2 weeks Ago
When Tesla CFO Zachary Kirkhorn stepped down last August, Wall Street analysts and investors alike were unnerved. The stock shed more than $23 billion on the news, with one top tech analyst describing the announcement as "a blow in the near term" and a "big surprise to the Street." It was the second CFO departure in just four years.
The resignation of previous finance chief Deepak Ahuja in 2019 also tanked the stock. The leadership shakeup at the world's biggest electric vehicle maker may have caught the market off guard, but it's a part of a larger turnover trend among the Fortune 500. The average tenure of an outgoing CFO reached a five-year low of 4.
7 years in the first half of 2024, according to leadership advisory firm Russell Reynolds Associates. Taking a closer look, from Jan. 1 to June 30, 163 CFOs were appointed at public companies on 12 major stock indexes, including the S & P 500 and the U.
K.'s FTSE 100 . CFO turnover hit 8.
9% globally during the period, surpassing levels in 2022 and 2023. That's compared to 8.3% and 8.
5% turnover in the first half of 2023 and 2022, respectively. One common reason for the revolving door is retirement, accounting for 54% of CFOs who left in the first half of 2024. That marks a five-year high and a 15% year-over-year increase, according to the report.
But other forces are also likely at play. Russell Reynolds indicated that tenures may be shortening due to burnout as well. That's because top financial leaders have been tasked to oversee businesses during a period of extreme macroeconomic uncertainty.
A global pandemic, increased geopolitical tensions overseas, supply chain disruptions and recession concerns have made the CFO role even harder. "It's becoming more and more normal that CFOs are going to have to deal with the shocks to the system," Steve Gallucci, Deloitte's Global and U.S.
leader for the CFO Program, told CNBC. More than number crunchers The increased turnover rates and shortened tenures matter because CFOs have become more integral to a company's success, and therefore the direction of its stock price. Fortune 500 CFOs were once akin to a company's top accountant — largely focused on overseeing budgeting, modeling and forecasting to make sure the company reaches its financial targets.
But over the past few decades, they've taken on more and more responsibilities like strategic, operational and commercial tasks. Many are comparable to the CEO role. Former Goldman Sachs CFO David Viniar is a great example of this evolution, often cited as one of the most essential executives at the investment bank in the tumultuous 2000s.
He helped oversee Goldman's risk management during the 2007-2008 financial crisis, allowing the firm to largely avoid huge losses of its peers. When he retired in 2013 after over a decade in the role, one Wall Street analyst described Viniar as "the brains behind the operation," making it "difficult to imagine that there are many people that can juggle as many balls as he does seemingly effortlessly," according to Bloomberg News. "We're in this kind of strange macroeconomic time with these ups and downs that have essentially led us to believe that we need a CFO, or a number two, within the organization.
..who really needs to know the business versus just knows the numbers," said Josh Crist, co-managing partner of executive search firm Crist|Kolder Associates.
In turn, there's more of a pathway for CFOs to become CEOs. Just look at Raymond James . The financial firm announced in March that CFO Paul Shoukry would be promoted to president, and is expected to become the CEO in 2025.
"I think they're going to take on more responsibility to the point where CFOs will take on CEO roles more and more. I think we're going to see a lot of CFO direct promotion into the CEO chair," Crist told CNBC. "So, I think that means that CFOs are going to have to broaden themselves.
" Jim Cramer also has pounded the table of the importance of the CFO role, arguing that "a good CFO can give you a feeling of a Good Housekeeping seal of approval." He added, "They often have to make the assumptions that guide what a company can do and what an industry might be doing. They are the eyes and ears of how everyone else is doing in the industry.
" Indeed, CFOs are often the main link between the Street and the company by helping to set analysts' expectations. Each quarterly earnings season, investors listen closely to financial chiefs for their outlooks on revenue growth and future profitability — at times causing massive fluctuation in share price. Consider Club holding Microsoft : In July, the stock plunged more than 7% in extended trading on the company's July 30 fourth-quarter earnings release.
Microsoft CFO Amy Hood shared that Azure, Microsoft's all-important cloud computing business, missed on revenue growth. With billions of dollars of Microsoft's market cap at stake, it was Hood's role to address Wall Street analysts' most-pressing questions around the division during the quarterly call with analysts. Hood ultimately assuaged investor concerns.
"We are constrained on AI capacity, and because of that, we've ...
signed up with third parties to help us," she said, describing partnerships Microsoft has made with other AI providers. "You do see us investing a lot in build so we can get back to a more balanced place." Although shares nosedived initially, the stock pared losses and finished only around 1% lower the following session.
This calming force can be at jeopardy with so many execs moving around. In our portfolio alone, there has been a flurry of C-suite moves over the past year. Costco's Richard Galanti announced his plans to retire in March after nearly four decades in the position.
A few months later, former Eli Lilly CFO Anat Ashkenazi stepped down following roughly three years on the job, and more than 20 with the pharmaceutical giant. Shortly after, Ashkenazi joined Alphabet as CFO, succeeding insider Ruth Porat, who was promoted to President and Chief Investment Officer of the tech behemoth. Meanwhile, Apple said in late August that longtime CFO Luca Maestri will be stepping down at the end of 2024.
Around the same time, Salesforce finance chief Amy Weaver, who took over in 2021, said she planned to depart once a successor was named. Most recently, Honeywell named insider Mike Stepniak as the industrial conglomerate's new chief financial officer in September. Moving forward, it's unclear whether CFO turnover will continue to pickup.
It's possible, however, that factors like burnout may decrease as the macro environment improves due to the Federal Reserve's continued interest rate cuts and loosening monetary policy. Regardless, when a CFO does step down, it's important for investors to make sure their investment thesis remains intact. Jeff Marks, the Investing Club's director of portfolio analysis, outlined a few red flags Club members can look out for when a CFO change is announced.
"If it's abrupt and out of nowhere, it could be a red flag but keep in mind every situation is different. Sometimes they could leave for a better opportunity or personal reasons. Both reasons are understandable," he said.
"If a CFO immediately resigns intra quarter, what companies will do sometimes is reaffirm their guidance to ease investor concerns. If they don't, it could be a red flag. The market may get spooked about an upcoming shortfall.
" Finally, Marks added that the stock's performance over a CFO's tenure can be an indication on how the market may react to the news. "If the stock has been bad and underperformed its peers, then no one is going to miss the CFO because the company needs a fresh set of eyes," he said. It's a different story, however, if "they've been for a long time and helped oversee a lot of growth, business changes, and an operational turnaround.
" To be sure, each C-suite move is different and needs to be analyzed accordingly. Similar to all updates around our portfolio holdings, it's crucial to stay on top of the news that may impact the stock. (See here for a full list of the stocks in Jim Cramer's Charitable Trust.
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Peopleimages | Istock | Getty Images When Tesla CFO Zachary Kirkhorn stepped down last August, Wall Street analysts and investors alike were unnerved..
