COASSF-18-10 Reflections of a CFO

In today's Real-Life Ethics, our lecturers/serial entrepreneurs/Sand Hill venture capitalists Mark Leslie and Peter Levine gave us another intriguing case of dilemmas involving an SEC investigation and a CFO.  A few years ago I was just like the protagonist in that case and experienced something similar. Surviving from the dog-eat-dog world of China's investment/startup world, there are a few reflections I can share with my classmates.

  1. Part of CFO's job description says: take the blame for CEO and dodge the bullet for him, for the greater good of the company. CFOs of publicly-traded companies are all aware of this professional hazard when taking the job and understand this is one of the risks that just come with the package.
  2. It only matters when either the CEO or the CFO gets fired, because they sign off on the company's financial statements. In most cases, the firing of anybody else in the executive leadership team does not matter (CXO, CTO, CSO, CIO... ) to SEC.
  3. The CFO who gets fired in a highly publicized SEC investigation may experience difficulty in finding his/her way back to a similar post in another public company, but that does not spell the end of his/her professional career and sometimes hardly even matters. It's very situational and depends on the PR nature of the firing. If the CFO is only a sacrificial lamb to save the company, people in the industry usually know that. There is a fairly good chance that his/her reputation will remain intact.
  4. For many CFOs, jobs are not found through submitting resumes to random employers who don't share a mutual friend with him/her. If a future employer still has questions about this past SEC investigation, don't work for him and find somebody else.
  5. CFOs are not hard to find; but great CFOs that can hold on his/her own against a volatile and inexperienced board are very hard to come by.
  6. Situations like this where the CFO is getting fired for saving the company/CEO presents an excellent opportunity for the CFO to negotiate the best deal (golden parachute, forgiven loan, escalated bonus) with the company. CFO has the most information and holds all the cards. He can talk to SEC to thoroughly destroy the company if his demands are not met. He brings very creditable threat in such negotiation.
  7. It's not a bad idea for the CFO in such situation (the company is being investigated by SEC and the stock price tanks) to resign. If he doesn't resign => the SEC investigation drags on => the stock price plunges => his options are all underwater => no point for him to stay on anyway.
  8. But the CFO should not volunteer to resign. Because doing so gives up his best negotiation opportunity. He should wait for the CEO/board to make a proposal to him and negotiate from there.
  9. Stock ownership plan is not fair to the executives. Use options.
  10. Company loans made to company executives are meant to be forgiven in practice. Don't make such loans. They are invitation for endless troubles.
Herbert Yang

Herbert Yang

Shanghai