Reactions to a Loss of Chief Financial Officers: Corporate Control Activities, Compensation and Market Efficiency

The Chief Financial Officer (CFO) is well entrenched among the executive ranks of the largest corporations, frequently positioned as the number two manager behind only the Chief Executive Officer (CEO). The heavy emphasis by firms on managing earnings, and earnings expectations, however, culminated in the early 2000’s of financial shenanigans that lead to the indictments against CFOs of prominent companies such as Enron, Tyco, Worldcom, Adelphia, Kimberly-Clark, Xerox, Cendant, Global Crossing and Lesley Fay, among others. Yet, despite the fallout of CFOs facing criminal and civil penalties along with their CEOs and other officers at these various public companies, the CFO position has emerged relatively unscathed to become a designated watchdog for shareholder interests. The Sarbanes-Oxley Act of 2002 requires the CEO and CFO to sign their firm’s financial statements and reports, certifying to the accuracy of the documents. Specifically, the CEO and CFO must attest that the statements and reports fairly present the financial condition and results of the firm’s operations and face stiff personal criminal and financial liability for any misstatements.