Financial execs who do the right thing.

• Author: Marshall, Jeffrey
• Position: Cover Story

Would you sign a company financial statement, knowing it could be inaccurate? It is the stuff of every finance executive's nightmares--situations where they come upon fraud or are asked to report more favorable numbers. Integrity runs smack up against job preservation--and they have to choose. If they stand up to superiors, could they be fired? Or, if they grudgingly go along, do they put their reputation (or worse) at risk?

There's the instance of the CFO who found that the CEO and a sales executive had cooked up phony sales to boost quarterly numbers; the case where a general auditor found that divisional management was systematically underpaying hourly workers to pare losses; the time when a treasurer raised questions about an overly rosy forecast for an IPO and found himself ostracized and eventually forced to leave.

Virtually any financial executive with long years of experience has tales to tell; the more companies he or she has worked for, the greater the odds that there has been an uncomfortable or job-threatening situation. In many instances, they face a culture of entrenched practices and are asked to quietly "go along."

Clearly, telling tales out of school can be a difficult thing for a financial executive, schooled in probity, confidentiality and the perceived virtue of silence to the outside world about corporate practices. Yet many are clearly aggrieved by situations they've encountered, which in some instances even resulted in them resigning or being fired.

An Atlanta executive says he was involved in uncovering unethical practices at two different companies. "In most cases, I was supported," he says. "In one case, I was supported publicly, but given my walking papers privately." He also remembers vividly walking into a meeting on business ethics, only to find "that one of the guys I fired was one of the speakers."

In a lengthy letter to Financial Executive earlier in the year, Joseph W. Harwell, CFO of Manchester Tank & Equipment Co. in Brentwood, Tenn., said: "At the end of the day, there's probably not a CFO out there who has not been pressured at some point in his or her career. How we respond to the pressure is what defines our character, our integrity and our ethics."

Echoes Mark Zorko, CFO Partner at Tatum Partners, a former CFO and past president of FEI's Chicago Chapter: "When a CFO is confronted with fraud, it's a moment of truth The onus is on the CFO to do the right thing. If the CFO is asked to play along or look the other way, he or she should be mentally prepared to leave the company, and then get on with convincing the management team to fix the business instead of fixing the books." He adds: "You can always get another job, but you can't get another reputation."

The stories that follow, most drawn from FEI members, are true, and not all are U.S. companies, a reminder that fraud or potential fraud knows no borders. In a few cases, the executives were willing to share the details but not the specifics of their name or the name of the offending company Understandably, most mentioned fears of lawsuits, retribution or blacklisting for future jobs.

Following the massive corporate scandals of recent years, ethics and integrity have become touchstones of today's corporate management. The shape of the tales these executives have told is very instructive about how principled most financial managers are when they feel pressured to dissemble, deceive or simply look the other way.

Ethical Conduct Lacking

The tone at the top was questioned by the CFO, who says the board of directors was the CEO's "yes men." In this executive's own words:

i found myself working with a small, ($40-million) public company in the education industry run by a very autocratic CEO who had surrounded himself with a board of directors composed of mostly insiders. His top management team evolved into a group ok "yes men" who rarely challenged his direction. Decisions were not made based on their financial merits, but rattler on what the CEO thought--and he would present a one-sided view. After going along with many of these decisions, my predecessor had supposedly resigned over ethics issues.

Knowing there was nO One else who was as familiar with the company's issues, I took the CFO job as a promotion from Director of Finance and felt I could hold firm where necessary. Consequently, after seeing the detrimental effect to the company of this management style, when several decisions were being evaluated that I believed not in the best interest of the company, I felt it was important that the board hear both sides of the story. While I don't remember the exact moment, or having what might be viewed as an epiphany, there was a time I just knew I had to take the lead to bring the situation to the attention of those who were in a position to right the wrongs.

I tried to discreetly communicate the other side to one of the board: members (using both telephone and email), but underestimated the "old boy" network, and information got back to the CEO that I had challenged his opinion. I was, from then on, kept out of the information loop, even though I was expected to sign the 10-Qs.

I held my ground on being informed of a material transaction involving the transfer of restricted government funds to a "legal war chest" for fighting an investor takeover. After that, in July 2000, we "parted company," as my ethics kept getting in the way of their plans. After that, they managed to hold things together for a few months, but eventually filed for bankruptcy. The company was sold off piece by piece, with creditors getting very little and investors getting nothing.

Debra T. Johnson subsequently launched her own company; she is President of Emissions Products International LLC.

Lesson: Don't ever let the job override your ethics. Stick to your guns, even if it means losing your job. I did both--stuck to my guns and lost my job--but I have never regretted it for a moment. Personally, I am very happy with my decision to take the high road, though it cost me a large severance package.

Questioning Payroll Discrepancies

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