At public companies, rash of upheaval sweeps CFO ranks.

More CFOs are getting booted out of the hot seat these days.

In the past month, chief financial officers have resigned from locally based 99 Cents Only Stores Inc. and Countrywide Financial Corp. after the companies disclosed earnings restatements with the Securities and Exchange Commission.

Last week, Nara Bancorp reassigned its CFO to a non-accounting position after the bank discovered that a $600,000 payment to its former president and chief executive--for car expenses and country club dues--was not accounted for properly.

The rash of resignations can be attributed at least partly to federal regulations passed in 2002 to weed out accounting problems at public companies. Many say new requirements are creating a sea change in the accounting profession, whose reputation took a beating after high-profile scandals at Enron Corp. and WofldCom Inc.

"CFOs are spending less time running the business and more time on compliance and controls," said Rodney Carter, senior vice president and chief financial officer at Petco Animal Supplies Inc. in San Diego. "Some people are saying life is too short and others are trying to do the right thing. I think everyone is trying to understand the risks and rewards, and what the trade-offs are."

The central issue involves compliance with Section 404 of the Sarbanes-Oxley Act, which was designed to hold executives accountable for financial fraud.

The new SEC rules were created so companies themselves would catch material weaknesses in their own accounting practices. The piles of paperwork and hours required to meet the new requirements have created upheaval among the CFO ranks, essentially making the job far less appealing and more difficult. By some estimates, turnover among CFOs has jumped dramatically in the past two years.

CFOs resigned at Southwest Water Co. and Tekelec recently, and both companies delayed filing their annual 10-K reports--although for different reasons. When the companies finally filed last week, Southwest Water reported a "material weakness" in its internal controls. Tekelec said its controls were OK; its delay was due to the departure of its CFO for another job.

Southwest Water spokeswoman Sandy Warren said Chief Financial Officer Richard Shields resigned last month because he had a new baby and his commute was too long.

Back in November, Shields signed a retention agreement that provided him with certain benefits if he resigned within the 30 days following the filing of the company's 10-K. The agreement was signed several weeks after Southwest Water hired seasoned financial executive Cheryl Clary, who later replaced Shields.

Lack of confidence

Investors have felt the changes too. Shares of 99 Cents Only Stores fell nearly 30 percent last month when the discount retailer announced that Chief Financial Officer Jim Ritter and two directors had resigned. The company had already announced it would have to restate some previous financial statements, but the CFO resignation came as a jolt to Wall Street, where analysts had long complained of management's need for a deeper bench.

Last month, giant mortgage lender Countrywide Financial replaced its CFO, Thomas McLaughlin, with Eric Sieracki, an executive managing director and a former manager at accounting firm Grant Thornton. The change came a few days after Countrywide announced it would restate financial results for two quarters in 2003. Shares of Countrywide fell 8 percent last month to just over $32 a share.

"The pressure is enormous," said Lorraine Hack, a former chief financial officer and member of the financial officers practice at executive search firm Russell Reynolds Associates. "A lot of CFOs are just opting out, saying they don't want to do this anymore, it's just not that much fun and has lost its appeal."

She said two factors driving turnover among CFOs are the pressures of complying with Sarbanes-Oxley and the competitive drive to beat quarterly earnings.

In the past year, turnover in the ranks of Fortune 500 company financial professionals, which include chief financial officers, controllers and treasurers, increased 23 percent. Resignations increased 21 percent from 2003.

Part of the increase in turnover was attributed to promotions. More CFOs are being sought out for chief executive jobs because of the desire by directors to have financially savvy executives leading their company.

Chuck Eldridge, a practice leader in the financial officer's practice at Korn Ferry International's office in Atlanta, said he has seen a surge in demand for internal auditors and CFOs.

"Everybody wants the CFO as a strategic business partner but now there's this heavy element of technical accounting abilities," he said. "Another reason is that a lot of the weight and burden is on the shoulders of CFOs because if there's a financial restatement, a CEO is not going to fire himself. It's just an accumulation of events leading to a really tough job in today's market."

Reaction

Some companies are bristling against the Section 404 rules.

Earlier this month, Leon Level, vice president and chief financial officer at El Segundo-based Computer Sciences Corp., sent a letter to William Donaldson, the SEC chairman, claiming that the costs of compliance are "wholly disproportionate" to the benefits.

CSC, which has a market cap of $8.6 billion, believes the costs of compliance "adversely impede the competitiveness of U.S. businesses and impose a drag on our economy."

For individual companies, the resignation of a CFO can have a ripple effect that is tough for a company to control.

In December, when Calabasas-based Tekelec announced the resignation of the company's CFO, Paul Pucino, the stock plunged nearly 9 percent and was downgraded by two analysts.

Michael Attar, Tekelec's director of investor relations, sought to reassure institutional investors that Pucino had simply resigned to take a job at Calabasas-based Digital Insight Corp. The ostensible reason was that he wanted to return to the financial services industry.

"There are strange unintended consequences," said Attar, adding that many companies are stuck in a position of having to hire a new CFO just before filing new SEC reporting requirements. "Hypothetically, there are people who are signing their names to SEC documents who have only been at a company for a short period of time, sometimes just days. If you're going in to a new circumstance, you would want to do a large amount of due diligence."