Knowing the Business Sure Helps

Mark Eisele, chief financial officer with Applied Industrial Technologies, cites the example of the choices facing a CFO whose company has General Motors as a major customer -- and who might have had to decide in recent years when, and how much, to allocate to a bad debt reserve. Rumors of the company's demise had long floated around the industry, yet even when it declared bankruptcy in 2009, its suppliers were getting paid. "You could say, 'Oh my gosh, they'll go bankrupt,' or you can say, 'It's GM and that won't happen,'" observes Eisele, whose company is a distributor of bearings, power transmission components, hydraulic components and other industrial systems. "Reasonable people can come up with different answers."

Despite what the Washington and British Columbia research team learned about the impact of CFOs' style on accounting choices, they didn't pinpoint the exact drivers behind their actions. Says Ge, "It could be innate personality or prior experience. But, we know the effect is not driven by firm characteristics."

Still, the study results overall certainly challenged any notion that finance executives easily can be substituted for one another, Ge says. If a board assumes it can hire anyone with CFO qualifications, and then use incentive compensation to prompt the making of certain desired accounting choices, that board may be fooling itself. For while the structure of an incentive package may have some influence, the CFO's personal style still will play a role in the decisions they make.

Recruiter McLean argues, too, that a CFO's fit with the culture of an organization is important. After his or her technical skills, that fit, he says, is "the distinguishing issue that is the decision point around hiring or not hiring the individual."