If you thought small-business CFOs weren't reeling from the
Enron implosion like the financial chiefs of their billion-dollar
brethren, you thought wrong. "I definitely feel the
heat," says Arthur Tanner, CFO of Circle Group Internet Inc.,
a 34-employee Mundelein, Illinois, company that provides
capital-raising and consulting services to emerging-growth
companies.
Tanner, who recently prepared his company for listing on the OTC
Bulletin Board, says the scrutiny from shareholders, regulators and
auditors has been intense. Where they once gave certain numbers a
cursory glance, "now they're asking more and more
questions," says Tanner. "Everybody was a little bit more
apprehensive than in the past, double-checking, triple-checking the
numbers." As auditors scramble to rebuild their reputations,
they're putting more pressure on their clients. "I have to
know the rules a lot better because there are going to be more
rules," says Tanner.
Indeed. The post-Enron slew of proposals for regulatory reform
and accounting changes was only the beginning, despite the the fact
that, at press time, many of the proposed measures were not
expected to pass. "I don't think we've seen the tip of
the iceberg as far as changes to accounting treatments that will
ripple through small companies," says Richard Brenner, CEO of
The Brenner Group Inc., a Cupertino, California-based company that
provides interim executive management.
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That will likely heap further complexity onto the role of the
CFO, which has been continuously evolving over the past three
decades. Once considered to be simply bean-counters, CFOs were
forced by the M&A craze of the 1980s to become deal
strategists; the '90s and the dotcom boom added
investor-relations savvy to the roster of required skills and
thrust finance chiefs into the celebrity spotlight.
Enter the dotcom bust and the Enron fiasco, which have swung the
pendulum back toward a greater emphasis on traditional control and
planning. CFOs still have to wear many hats and demonstrate
superior financial acumen, but in an increasingly hostile,
zero-tolerance environment, they also must convince shareholders
and boards that they're pure as snow.
"There's a lot of caution in the hiring process [for
CFOs]," notes Michael Flannery, co-chief executive of Redwood
Partners, an integrated advisory firm in New York City that
provides executive search and venture capital services to growing
companies. "We are getting requests to do many more background
checks, criminal checks, all sorts of different things to make sure
no one has to look over their shoulder down the line."
The caution is understandable. While smaller companies don't
have the same opportunity to do the extensive kind of
off-balance-sheet activity that led to Enron's demise, they can
still get into big trouble when the CFO operates below-board.
"If the CEO does not have a strong advocate and advisor to be
his conscience, he can run amok in a small company," says
Brenner. One or two wrong turns can erase shareholder value
quickly. "And my shareholders care just as much about their
investment as Enron's shareholders do," says Tanner.
Which is why many entrepreneurs are taking fewer chances on CFOs
who lack a full range of expert skills. Philip Livingston,
president and CEO of Financial Executives International in
Morristown, New Jersey, points out that Enron CFO Andy Fastow's
narrow specialty in finance was a weakness. "When a person
[has advanced to the level of] CFO, they should have experience in
multiple areas of finance-that's accounting, budgeting,
planning, tax, treasury and investor relations," says
Livingston.
That's a tall order, particularly for small-business CFOs.
"The CFOs of small companies today are really
super-comptrollers," says Brenner. Most of them, he adds, rose
through the accounting ranks to their current position. Brenner
contends a true CFO is a genuine business partner, not a historical
reporter or accountant. "The CFO should be intimately involved
with and understand all the business decisions a company [will]
make to grow," says Brenner. "His job is not just to talk
about the financial implications, but to participate in what the
impact of those strategic decisions will be."
How can you tell whether your CFO measures up? Larry Downes,
consultant and author of The Strategy Machine: Building Your
Business One Idea At a Time (HarperBusiness), advises giving a
quick quiz. "Ask your CFO to tell you the last five legal or
regulatory changes they looked at to see if they had an impact on
how the company was doing its books," says Downes. "If
they can't name five in the last two years, that's a
problem." To test the CFO's knowledge of the company's
strategic mission-which he or she will need to use finance as a
competitive weapon-ask him or her to name the company's five
most valuable intellectual or information assets. "If they say
'What's an information asset?' you know you have a
problem," says Downes. "That's not the CFO you
want."
C.J. Prince is a New York City writer specializing in
business topics and executive editor of Chief Executive
Magazine.
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