• Lehman CFOs – The Problem Is Obvious

    By • Jun 16th, 2008 • Category: Pure Content


    Barely a month ago today, the WSJ published a glowing article about Erin Callan, Lehman’s now former CFO, complete with sexy picture. (I think those are the T-strap Louboutin’s I covet…)

    In retrospect, it is easy to see the error of her ways for taking the job and of Lehman’s management for appointing her. What public company, of the size and stature of Lehman, in trouble already, can afford to have a CFO who is not an accountant? Have we not seen what happens when a CFO has no interest or aptitude for GAAP?

    I can understand the desire, literally and figuratively, to put an otherwise smart and self-confident woman in this job, someone who could distract the media and analysts from the issues being raised, the icky accounting type issues publicized, by shorts such as Einhorn.

    “Yeah, I guess I will wear the shorter dress with stilettos on CNBC today. Yeah, that’s the ticket.”

    It’s not that I don’t think a smart, successful woman can be sexy too. Duh! It’s what I strive for. But I know better than to expect to be a CFO of a multi-billion dollar global company. And I passed the CPA exam and like analyzing SEC filings. If only I had been the first one to say it…

    And now they are doing it again. Mr. Lowitt, the new CFO, being promoted from Treasurer, is not an accountant either, but a former McKinsey consultant. Will they never learn?

    If I were Ernst & Young, their long-time auditors, I would consider the ongoing lack of knowledge and interest at the top regarding accounting details and GAAP, under the precarious circumstances which exist, to be a material weakness in internal controls over financial reporting. As usual, Lehman has an unqualified opinion on both their internal controls per Sarbanes-Oxley requirements and their overall financial statements as a whole as of the end of 2007.

    From the WSJ:

    Six months into one of investment banking’s toughest jobs, the 42-year-old Ms. Callan is emerging as a galvanizing force at Lehman and a finance chief who topples much of the conventional wisdom about CFOs. She also is the highest-ranking woman on Wall Street. Many Lehman insiders consider her among the contenders to become the firm’s president someday.

    Unlike Lehman’s two previous CFOs, Ms. Callan isn’t an accountant and had never worked in the finance department.

    She embraces television, appearing frequently. She receives a slimmer daily financial summary than her predecessors, relying more on data from the trading-floor contacts built during her 13-year Lehman career.

    “We have a lot of great finance people here,” she says. “In the CFO seat in this environment, I find it is important to be able to look at the sum total of the information quickly and test conclusions as well as read the reports on my desk.”

    …Ms. Callan, who is undeniably fashionable, has received sexist emails from TV viewers. But she has no plans to dial back her persona. Tina Sussman, her personal shopper at New York retailer Bergdorf Goodman, has started sending racks of clothes to Ms. Callan’s house because the CFO’s schedule is so hectic. Ms. Sussman describes Ms. Callan’s style as “classic and elegant.”

    Ms. Whitney, the Oppenheimer analyst, jokes that Ms. Callan is the “best accessorized” CFO on Wall Street.

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    14 Responses »

    1. Francine:
      I believe Yves Smith (YS)at Naked Capitalism, calls photos like the one of “Erin Baby” and personal stories, “Wall Street Porn”. YS is a female. By the way, I think Erin is a pretty hot babe. However, I never expected Erin to do any better as Lehman’s CFO than Sally Krawchek did at Citigroup. Neither seemed to have the accounting nuts and bolts down.

    2. I think finance organizations across all industries are split between accountants and finance folks. I remember my stint at a Fortune 500 finance department. There was some tension between the two groups. I think the perfect CFO is an accountant with great finance acumen. The caveat here is that I don’t know if anyone should care what I think. I have done some executive search work in the past, but for a CEO spot of a multi-billion dollar organization. I haven’t touched the CFO spot.

      It seems to me that a place like Lehman needs someone that can readily understand things like VaR while being able to quickly see how the calculated risks should impact the financials (just a thought).

      And, by the way, she is attractive and intellegent. Perhaps she is the perfect woman if not a perfect CFO.

    3. Anonymous:
      I agree with you. Without an understanding of: IRR, DCF, expected value, etc., a CFO can be mincemeat for investment bankers. That said, if the CFO doesn’t understand accounting, expect trouble sooner or later. My experience is that most banks have terrible cost accounting. They don’t know what does or doesn’t make them money.

    4. I spelled “intelligent” wrong. Irony is a bitch.

    5. […] a wide ranging discussion with some new details of my otherwise well-known history and mentions of Lehman Brothers, GE, GM, New Century, Satyam, Refco and Huron Consulting.  I also drop names like Michelle Leder […]

    6. […] the period under examination alone.  I’ve already told you what was wrong with the last two, Callan and Lowitt.  You can sense their boredom and disdain for accounting details when you read their […]

    7. […] during the period under examination alone. I've already told you what was wrong with the last two, Callan and Lowitt. You can sense their boredom and disdain for accounting details when you read their […]

    8. […] posted two stories in early 2008 discussing Erin Callan and Ian Lowitt the last two non-accountant CFOs of Lehman and the vilification of David Einhorn for questioning […]

    9. […] criticized Ernst & Young in mid-2008 for not questioning Lehman’s CFO revolving door. Lehman had chosen another non-CPA CFO, the second one in less than three years. I was following […]

    10. […] In retrospect, it is easy to see the error of her ways for taking the job and of Lehman’s management for appointing her. What public company, of the size and stature of Lehman, in trouble already, can afford to have a CFO who is not an accountant? Have we not seen what happens when a CFO has no interest or aptitude for GAAP? A seasoned CPA CFO – not Mr. Kowalewski – would have known that an auditor resignation over “controls” could lead to lots of questions. Auditor resignations also eventually lead to lots of litigation if there’s a sudden stock price drop that accompanies them. […]

    11. […]  or ” …woman, writer, warrior for shareholder rights,” or “friend to shorts,” or even  ”…Rosie the Rott’s mom,” than former Director at PwC. […]

    12. […] think the problem was obvious: “Unlike Lehman’s two previous CFOs, Ms. Callan isn’t an accountant and had never worked in […]

    13. I’m Senior Finance Officer working in NGO’s sector,but I’m graduate of Agriculture sciences ,I started as a cashier and within five years I became as SFO , when I started in accounting field I faced some problems is that the accountants with accounting background have a problem in understanding the accounting transactions or ability to prepare financial statements ,the issue is not the accounting back ground the issue is how to absorb the work

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