On 12 June, a short but telling statement issued by investment bank Lehman
Brothers announced the departure of its chief operating officer Joe Gregory and
chief financial officer Erin Callan. Gregory, it was speculated, resigned under
pressure: he had been at Lehman man-and-boy and chief executive Richard Fuld
counted him as a long-standing friend, but one of them had to go and it was
easier for the bank if the number two jumped, which he obligingly did.
Additionally, it was Gregory who had championed Callan as the next CFO,
elevating her to number three from number somewhere-in-the-middle: she had never
managed a finance function and was to learn on the job just as the credit crunch
was kicking in.
Callan faced a particularly humiliating departure from the board. Ruthlessly
resubordinated, “Wall Street’s most powerful female” was demoted to her old
stomping ground in the investment banking division she used to lead, into an
undisclosed middle-weight role. No doubt demotion was better than dismissal for
the CFO, keeping bad news safely in the control of the bank rather than free to
run amok and erode the share price. But in hindsight, the whole set-up may never
have had a chance of working out.
The fall guy
You’d think what with so much riding on the CFO choice, the bank, (hopefully)
aware of the sub-prime fallout coming over the horizon, giving unproven but
popular small fry a chance to shine instead of hiring a seasoned board-level
number-cruncher would have been too risky.
Callan’s reputation for “deep financial acumen and strong client
relationships” could have been the draw if the bank believed the way to survive
the oncoming credit crunch was to sweet talk its way through bad news.
Or, she could have been hired as a fall guy, an unusual figure for the job
such as herself buying the bank time by distracting the media and creating a
visible public figurehead of the FD job.
Indeed, FDs aren’t normally known for enjoying a public role. But as it has
expanded from shadow-bound, abacus-botherer to visibly engaged strategy
architect, FDs’ interpersonal skills have necessarily been teased out and this
has put them in the firing line for the first time.
But it seems not all FDs realise that a new responsibility has been bolted on
to their expanded remit. FDs are unofficially expected to volunteer as patsy to
protect the CEO when the board wants to make a visible show of action, since an
admission of failure from the chief executive is deemed far more destabilising
for the company than the swift removal of their numbers man.
Coming out of the shadows, FDs have emerged as the people on whom the onus is
to identify and raise with the board inconvenient truths, share bad news, raise
practical but unpopular concerns about strategy, bring up potential legal
breaches and, worst, flag up moral or ethical breaches that get the newspapers
slathering and shareholders calling for heads.
That has meant FDs have become much more accountable for corporate failings,
even if those failings have little to do with the FD themselves.
“The FD is seen as the only person you can rely on to have integrity,” says
one of London’s top executive headhunters, who has worked with several FTSE-100
FDs and speaks on condition of anonymity. “For that reason, the FD community is
one of the only places where integrity and reputation is absolutely everything.”
Companies have wasted no time in capitalising on that to protect the CEO and
chairman from paying for strategy errors with their jobs and professional
dignities. Another leading headhunter for one of Europe’s top executive search
companies, who also prefers to speak off-record, agrees. “FDs are expected to
speak up about concerns on strategy, but when they do, they find themselves the
lone voice of dissent,” the headhunter says. “Someone like [former Mitchells
& Butlers FD] Karim Naffah, for example, has a lot of integrity, but leaving
in the way he did, an FD is unlikely to go to another public firm.” Naffah
resigned from the pubs operator in January after reporting huge losses caused by
a hedge that had been put in place for a deal that never came off. Many think he
acted on bad advice and shouldn’t have taken the blame alone.
But CEO Tim Clarke allegedly had his offer to quit refused by the board,
leaving Naffah with no option.
This goes some way to explaining why most FDs who have left FTSE-350
companies in publicly acrimonious circumstances over the past decade have not
resurfaced. Even top FTSE-100 FDs are not always prepared to manage a media
onslaught and most have simply disappeared after a reputational beating.
“Mud sticks,” says one four-times FTSE-350 FD who also wanted to remain
anonymous. “Look at Ric Piper,” this former FD says. Piper had been FD of WS
Atkins and was sacked from his new job as FD of Trinity Mirror days before he
was due to start, following news of a profits warning issued by Atkins on the
back of a failed systems integration project. “They [Trinity Mirror] said, ‘How
can we take him on now?’” the four-times FD says.
“They didn’t want someone who was tarnished. If that had been done quietly it
would not have harmed his career, but he hasn’t had another FD job since, and he
was a good FD.” Piper is now an adviser to AIM-listed growth companies and
privately-owned outfits. Whether that is entirely by choice or in part a result
of “mud sticking” is hard to say since Piper declined to be interviewed but
it’s clear that the latter’s effect can be devastating to previously
The headhunters, advisers, corporate lawyers and ex-FDs we spoke to all
agreed that once an FD has exited a FTSE-100 company having been dismissed, or
resigned at the request of the company and it has been discussed in the press
it is almost impossible to return to the listed world in the same capacity.
After spending time out of public consciousness, some FDs [can] move into roles
heading up the finance functions of privately-owned companies, family-run
businesses, private equity-backed outfits or SMEs that are otherwise out of the
glare of the publicly-quoted world and shareholder pressures.
But few ascend back to FTSE companies: Steve Hare, CFO for Invensys, is one
rare example of someone who succeeded after he was forced to step down. Hare
resigned from his role as FD of Marconi in 2002 following the controversial
debt-equity swap that, while creating a rash of blisteringly negative press
coverage at a time when the shares were tanking, prevented the company sinking
altogether. Becoming self-employed for a year by co-founding a small business
consultancy, he then joined FTSE-250 company Spectris in 2004 and, in July 2006,
was appointed CFO of then-troubled Invensys, once a FTSE-100 star, but at that
point languishing in the mid-caps. Under his financial tutelage, Invensys
re-joined the FTSE-100 in June.
Hare declined to speak to Financial Director but his was the only case people
we spoke to could think of when asked to identify FTSE FDs that had survived an
acrimonious FTSE departure and the ensuring negative media attention. “Hare
saved Marconi by negotiating very aggressively with the banks and the company
wouldn’t be here today without him,” a top London FD headhunter says. “But
because of that the banks didn’t want to work with him anymore and that made him
untouchable. So he hid at Spectris for a couple of years and made sure he hit
all his targets and kept his nose clean. Invensys was a basket case when he
turned up – which gave him his opportunity.
The list of ‘where are they now?’ FDs who were deemed good at their job, but
who ended up as sacrificial lambs, is long. MFI’s Martin Clifford King, sacked
following a profits warning in 2004, briefly acted as a consultant to AIM-listed
gambling outfit Leisure & Gaming plc before getting a lower-profile FD role
in the private equity-backed retailer MK One, which went into administration in
May. Likewise, Dominic Lavelle left Alfred McAlpine after a subsidiary’s
accounting scandal in which he was not implicated, went self-employed as a
management consultant, but redoubled his misfortune as FD of property services
outfit Erinaceous when it entered administration in April.
Martin Stewart was forced out of his job as FD of record company EMI
following its acquisition by Terra Firma, then found respectable, but rather
different work on the London 2012 Organising Committee Board as chairman of the
audit committee and a member of its remuneration committee. This latter move
mirrors a common result of FDs working for a company that gets taken over by
private equity: according to recent research by Grant Thornton and Directorbank,
FDs have a one-in-four chance of being sacked after private equity invests in
their company and a 4% higher chance of getting the chop than the CEO.
Then there are the cases of FDs being shunted out on allegations of fractious
personality, more common at board level. But rarely does the CEO make the jump.
The very high-profile dismissal of Ian Perkin, former FD of St George’s
Healthcare NHS Trust, fits the mould. Misconduct accusations against Perkin
followed his being asked to resign after he brought concerns to the CEO about a
member of staff who told him she had been asked to reduce to zero the number of
cancelled operations being reported to the Department of Health. Those
allegations were dismissed, but his dismissal itself was upheld following the
accusation that Perkin was difficult to work with, had a negative attitude and
refused to co-operate with staff from other departments despite no complaints
or warnings having been recorded in his long tenure. Perkin says he was made a
scapegoat because he blew the whistle.
One top City lawyer who regularly advises FTSE-100 FDs and CEOs and who
arbitrates acrimonious dismissal cases, says the majority of cases he receives
are not about performance, but personality.
“Sometimes companies prefer to use personality as the excuse because it’s
just easier than trying to find evidence that someone hasn’t done their job
properly. Sometimes the FD and CEO just don’t see things the same way and I’ve
seen many an FD shattered by the experience of being a fall guy in this way,” he
Moreover, he says he is “struck by how few take proper legal advice before
signing the contracts on which their career depends. People don’t think it will
happen to them, or if they’ve been promoted up through the ranks it doesn’t
occur to them to update their contract.”
He tells FDs to cover all bases in their contracts. “I advise employers to be
generous with compensation because if it comes to litigation no solicitor is
going to make a fuss that could go public,” our City lawyer says.
“We see liquidated damages clauses, which provides that a certain amount will
be paid if the contract is terminated under specific circumstances; we see
change of control clauses, so if a company is taken over and your line manager
changes, you can treat yourself as terminated and receive a prescribed
compensation package. FDs should realise that companies have a vested interest
in ensuring you go away happy after a situation like that, without a chip on
your shoulder,” he adds. “Who’s to say in a year’s time the company will have
some problem that only the outgoing FD can help with, or that if news of a bad
split gets out, it will weaken the company’s position with the rest of their
“The best advice for FDs is to not allow your departure to be played out in
public,” the four-times FD says.
“Get it resolved quietly and internally, and in getting a settlement, get an
undertaking to give a robust reference to counter any negative sentiment,” the
four-times FD says. “When something like that happens it isn’t a good idea to
try and get another job in the heat of the storm you’re just battling media
People think an FD shouldn’t try to go back to the same level because they
didn’t cope with it before, so why go back for more?”
A handful of FTSE-350 FD departures in the past four years have sparked
painful, protracted media coverage that has damaged all parties. One recent
example is the departure of Alison Reed, former FD of Standard Life, who in
April received a payment of £1.13m for lost bonuses and payments following a
year-long legal battle. Reed resigned from her job in September 2006, months
after floating Standard Life on the stock market but was said to have been
pushed into leaving. One person close to Reed said they believed she did clash
personally with her chief executive and chairman, but that the company briefed
the press that she had resigned and then lined up a successor without informing
her, leaving her no choice but to resign some days later. These are, as yet,
totally unproven allegations. But the press coverage of the story and the claims
regarding her management style and communication skills with the City have made
a damning imprint on an otherwise illustrious career, having joined Standard
Life from a long tenure as Marks & Spencer’s FD.
“The risk is that everyone is damaged if news of an acrimonious split gets
out. Once it’s in the media you’ve lost control,” the City lawyer says. “With a
good contract in place from the start, if things go wrong, a good lawyer and a
good financial PR can ensure everyone can come out smelling of roses and the FD,
in particular, can come through with their integrity intact.”