Moving For Dollars
While turnover in CFOs, treasurers and controllers at large companies has fallen, the slowdown may be temporary, according to a recent Russell Reynolds Associates study. Among Fortune 500 companies, 2006 CFO turnover was 13%, down from 19% in 2005, while controller and treasurer turnover rates were 13% and 9%, in 2006, down from 18% and 13%, respectively. The study also suggests that the impact of Sarbanes-Oxley as a factor contributing to executive movement may be a thing of the past.
In its place, private-equity activity is emerging as a new major influence, especially affecting changes in the CFO suite. When private equity buys a company, the CFO is often the first to go, notes Christopher Langhoff of Russell Reynolds. He acknowledges that his executive search firm has seen a significant uptick in business thanks to private equity searches for CFOs to lead finance at their portfolio companies. Langhoff reports that anecdotal evidence suggests that the lure of private equity's potential payoff–which usually comes in the form of equity in the company–and the relief from regulatory compliance burdens have proved enticing. Still, private equity is not for every ambitious executive, cautions headhunter Allen Geller of Raines International: "It requires an entrepreneurial spirit. And it often requires people who can work with minimal support–because often what private equity firms do is strip away a lot of layers of management and perqs."
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And as private equity deals grow bigger, the caliber of finance executive will need to change as well, putting private equity into more direct competition for talent with the nation's largest and often most generous employers. "Running a multibillion company calls for a different skill set, not just a turnaround guy who is a hands-on operator," says Langhoff. That will be especially true if the economy slows: "The skill set of the CFO will have to change towards a greater focus on cash flow and treasury management since the [company] that they step into is highly levered."
Fix it Before You Ship it
Fortune 500 companies should take a hard look at how they transfer financial back-office operations overseas. While the cost is high, the long-term payback can be far greater, especially if companies take the extra time to fix broken processes at home before implementing them abroad. In fact, Fortune 500 companies can generate a total of $42.2 billion a year in savings by transforming financial processes first rather than just moving them "as is," according to The Hackett Group, an Atlanta-based benchmarking and advisory company. A quick-and-dirty lift-and-shift, by contrast, will generate only $16.1 billion. Finance operations stand to benefit more than other corporate business functions by following this longer-term transformation model, according to the study. That's because treasury and accounting back-office procedures are much more complex than IT processes, where a move is mostly about labor arbitrage through shifting headcounts, and not about finetuning critical pro- cedures. In contrast, IT would lose less in savings, $29.3 billion with a quick move versus $22 billion after a fix.
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