for decisions will make a real difference. "I think these reforms will take time to have a real effect," he says. "But over time, I think this board reform will bring investors back. I remember seven years ago listening to three audit committee members on one company board talking. One said, 'I think we should examine the quarterly reports before they go out.' A second said, 'No, that's not our job.' The third said, 'That would make us liable.' Now, there's no question. The audit committee will be examining those reports." And indeed, the members will now be absolutely liable.