Chief fudge-the-books officer
salon.com
Enron CFO Andrew Fastow wasn't a renegade -- he was just doing his job.
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By Dave Lindorff
Feb. 20, 2002 | One of the main victims of Enron's collapse has been the reputation of accounting firms -- the so-called gatekeepers who are supposed to prevent corporations from financial skulduggery. But in trying to fix things, critics who are calling for tighter accounting regulations may be looking in the wrong place. The problems that felled Enron -- wildly inflated earnings and enormous off-balance-sheet costs -- were not the work of Enron's auditor, Arthur Andersen. The fancy financing and fancier bookkeeping were, by most accounts, masterminded by Enron's chief financial officer, Andrew Fastow. And, far from being a renegade, Fastow (who declined to testify before Congress earlier this month) was just doing his job -- or, at least, he was doing precisely what today's CFOs are being told to do.
The CFO, traditionally, was the executive entrusted with ensuring that a company operates with financial discipline -- not excess. But in a business environment where investors are demanding ever-increasing earnings every quarter and anything less than 20 percent earnings gains is considered lackluster performance, CFOs are under steadily escalating pressure to fudge the books to make things look better than they really are.
This is a relatively recent phenomenon. It wasn't that long ago, suggests Warren Bennis, a professor of management at the University of Southern California, that a company's chief financial officer was considered staff, not part of the executive elite. "Even 12 or 13 years ago," he says, "CFOs were not regularly included at the table in executive meetings. Now the CFO is part of the club."
A few decades ago, the CFO's main job was confined to acting as the link between a company and its bankers. No more. In the go-go 1980s and especially the '90s boom years, daring corporate finagling became the name of the game -- and in the case of many recent technology start-ups, which had no earnings and sometimes not even any revenue, the only game. There were convertible bonds, junk bonds, derivatives, venture funds, pension funds, hedge funds, tracking stocks, spinoffs, joint ventures and, of course, on the cost side, a bewildering array of gimmicks, from offshore domicile changes to leasing deals, deferred employee compensation plans and purportedly one-time expense write-offs. Few if any of these maneuvers had anything to do with producing anything (except in some cases more money), but they did make a corporation's books look good. And responsibility for executing these maneuvers belonged to the new star executive player -- the CFO.
"The CFOs, who were supposed to be policing managers, have stopped policing and have become facilitators for managers," says Bruce Greenwald, a professor of finance at Columbia University's Graduate School of Business.
And since the CFO, quite often, is the only member of the executive team who actually understands the details of modern corporate finance, the position has become a hot spot for corporate trouble.
"In the CFO, you have someone with highly technical skills that these days the CEO and COO often don't even understand, yet there has to be this web of trust," says Bennis. "It's a paradox."
At the same time, says Bennis, the CFO is under constant pressure from the CEO, COO and president of the company to deliver ever increasing earnings and revenues. It is, he suggests, a recipe for Enron-style debacles. |
