CFOs: The Corporate Culprits in Charge?

Before HealthSouth and Richard Scrushy (whose jury can't seem to come to a conclusion about his guilt or innocence), there was WorldCom and Bernie Ebbers.

Remember him? He's the ex-CEO who was found guilty this past March on nine counts of accounting fraud. He's about to be sentenced on June 13. The jury didn't buy Ebbers' claim that he knew nothing about the accounting fraud at WorldCom, and that it was all the work of the company's chief financial officer.

Yet, the jury may have gotten this one wrong, since it looks like CFOs are now more important than CEOs when it comes to running corporate America. Let me tell you why….

It came to me in a dream the night after Deep Throat, the high-level source from the Watergate days, revealed his identity. In my dream, I was just like the Washington Post's Bob Woodward: I crossed paths with a mentor who was 30 years my senior, early in my writing career. It seemed like he was a top guy at a major regulatory agency in Washington, D.C. He gave me one reliable tip after another on business stories. He kept telling me that if I wanted to understand the business world, I had to stay close to the money. He made me promise never to talk about him with any of my colleagues – so I nicknamed him "Deep Pockets."

My dream grew much more exciting. Deep Pockets helped me uncover a huge story: it had something to with a guy named Charles Keating and the collapse of many savings & loans. Just like Deep Throat, Deep Pockets arranged to meet me clandestinely – in an underground bank vault. Thanks to my investigative work on that story, I wrote a book called All the Officer's Loans. To top everything off, my book became a movie in my dream. Sandra Bullock played me, the dedicated reporter.

What a blockbuster dream! When I woke up, I heard the echo of my underground conversations with Deep Pockets: "Stay close to the money," he said. "That means stay close to the financial wizards at every company you write about. They are more important than the CEO. In fact, they are the real CEOs."

That advice actually has proved more than worthwhile for anyone who followed the spate of corporate scandals since 2000. Hasn't it been true in each and every trial that the CEO wants us to believe that he didn't know a thing about the accounting fraud going on at his company?

Today's CEOs merely own up to what Deep Pockets told me in my dream. If you want to know who's really running the company, look no farther than the CFO.

Enron – CEO Kenneth Lay says he didn't know anything about the fraud. He says it was orchestrated by Enron's CFO, Andrew Fastow.

WorldCom – CEO Bernie Ebbers famously blamed his CFO Scott Sullivan for the $11 billion accounting fraud, saying that he didn't even understand profit and loss statements.

HealthSouth – CEO Richard Scrushy doesn't blame just one CFO; he blames all five, saying they were the ones who pulled off the $2.7 billion fraud.

So is it time to skip the CEOs and go straight to the CFOs? Maybe we've had it all wrong. As companies have stopped being about what they do or create -- and started being more about how they can finance things -- it is the chief financial officer who's become the real power. The chief exec has become a figurehead, who benefits from, yet is beholden to, the scheme of the person who "keeps the books."

Take a look at General Motors Corp. GM used to be a carmaker whose former president, Charles Wilson, was fond of saying, "What's good for America is good for General Motors and vice versa."

Today, it's just as much a finance company through its GMAC Financial Services organization. And it's not just making car loans. A June 9 Wall Street Journal article pointed out that, "In the first quarter of this year, General Motors Corp. made more money on mortgages than on cars or car loans."

It's also a carmaker-turned-financier whose massive corporate debt issue ($136 billion outstanding, second only to GE) has been officially rated "junk." So now GM says it will lay off 25,000 workers in three years to try to turn around its North American operations. Who got to deliver that bad-news message? The CEO. But who's really running the company? Look to the CFO.

In Greek tragedies, it used to be the hubris of the main character that brought him or her down. Some kind of pride before the fall. Now, CEOs in their courtroom dramas don't want to prove how smart they are. They want to prove how oblivious and unconnected they are to the companies they lead.

Call it a good defense, or call it what it really is -- a sign of how U.S. companies are now much busier finding ways to move money around than trying to actually produce useful goods and services. When our economy depends on finance rather than production, we create not only know-nothing CEOs but also a no-nothing manufacturing base.

Perhaps that's not so good for America after all.

Susan C. Walker writes for Elliott Wave International, a market forecasting and technical analysis company. She has been an associate editor with Inc. magazine, a newspaper writer and editor, an investor relations executive and a speechwriter for the Federal Reserve Bank of Atlanta. She received her B.A. in Classics from Stanford University.