Legg Mason… When CFOs Leave Financial Firms (LM)

July 7, 2010 by Jon C. Ogg

Legg Mason Inc. (NYSE: LM) has had a mixed track record of late.  If there is one of several issues that can spook investors, it is the departure of a Chief Financial Officer.  Right after the close today, The asset management firm announced that CFO C.J. Daley is leaving Legg Mason after a 22-year career with the firm.

Terrence Murphy, Chief Operating Officer of ClearBridge Advisors, a Legg Mason affiliate, is who Legg Mason has named as the Interim CFO.

Normally this could spook investors.  CFOs suddenly leaving financial firms can often bring up fears of accounting irregularities, general disagreements with auditors, and a host of other fears.  The good news is that it is probably not an ill omen that Legg Mason is about to have show and tell on a collection of skeletons in the closet.

The reason for the departure was that Daley was leaving “for a senior position with a privately held asset manager.”  He was quoted as saying, “I was unexpectedly presented with an entrepreneurial opportunity that was too attractive to pass up.”

Murphy, the new Interim CFO, has also served as CFO of Citigroup Asset Management prior to Legg Mason’s acquisition of the division business in 2005.

This is one of those instances where a red flag is probably not anything more than a speed-bump.  It is probably likely that Daley’s new employer had him sign affirmations that he has not knowingly been part of any unknown scandals or anything adverse to do with accounting at the firm.  That is not always the case, but it is certainly not out of the norm.

Legg Mason shares closed up 4% at $28.54.  If there was an anticipated problem or even a fear that this posed a new unknown risk, the stock would probably be lower than the $28.51 where shares are trading in the after-hours.

JON C. OGG