Why is the turnover rate so high for CFOs, and what can we do about it?

Adrienne Rhodes, assistant professor and Rocca Fellow in accounting at the Tippie College of Business at the University of Iowa, examines this question.

Faculty Bio:

Adrienne Rhodes is assistant professor of accounting and Rocca Fellow at the University of Iowa’s Tippie College of Business. She earned her Bachelor’s and Master’s degrees from New Mexico State University and her PhD from Penn State.

Transcript:

We’ve all heard about the mind-blowing pay packages public companies are giving their executives. They typically defend these practices by pointing to the difficulty in attracting and retaining executive talent, and there seems to be some credibility to this defense. In recent years chief financial officers, or CFOs, are stepping down in record numbers, and losing a key C-suite executive is costly for corporations. They take with them a raft of institutional knowledge and replacing them can be a long and costly endeavor.

The media has often speculated that high CFO turnover is due to their overwhelming responsibilities. In fact, the demands and scope of the CFO role have expanded in recent years. New regulations, put in place after a string of accounting scandals in the early 2000s, have increased the burden of financial reporting for CFOs. And in that same time, CFOs are increasingly expected to act as a strategic partner to the CEO; taking on responsibility for investor relations, cybersecurity, and other corporate risks.

In a recent study, my co-authors and I investigate what factors help firms retain their CFO and we look specifically at firms that delegate financial reporting to a Chief Accounting Officer. We find that when firms have a Chief Accounting Officer take the lead on financial reporting, they are nearly 20% less likely to have their CFO step down, greatly increasing the stability of firm leadership. Importantly, the benefits of a Chief Accounting Officer don’t only accrue to the firm. While CFOs who delegate accounting stay in their role longer, when they do depart, they are more likely to become a CEO themselves.

So when it comes to retaining executive talent, it’s not all about the money. Our study suggests that delegating financial reporting to a Chief Accounting Officer is a valuable resource to both the firm and the CFO.

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Adrienne Rhodes, University of Iowa - How Companies Can Keep Their CFOs

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Adrienne Rhodes, University of Iowa - How Companies Can Keep Their CFOs