One in six executives who left the chief financial officer (CFO) position at a US public company in 2018 did so to retire, the highest share since at least 2007, according to a report by the Wall Street Journal.
“CFOs are retiring at the fastest pace in at least a decade—a generational changing of the guard that experts put down to factors including the increasing complexity of the role and the booming stock market,” states the WSJ.
The US business daily uses an analysis of 12 years of regulatory filings conducted paper by research firm Audit Analytics. It reports that while many departing US CFOs are simply reaching retirement age others cite new pressure from expanding job descriptions, which now often encompass oversight of human resources and information technology (IT).
In addition, an attractive range of advisory opportunities for seasoned executives may be tempting some into early retirement, suggests the paper.
The market also plays a role as CFOs’ compensation often includes restricted equity grants, which in some cases can only be cashed out in full after retirement. A booming stock market has made that option more enticing with the Standard & Poor’s (S&P 500) stock index, which recouped losses suffered during the 2008 global financial crisis by 2013, hitting record highs this year.
A question of timing
Campbell Harvey, a professor at Duke University’s Fuqua School of Business, told the WSJ that the increase in retirements could show that the executives overseeing American companies’ finances increasingly believe the long bull market will soon come to an end.
“It’s an intriguing market timing signal by people that are well able to assess the pulse and direction of the US economy,” he said. “These executives are sitting on a pile of stock and it’s difficult to sell that stock as an insider, so when do you want to retire?
“Do you want to retire when the stock market is near an all-time high, or do you want to retire in the depths of the inevitable correction that might be a recession?”
A surge in mergers and acquisitions in North America has also been a factor. Last year was one of the busiest on record for M&A deals, which can trigger contract clauses that accelerate vesting requirements of restricted shares, giving CFOs an incentive to walk away.
US recruitment firms also report that many CFOs are deciding to step down because of escalating demands, recruiters said. CFOs once focused on regulatory compliance, accounting and reporting of financial results, but today are increasingly involved in setting strategy, finding and executing deals, and overseeing operations, technology, cybersecurity, talent management, human resources and risk.
Comparing the turnover rate for CFOs and CEOs offers some support for the possibility that US financial executives in particular are facing increased pressure at work. In 2009, the departure rates for CEOs and CFOs—for all reasons, not just retirement—were roughly the same, at 13.5% and 13.4% respectively, according to Audit Analytics. By 2018, the exit rate for CFOs had risen to 17.5%, compared with 15.2% for CEOs.
“The role has become increasingly more sophisticated,” Peter Crist, chairman of executive recruiting firm Crist Kolder Associates, told the WSJ. “The pressure on a public company CFO is very high.” Retiring executives are also presented with more options, as consulting and outsourcing has permeated into more fields, recruiters say.
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