The role of the Chief Financial Officer has become significantly more impactful and high profile in today’s corporate landscape. The investment of time and effort to reach this level in an organization is high, and for better or worse, so is its margin for error. Corrupt decision making, poor behavior on and/or off the job, and general incompetence have all led to some infamous CFO failures. To maximize their performance, and learn from the mistakes of past failures at the position, CFOs should learn about some of the biggest flops in recent years, and move forward with some insight regarding their performance in a role with many new and important developments (particularly, that of new technological resources).
4 High Profile CFO Flops
The following incidents are four notorious examples of CFO failure, and the scope of disaster that can occur from different kinds of mistakes at this executive position. These failures resulted from incompetence, unethical actions, poor consideration of public image, and even legal violations at a federal level. Examination of such cases can provide valuable insights as to how to avoid future screw-ups at an increasingly important corporate position.
1. 2012 Facebook IPO Flop: David Ebersman
Eight years after its founding, Facebook went public and released their IPO, which turned out to be the biggest IPO flop of the 2010s. Mark Zuckerberg delegated the IPO role to David Ebersman, who was the CFO of Facebook at the time. Reports say that upon assurance from the lead underwriter Morgan Stanley that there was plenty of demand, Ebersman decided to hike the price the company was charging investors – $38 – and boost the number of shares the company would offer investors by 25%.
However, Ebersman’s decision resulted in losses for investors, and serious consequences for him and the company. Facebook shares tumbled $3.03, or 8.9%, to $31 on the second full day of trading, after falling 11% on the first day. Facebook stock lost 20% of its value in only three days.
This fiasco gave shareholders the impression that Facebook was attempting to cash out at the public’s expense, and others perhaps the impression that Ebersman was incompetent. In response to this, the company was hit by a number of lawsuits from disgruntled investors, as well as numerous investigations by regulators.
2. Pentagon Procurement Scandal: Michael Sears
As obvious as the criticality of following ethical guidelines may seem, many CFOs sabotage themselves and their organizations through inappropriate relationships and job offers. This often leads to fiascos resulting in job termination, and severe financial and reputational losses, for both the CFO and organization involved. In severe cases, inappropriate relationships can even put a CFO in hot water with the federal government.
A high profile case of misconduct was the jailing of former Boeing CFO Michael M. Sears in the mid 2000s. Sears improperly offered a US Air Force procurement official a job at Boeing, with the intent to seal a $23 billion air force deal to acquire 100 aerial refueling tankers from Boeing. The result: Sears received a federal sentence of 4 months in prison, a $250,000 fine, and the reputation as the man who spearheaded the biggest Pentagon procurement scandal in decades.
3. Recorded Rant & Job Loss: Adam Smith
Adam Smith, the former CFO of medical device company Vante, was brutally removed from his job after the surfacing of a recording of Smith berating a Chick-Fil-a worker, which also resulted in threats to the safety of his organization. The video showed Smith harassing the worker for a recent scandal involving Chick-Fil-a’s support for anti-gay organizations. Smith said,
“Chick-Fil-a is a hateful corporation… I don’t know how you live with yourself and work here. I don’t understand it. This is a horrible organization with horrible values. You deserve better.”
Shortly after this incident, when Smith arrived at work, the receptionist reportedly told him,
“Adam, what did you do?... the voicemail is completely full, and it’s full of bomb threats.”
The result for Smith was a catastrophe. Him and his family of a wife and 4 children lost their home, moved into an RV, and ended up on food stamps. What others can learn from his plight, is the power of small incidents like this, and how important using your filter is during the era in which everyone has access to the internet and a video recording device.
4. Lehman Brothers: Erin Callan
Lehman Brothers was the fourth-largest investment bank in America, but in September 2008 the company filed for bankruptcy. With $639 billion in assets and $619 billion in debt, the bankruptcy was the largest in corporate history.
The problems in the subprime market should have alerted the organization, but some serious downplaying by the Chief Financial Officer Erin Callan meant the warning went unheeded. Instead, the credit crisis signaled the start of the Lehman Brothers downfall. On September 15th 2008, Lehman Brothers filed for Chapter 11 bankruptcy.
Two months before the official declaration of bankruptcy, Callan was fired. She was widely criticized in the aftermath of the Lehman Brothers collapse for being under qualified to run the finances of a major investment bank, as she did not have even basic accounting qualifications. Callan was slammed in a bankruptcy court report for ignoring “ample red flags” and using misleading gimmicks to bolster Lehman’s balance sheet by $50 billion.
Evading Trouble as a CFO in 2021
Perhaps the clearest takeaway from these flops is the importance of upholding a high standard of morality and competency at the CFO position, especially considering the relatively new significance of the position. Cases of CFOs brutally screwing up and/or getting fired are often rooted in misbehavior and incompetence, as seen in these 4 cases. Evidently, this can take the form of inappropriate relationships, intentionally false projections, or generally poor performance. As role players with a significant share of an organization’s weight on their shoulders, CFOs cannot afford to repeat the same mistakes made in these examples.