By now it’s widely accepted that economic instability is a large contributor to CFO turnover. In fact, in recent years research has shown that the average tenure of a CFO has gone from 5 years to 3 years.

It was with this statistic in mind that I recently reached out to Prudential Financial Inc. in the hope of landing an interview with their CFO of 13 years, Richard Carbone. We were quite pleased that Prudential’s CFO accepted our request and subsequently served up some sturdy guidance regarding what it takes for a CFO to enjoy a lasting tenure. While we look forward to sharing the entire interview with you in an upcoming Business Finance article, I wanted to pull out a few memorable comments that Carbone made in regard to the recent economic crisis.

Carbone says that he learned early in his finance career that the three most important finance metrics are “liquidity, liquidity, and liquidity.” The notion that other CFOs somehow didn’t understand that a growing lack of liquidity was an indication of more severe problems to come remains hard for Prudential’s CFO to fathom.

“Trouble within financial institutions almost always starts with liquidity and the lack of liquidity. No one should have been learning this for the first time,” Carbone states.

When asked about how Prudential had coped during the escalating crisis of 2007-2009, the veteran CFO couldn’t help but emphasize how he relied on past experience to assess the situation.

“I had been through at least two of these in the past — one being in 1987 when I was on Wall Street at E.F. Hutton — so I’ve been to this movie, and I’ve got to say that it should not have been a surprise to anyone.”

Why exactly so many finance chiefs failed to interpret correctly the initial stages of the liquidity crisis is most likely the high cost of holding capital, says Carbone.

“I think that too many management teams ignored this sort of downward scenario and discredited planning, and this ended up preventing CFOs from holding capital or liquidity because it’s expensive when you’re considering these types of Armageddon scenarios.”

For its part, Prudential began scrutinizing the capital holdings of each of its subsidiaries in late 2007.

“I’m kind of proud of a few things we did in response. When we saw the cracks in the system developing in the fall of 2007, we began adding liquidity to the balance sheet, and we also began paying very close attention to the capital of each one of our regulated subsidiaries. We then scrubbed those numbers to make certain that if there was a strain on the capital accounts, they could withstand a certain amount of stress.” ###