The Importance of Finance Style

14.04.2011
We always hear about how an organization's cultural fit is important when deciding where you want to work. Now it turns out the style of the CFO may play just as important of a role.

A highlights an important research project by Weili Ge and Dawn Matsumoto, both professors at the University of Washington in Seattle, and Jenny Li Zhang, a professor at the University of British Columbia. The study's purpose was to identify how different CFOs impacted their organization's accounting policies. Not surprisingly, individual CFOs account for (pardon the pun) as much as 5% of the asset differences at companies. What is a surprise: that CFOs supporting greater use of operating leases had 24% more quarters of meeting or beating analysts' expectations compared to their counterparts accounting for more capital leases.

This research is valuable because the cultural fit between a CFO and the organization he/she represents is a critical success factor. A CFO known for conservative accounting policies and following the absolute letter of GAAP will not be a good fit at a company focused on aggressive revenue targets or ambitious earnings growth metrics. It is likely that the CFO will advocate more conservative accounting policies that will clash with the rest of the company. Imagine that CFO standing in front of the rest of the executive team advising against channel stuffing or excessive vendor financing to meet sales targets. The management team will have a significant chasm to overcome.

This research is also important for your own career. You have to understand your own risk tolerance, and willingness to see different "shades of gray" when determining your fit with a particular culture. I worked for John Deere for a number of years, with its long history of conservative accounting principles, and a strong ethical climate. I can understand many finance professionals with more aggressive mindsets, or creative interpretations of accounting principles, not being good fits there. This is not to imply that the more-aggressive application of accounting principles is a bad thing. I am simply saying that the fit between your own vision of finance and that of your prospective employer is an important part of your future career decisions.

As the finance world transitions from the rules-based structure of GAAP to the principles-based application of International Financial Reporting Standards (IFRS), finance professionals will need to understand culture and office politics even more. Not choosing a company that fits with your vision of how finance should impact the business world could be a recipe for a less than pleasant work experience.