The Human Trade
By John Cummings© Business Finance Magazine, November 2007
When Paul J. Reilly, SVP and CFO of Arrow Electronics Inc., looks back at a long career in finance, his thoughts turn to a big decision at the end of his high school days. "My friend's father was a finance guy at a big insurance company, and when I asked for career advice going into college, his recommendation was that accounting serves as the foundation for understanding a business," he recalls. "He strongly suggested that I go into an accounting program in college."
Reilly took that advice and never looked back. After a stint as a CPA in KPMG Peat Marwick's business assurance practice, he joined Arrow as director of reporting in 1991. The Melville, N.Y.-based company, which provides products and services to industrial and commercial users of electronic components and computer products, was a much smaller operation back then than the $13.6 billion behemoth it is today. But Reilly liked what he saw. "I came to Arrow because you had the opportunity to participate on the business side as well as the financial side," he says. "Also, we had a terrific leader at the time; our CEO, Steve Kaufman, interacted with people of all levels and in fact saw himself as a teacher. To me, that's a very important part of our legacy in business. What we accomplish, obviously, is important, but what we leave behind -- the people we develop, the people we train, the people we're mentoring -- really are our legacy as we move forward."
Reilly's eyes are more and more on that legacy these days, and the same is true for many senior finance leaders. The flipside of the steady climb in compensation for finance pros is the increasingly tight talent market and the ongoing challenge of attracting, developing, and retaining the right people.
The Succession Planning Imperative
Half of the respondents in Business Finance's annual Finance Executive Career & Compensation Survey expect their total compensation to increase by 5 percent or more this year; only 4 percent expect a decline. Fifty-five percent of CFOs expect to see a 5 percent or higher increase.
"Demand is extremely high for 5- to 10-year individuals, people who have already passed the CPA or received the certification with the designation and an MBA," says Paul McDonald, executive director with Robert Half Management Resources, a company that provides senior-level accounting and finance professionals on a project and interim basis. "If they have the combination of public accounting and private industry experience, we're finding that the bonuses and the equity compensation continue to increase, and the creativity in other benefits continues to get more plentiful."
In these market conditions, companies need to pay careful attention to their succession plans, notes Eric Rehmann, co-managing director of the financial officers' practice at Korn/Ferry International, a Los Angeles-based provider of executive human capital solutions. "If you look at what happens to some companies that haven't developed a successor and that find themselves in need of a top CFO or direct report -- a controller, a treasurer -- in general, they end up spending far more than they thought they would when they kicked the assignment off. And a lot of it is probably a lack of preparation."Rehmann has observed a growing trend of boards getting more involved in compensation decisions. "Where before we'd get close to getting the deal done and it would get kicked to the board for review and approval, now the board is much more hand-in-hand in developing the compensation plan -- far more involved much earlier in the process. And that's a real positive because then there are no surprises at the end of the day, and you get the sense of team effort."
Busting Out of the Sarbox
Rehmann has also noticed an uptick in boards' interest in the MBA qualification. Demand is "starting to swing more to the MBA and treasury side today, whereas for the past three or four years it's all been CPA, controller, governance types," he says. "Since companies have become used to Sarbanes-Oxley and integrated that mind-set throughout the company, it seems that there's a certain level of comfort in having a controller or a chief accounting officer overseeing that effort, bringing the CFO up to focus a bit more on business performance."
Bill Earle has seen the same trend. He's vice president of finance and chief accounting officer with BBN Technologies, a company that creates advanced technologies, including language processing and sensing and control systems. Immediately after Sarbanes-Oxley was passed, "there was a hard-over pendulum swing to compliance, but [companies] have seen some loosening in the past six months to a year," he notes. "It's becoming more reasonable, and people are becoming more used to the stricter control environment."The survey results confirm that CFOs are moving back into the more strategic roles they occupied four or five years ago. Growing revenue, cutting costs, and streamlining or outsourcing business processes are their top priorities for the next 12 months. Complying with Sarbanes-Oxley and other regulations, the fifth-ranked priority for CFOs in last year's survey, slipped out of the top eight this year. Half of CFOs expect their jobs to veer more toward managerial responsibilities in the coming months; only 3 percent think that their work will become more transaction-oriented.
As the pressure of Sarbanes compliance wanes, businesses are increasingly looking for international experience in job candidates' resumes, according to Richard Fitch, vice president with executive search firm Gary Kaplan & Associates in Pasadena, Cal. "Most companies now have some global relationships, whether they come from doing business abroad or sourcing. If you're involved internationally, you look for broader sets of business acumen than just strictly financial skills." Adds McDonald: "The MBA has always been valued, but it's valued more now because of the exposure that many MBAs have to international business."
Taming Turnover
About three-quarters of CFOs say that they're content with their compensation, compared with 55 percent of respondents overall. CFOs are also less likely to be actively seeking a new position or planning to do so in the near future. Overall, a startling 47 percent of respondents reported that they're looking around or will be soon.
McDonald isn't surprised by that last result: "I believe that, as an employer, you have to really step back and look at that question and think the following: Even though 53 percent said that they're not looking, the best employees are going to be found, regardless of whether they're looking or not. If they continue to network with their peers in trade groups, if they become involved with alumni associations or with anything internally, the word gets out on who's good."
Turnover in all positions is rampant. This presents career risks for some senior finance executives, according to Jerry L Mills, founder and CEO of B2B CFO, a Phoenix-based company that provides CFO and senior-level executive services to midmarket companies. "We're seeing age discrimination," he reports. "Employers don't say, 'We're not going to hire you because you're older,' but they'll use other terms like 'you don't fit in' or 'we have different goals or objectives.' The bottom line is that they're looking for somebody younger who will work longer hours for less pay."
Companies are finding that pay-for-performance programs can have a positive effect on retention as well as on overall corporate goals. In the past year or so, DSU Peterbilt & GMC Inc., a truck dealer based in Portland, Ore., has specified goals and rewards for each of its finance personnel, reports Patrick T. Howard, controller. "Each one has a set of specific objectives that they try to accomplish during the year, and if they get them we give them a little more in the way of a raise. This has worked very effectively this year, so we're going to continue doing it."
Salinas, Cal.-based Monterey Gourmet Foods is looking to boost retention by offering its workforce more flexible hours and more vacation time. "But as much as anything, our company is trying to create a culture of what we call a 'destination job market,'" says CFO Scott Wheeler. This means encouraging open, communicative, decision-making. "We want people to feel comfortable in challenging the CEO, but when the CEO says, 'This is where we're going,' they'll sign up and say, 'I'm on board and let's go.'"
While many CFOs hesitate to offer their staffers the chance to gain experience outside of finance for fear of losing them to other departments, Wheeler has no such qualms: "I've always thought that if I can put finance people throughout the organization, my reporting is going to be so much better because they're going to understand it. I'll have to hire people and backfill, but at the end of the day, I might have a stronger organization."
Arrow Electronics offers a broad array of development programs ranging from mentoring to guest auditor programs and from sabbaticals to international rotations. "Most people think of the finance function as a pyramid; they just want to get to the top and be CFO," observes Reilly. "I look at it as more of a tree; as you go up the trunk, you can branch off into other roles and still come back to the trunk higher up and stay in finance. So I'm quite keen to get folks into the business and out of being just finance people."
Education, whether hands-on or academic, remains close to Reilly's heart. Recently, he was approached by the parents of a young woman who was heading for college and seeking career advice. "No surprise: I gave the same response that I had gotten from my friend's father," he says. But he also recommended graduate school and the MBA.
"We're always learning," says Reilly. "This is what I like about Arrow and what I like about my job - I'm constantly learning, whether it's new busi-ness challenges, new management challenges, or structure challenges. And that's the fun part of the job."
