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Boards Join In On CFO Picks

03/30/2015 | 04:21pm US/Eastern
   (FROM THE WALL STREET JOURNAL 3/31/15) 
   By Joann S. Lublin 

Google Inc. directors launched a full-court press to poach Ruth Porat as chief financial officer, including a multiyear pay package valued at more than $70 million. The Internet giant said last week that it had lured her from Morgan Stanley, two weeks after Google's outgoing CFO announced his retirement.

Once Google's directors agreed they wanted Ms. Porat, they moved fast because they "had a superior candidate," and "she wanted to jump," said a person close to the company.

Corporate boards are playing an increasingly pivotal role in choosing CFOs. Some directors had a heavy hand in recent CFO choices at McDermott International Inc., Avon Products Inc. and Newell Rubbermaid Inc. Boards also can help unseat underperforming finance chiefs.

The trend took off after the Sarbanes-Oxley Act of 2002, which required CFOs and chief executive officers to sign off on the accuracy of their company's books. It continued apace after the financial crisis, which proved the value of having a veteran at the helm. Recruiters' phones started ringing again after new regulations that spanned everything from initial public stock sales to revenue accounting.

The volume of calls from directors to recruiters "was never that way 10 years ago,"" said Peter Crist, chairman of the search firm Crist/Kolder Associates. "You will see a continued trend of board involvement in CFO selection."

Directors also are assuming a stronger role because more finance chiefs now rise to the top job: 12 of the Fortune 50 CEOs are former finance chiefs, up from nine in 2010, according to recruiters Heidrick & Struggles International Inc.

"The environment has gotten more complicated. There's increasing complexity, not just with regulation, but also with technology," said Merilee Raines, chairwoman of the board's audit committee at Watts Water Technologies Inc. The maker of plumbing and water-quality devices named Todd Trapp CFO last week. He previously was a vice president at Honeywell International Inc.

Ms. Raines, a member of two other audit panels, added, "With the evolution of increased compliance activity and the great recession, it requires boards to be pretty actively involved, more operationally than before."

Technology distributor Avnet Inc. epitomizes the power shift. In assisting CEO Rick Hamada, outside directors William H. Schumann III and James Lawrence focused on external contenders to replace Avnet's long-time finance chief in late 2012.

That finance chief didn't view grooming a successor "as a valuable part of the CFO's role,"" said Mr. Schumann, also Avnet's chairman. "We don't want to be in that situation again.""

Messrs. Schumann and Lawrence each did hour-long phone interviews with the two finalists. One was Kevin Moriarty, finance chief of Honeywell's global aerospace business. "Who is going to succeed you in your current role?" Mr. Schumann asked.

Mr. Moriarty described his efforts to develop a robust talent pipeline, which he deemed "critical to ensuring seamless leadership transitions as needed.""

Occasionally, boards push to replace a CFO. Several years ago, certain directors of a heavy-industry manufacturer persuaded the CEO that his finance chief "didn't have quite enough experience or enough creativity," said Barbara H. Franklin, who served on that board and has led six audit panels in the past 30 years.

The board's involvement, however, sometimes slows down the selection process. Consider Victoria Holt, CEO of Proto Labs Inc., which makes custom product prototypes and parts. She hesitated to hire her top pick for finance chief last year because independent lead director Sven Wehrwein wanted a seasoned public-company CFO, she says.

Mr. Wehrwein interviewed over 10 external prospects, and recalled, "I cared deeply about the quality of the candidates."

In the end, Ms. Holt got her way and hired John Way in December. He had been finance chief of Univita Health Inc., a privately held company.

Avon directors played an equally broad part this winter recruiting J. Crew Group Inc.'s James Scully as CFO.

"Jim's hiring was a result of a thorough and thoughtful process with board participation,"" says a spokeswoman for the beauty-products concern. During chats with Avon CEO Sheri McCoy, three key directors outlined pluses and minuses of external candidates they met. Mr. Scully "was Shari's selection,"" said a person close to Avon. A board imposing a finance chief on the CEO "is not the beginning of a beautiful relationship.""

It was a similar story at Newell Rubbermaid. John Stipancich, general counsel and head of operations in Europe, Middle East and Africa, was named interim CFO last year.

The audit committee's present and past chairmen, plus a finance panel member, revamped the job description and interviewed three finalists, says Paula S. Larson, Newell Rubbermaid's chief human resources officer.

The directors wanted a CFO with experience in mergers and acquisitions to match corporate strategy. Mr. Stipancich had that in spades. He had been involved in more than 30 deals, including 15 with Newell Rubbermaid.

In February, he officially got the job.

---

Kimberly S. Johnson contributed to this article.

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