In business, as in life, when things go wrong the desire to finger a culprit is instinctive. It is also a short, sharp, simple solution. Or is it? In recent weeks a number of finance directors in the UK and the US have parted company with their boards, raising the question of whether an FD’s departure is the right solution, or just an easy one.
Firing a finance director is undoubtedly not done lightly. Such a solution typically calms jittery nerves in the City, seemingly addresses the immediate problem and may buoy the share price temporarily. But are FDs just the fall guy or is their incompetence now being exposed in a sluggish economy?
“In an economic downturn and now in particular, when we are seeing some economists forecasting a double-dip recession, the CFO could easily be held responsible for a company’s failure as the shareholders usually, particularly in SMEs, hold the CFO responsible for delivering the strategy of the business,” says Arif Kamal, group finance director of GL Hearn, a property management company.
In the recent case of the ignominious suspension of Rok’s FD Ashley Martin for “serious failings” in the controls of its plumbing, heating and electrical business in August, its chief operating officer Rob Olorenshaw said the situation arose after an acquired company, Avonside, was not integrated into Rok’s financial systems for three years and when “it was realised there were no financial controls over the systems”.
“We may not know the real reasons for some CFOs’ departures as it is always easy to make them a scapegoat rather than accept the failures in overall strategic decisions by the CEO and the board as a whole,” adds Kamal.
However, others feel FDs can’t be scapegoated unless they are culpable when things go wrong. Neal Roberts, chief financial officer at software vendor Iris, argues that FDs must accept the risks inherent in their lofty position.
“CFOs want to be seen as the number two at organisations and get more involved so they have to expect that there will be more visibility and criticism that goes with it,” he says.