|
Why Do
Senior Financial Professionals Change Jobs?
I recently had a
conversation with a CEO about his preferences regarding candidates for the position of CFO. He wanted a CFO who
had ‘figured out what they wanted and stuck to it until the job was done’ and someone who had been in their
current job for at least 7 years. The conversation caused me to think about the state of the economy and senior
executive perception of the ideal candidate.
I first became aware of increasing volatility in the marketplace in 1999. The company that I was employed by had
adjusted its primary business strategy and executed a complete change in direction in less than 90 days. This was
a company with over 40,000 employees and over $8 billion in sales. I began to notice other companies that quickly
executed major change and have noticed a continuous stream of similar situations since then.
This volatility in the US economy has created a new host of reasons why senior financial executives change jobs.
I’ve mentioned in prior articles that the average Senior Financial Executive changes jobs about once every two
years. The following are reasons executives change jobs and what this means to senior financial professionals and
their employers.
-
Change in control,
the new guard wants a new CFO. Often a CFO will find that he or she is in a position where the senior management
team and / or members of the board are replaced (partially or completely) by new leadership team members. New
teams often bring with them new perceptions of the skills required by the senior financial executive, or they
have a person in mind who they have worked with in the past and trust to execute their new agenda. When this
happens, the sitting CFO often looses out to the goals of the new team.
-
Change in strategy, new
skills needed. The only reason that any employee is hired by a company is because a problem exists in the company,
and the hiring authorities believe that the candidate for the position can solve the problem. These problems can
be very specific and tactical, or more general and strategic. A person who is hired to ‘clean up’ finance and
accounting departments may find themselves with a clean and fully functioning department, but the CFO’s boss may
have acquired a new vision, i.e. a strategy of Merger and Acquisition that the CFO is not experienced in. If the
CFO is not able to sell the remaining members of the leadership team that he or she can handle the new strategy,
the CFO will be looking for new employment.
-
Major problem is
solved, overhead mentality of CEO. If a CFO is hired to solve a specific major problem and handles that problem,
there is an inherent risk that there may not be another major problem to solve. Once everything is running
smoothly, the CFO is at risk of being considered ‘overhead’ by the remaining members of the leadership team.
Management is under continuous pressure to eliminate any overhead. A CFO who becomes just overhead is usually
terminated quickly.
-
Company is acquired,
replication of CFO. Successful companies are often acquired. Unless the CFO of the company being acquired has a
significantly stronger skill set than the CFO of the company doing the acquiring, the CFO of the target company will
often be eliminated.
-
Company fails.
CFO’s occasionally join companies that go out of business.
-
Politics. Although some
company executives claim that politics are not a factor in their organization, many companies continue to be subject
to the political agenda of members of the leadership team. If a CFO does not see eye to eye with other members of the
executive team, the company may initiate a search for a new CFO.
-
Fraud is identified by the
CFO, and CFO leaves. In cases where fraud of others is identified by the CFO, the results are mixed. In some situations,
the executive team will do the ‘right thing’ and terminate the offending party and fix the problem. At other times,
executives will try to sweep the issue ‘under the rug’ in an attempt to put some time and distance between them and the
perpetrator, with the hope that the issue will not be exposed again later. If the CFO fights the fraud in this
situation, the reaction of the remaining members of the leadership team often leads to dismissal of the CFO. In other
situations, the CFO leaves the company in frustration.
-
Not truly a CFO position.
Often a CFO will work for a company that does not differentiate between a CFO and 'Head Accountant'. This CFO often
comes to the conclusion that they would rather be in a true CFO position. If an opportunity comes to them to work at a
company that provides acceptable challenge in a true CFO role and enhanced economics, the CFO may leave to take the
better opportunity.
Most people with an
understanding of the reasons why CFOs frequently change jobs will understand that finding stability in a job is often
more a matter of luck than skill. A CFO may take a calculated risk to take on a new position with the knowledge that
they will grow professionally if they take the role. Jobs in this category may have limited duration. Even the best due
diligence by a CFO candidate will often not uncover some of the risks identified above. The CEO of the company mentioned
at the beginning of this article may have had a valid reason for his request, but if he maintains his request for
longevity as a requirement for his current opening, he will miss out on a huge pool of candidates who are capable of
doing an effective job for him.
If you know of other reasons for job change that I have not discussed above, or would like to discuss strategy of
explaining your career changes to your next prospective employer, feel free to send an email to me at Advantage Talent,
Inc. mlevine@advantagetalentinc.com
|
|
Provided by the Costar Group
The Atlanta Office market ended the
first quarter 2006 with a vacancy rate of 14.1%. The vacancy rate was unchanged over the previous quarter, with
net absorption totaling positive 733,309 square feet in the first quarter. Vacant sublease space decreased in the
quarter, ending the quarter at 2,480,585 square feet. Rental rates ended the first quarter at $18.66, an increase
over the previous quarter. A total of 21 buildings delivered to the market in the quarter totaling 850,917 square
feet, with 4,542,961 square feet still under construction at the end of the quarter.
Absorption
Net absorption for the overall Atlanta office market was positive 733,309 square feet in the first quarter 2006.
That com¬pares to positive 187,617 square feet in the fourth quarter 2005, positive 1,746,458 square feet in the
third quarter 2005, and posi¬tive 1,852,500 square feet in the second quarter 2005.
Tenants moving out of large blocks of space in 2006 include: King & Spalding LLP moving out of 283,304 square feet
at 191 Peachtree Tower; and A.T. Kearney, Inc. moving out of 47,566 square feet at The Pinnacle.
Tenants moving into large blocks of space in 2006 include: King & Spalding LLP moving into 398,189 square feet at
1180 Peachtree St NE; The Southern Company moving into 130,000 square feet at 30 Allen Plaza; and Information
Global Solutions moving into 111,478 square feet at One Alltel Center.
Vacancy
The office vacancy rate in the Atlanta market area was unchanged at 14.1% at the end of the first quarter 2006.
The vacancy rate was 14.1% at the end of the fourth quarter 2005, 13.8% at the end of the third quarter 2005, and
14.5% at the end of the second quarter 2005.
Class-A projects reported a vacancy rate of 15.7% at the end of the first quarter 2006, 15.5% at the end of the
fourth quarter 2005, 15.4% at the end of the third quarter 2005, and 16.2% at the end of the second quarter 2005.
Class-B projects reported a vacancy rate of 13.9% at the end of the first quarter 2006, 14.1% at the end of the
fourth quarter 2005, 13.5% at the end of the third quarter 2005, and 14.0% at the end of the second quarter 2005.
Largest Lease Signings
The largest lease signings occurring in 2006 included: the 145,500-square-foot renewal signed by Nortel Networks
Corp. at Northern Telecom in the North Fulton market; the 69,328-square-foot deal signed by DataPath, Inc. at
Satellite Place - Bldg 800 in the Northeast Atlanta market; and the 50,994-square-foot lease signed by First
Horizon Pharmaceutical Corporation at Concourse Corporate Center Five in the Central Perimeter market.
Sublease Vacancy
The amount of vacant sublease space in the Atlanta market decreased to 2,480,585 square feet by the end of the
first quarter 2006, from 2,514,103 square feet at the end of the fourth quarter 2005. There was 2,466,784 square
feet vacant at the end of the third quarter 2005 and 2,869,661 square feet at the end of the second quarter 2005.
Atlanta’s Class-A projects reported vacant sublease space of 1,728,437 square feet at the end of first quarter
2006, up from the 1,653,422 square feet reported at the end of the fourth quarter 2005. There were 1,763,238
square feet of sublease space vacant at the end of the third quarter 2005, and 2,021,863 square feet at the end of
the second quarter 2005.
Class-B projects reported vacant sublease space of 705,991 square feet at the end of the first quarter 2006, down
from the 793,926 square feet reported at the end of the fourth quarter 2005. At the end of the third quarter 2005
there were 630,824 square feet, and at the end of the second quarter 2005 there were 773,432 square feet vacant.
For more
information about our services, please contact us via email at
dp@bmcrs.com or call David Payne at 404-531-6435.
|
|
We all know the model. A friend, an alumni, a fraternity bother, or a neighbor offers your company CEO to help
with insurance. A start-up asks for insurance but never tests the market as the start-up grows in size. We all
have friends or relationships that we trust. But do we verify that what might have been best before might not be
the best today?
Insurance costs are often some of the highest expenses in a company. Like taxes, we often assume these expenses
are a necessary evil and turn our focus on running the business. However, some insurance, such as health
insurance, are the number one indirect expense concern among CEOs and CFOs. Annual double digit cost increases are
a major profit drain and can even impact to the ability to do business.
We often assume all carriers and brokers offer similar pricing and services, so our “friend” might as well get the
business. In reality, this appearance is based on a broker industry that is paid commissions on the sale. So, “why
should your broker want to lower your cost?” Why should competing brokers want to lower your cost?
-
Premium increases are broker
salary increases. Do you get a double digit salary increase every year?
-
Bill management can lower premium
rates. Does your broker explain how to review the bills?
-
Cost management can lower premium
rates. Does your broker explain how to implement cost management best practices?
-
Competition can lower premium
rates. Does your broker create competition among carriers? If so, how do they do so?
-
Design changes can lower premium
rates. Does your broker proactively work with you to design the optimum plan?
-
Risk management can lower premium
rates. Does your broker analyze your data and recommend best practices?
What do you really get from your
broker?
If you think about it, doing extra work takes the broker’s time and reduces their income – not a good model. You
might want to consider testing your broker. Are you getting the best deal? Are you getting the best advice? Or, is
there an opportunity to create significant savings and improve internal practices?
Our recommendation: Trust but Verify. Bring in a success fee based third party who is compensated by saving you
money. If no savings are found, that increases your trust. If significant savings and process improvements are
found, then you have added measurable value to the company and you might even be considered a hero!
For more information or questions about how to Trust but Verify, contact
Jim Villwock,
IEM Group, at 678-485-1687.
| |
|
With the advent of the new Financial Accounting Standards Board Statement 123 (Revised) (“FAS123(R)”), this
article will highlight some items for companies to consider in transitioning to FAS 123(R) and in granting future
incentives:
REQUIREMENT FOR COMPLIANCE
-
FAS 123(R) is the
Financial Accounting Standards Board statement on share-based payments and addresses expensing stock options and
other equity awards to a company’s employees.
-
Due to a recent SEC
change, FAS 123(R) became effective the start of a public company’s fiscal year after June 15, 2005.
-
For private
companies, FAS 123(R) became effective for fiscal years beginning after December 15, 2005.
CHOICE OF MODEL USED TO
VALUE STOCK OPTIONS
To expense a stock option, you must be able to value it. Two common methods used are either the Black-Scholes
model or Lattice models
-
Binomial Lattice
models (vs. the Black-Scholes model) will likely result in lower values for stock options because of its
flexibility to more easily reflect a particular company’s situation.
-
Binomial Lattice
models, unlike Black-Scholes, allow a company to model such things as stock volatility, black-out periods and
forfeiture rate by year, which could be significant for some companies.
-
Customizing a basic
binomial model to handle real world demographic and behavioral assumptions requires more training than a basic
Black-Scholes model.
In most cases the money
saved using the Binomial Lattice model more than compensates for any increased expense due to the additional
complexity of the model.
HOW MODELING IMPACTS VALUE OF OPTIONS
-
Key variables of
lattice models are: time to maturity, dividend yield, share price volatility based on future expectations,
vesting period, forfeiture rates, blackout periods, and the choice of the optimal number of lattice steps.
-
Companies should
familiarize themselves with how key variables affect the stock option value, and adjust stock option grants and
valuation methodologies appropriately.
For example:
-
Stock option value
can be decreased by reducing the vesting schedule and/or the term of the option from the standard 10 years to 5
or 7 years.
-
The higher the
forfeiture rate for a stock option, the lower the stock option value. Companies should consider performance
based vesting such as revenue or EBITDA growth, versus time-based vesting requirements, as this would have the
effect of increasing forfeiture rates.
-
Blackout periods are
the dates on which employee stock options cannot be executed, usually several weeks before and after an earnings
announcement. If blackout periods occur frequently throughout the year, the option price can be decreased by as
much as 25%.
-
Stock volatility is
one of the most difficult input parameters to estimate. Care must be taken to use the correct period if using
historical stock prices to calculate future volatility. Also the volatility must be annualized.
-
The choice of the
optimal number of lattice steps is crucial in obtaining a valid options valuation result. Typically, the minimum
number of lattice steps to obtain convergence is 1,000.
USE OF PERFORMANCE CRITERIA WITH AWARDS
-
FASB Statement No.
123(R) no longer requires variable accounting treatment for performance based vesting, as the valuation is made
at grant date, not when the condition has been met.
-
Because of this,
vesting may be performance based or service based or both, and, regardless, options must be valued and expensed
as of grant date.
-
Companies have more
flexibility in assigning certain performance criteria to stock option grants without the worry of having to deal
with variable accounting and the resulting earnings fluctuations that this can cause.
ACCELERATED VESTING
-
If existing stock
options are considerably “out-of-the-money”, many boards are voting to accelerate the vesting of these options
to avoid recognizing future compensation expense associated with these options upon adoption of FAS 123R.
-
Acceleration of these
options prior to implementing FAS123R simply requires a new measurement date for the options, and, because they
are “out-of-the-money,” no compensation expense is recorded.
TAX CONSIDERATIONS
-
One of the most
significant differences between APB 25 and FAS 123(R) is where windfall tax benefits will now be displayed.
-
A windfall tax
benefit is created if the deduction for tax purposes exceeds the compensation cost recognized in the income
statement.
-
Under the new
statement, windfall tax benefits will now be displayed in the financing section of the cash flow statement, not
in the operating section. Companies should consider if this will have an effect on existing bank covenants,
which may be based on operating cash flows, as well as consider the effect on cash flow forecasts.
For more information or
questions about your specific use of FAS 123 (R), contact
Jeff Plank at HLB Gross Collins at 770-433-1711 |
|