Wall Street's Most Powerful Woman And why she might not rise higher than Lehman's C.F.O.

Hanging high over midtown Manhattan, the executive floor of the Lehman Brothers investment bank is a curious fusion of hunting lodge and glass aquarium-only instead of bear pelts and deer antlers, one finds framed announcements of bond offerings on the walls. Lehman's pugnacious C.E.O., Richard Fuld, has his office here, alongside those of the firm's president and chief operating officer, Joseph Gregory, and the company's co-chief administrative officers, Scott Freidheim and Ian Lowitt-men who oversee the army of traders and bankers who make up the capitalist heart of the company. This is not a place where you see many women, unless they're part of the secretarial pool. (View an interactive of key indicators showing gender differences between men and women in corporate America.)

To visit the floor is to realize how remarkable the presence of Erin Callan is. Ensconced in the office next to Gregory's, seated before twin blinking flat screens, Lehman's new chief financial officer is the first woman ever to serve on the firm's 15-member executive committee. But the significance of Callan's promotion doesn't end there. A former tax attorney who started at Lehman in the fixed-income department and then rose to advise hedge fund kings like Ken Griffin and Steve Cohen, Callan led some of the most important initial public offerings in the financial world in recent years, including those for the Blackstone Group and Fortress Investment Group. In the wake of her impressive rise-coupled with shakeups at other Wall Street banks-Callan, 42, may have won a high-stakes game of last-woman-standing. She is possibly the only female now in line to run a major financial institution. (View an interactive timeline of gender wars in America.)

Yet the C.F.O.'s office may be as far as Callan gets. She begins her new job just as women's advances in corporate America and banking in particular have entered a surprising state of limbo. No woman has ever been named the C.E.O. of a Wall Street firm, and the prospects of it ever happening seem even more remote now than they did a year or two ago. The most promising female candidate, Morgan Stanley co-president Zoe Cruz, was pushed out last fall after the firm posted a $3.7 billion loss from mortgage-related securities. Merrill Lynch, Bear Stearns, and Citigroup underwent C.E.O. searches in recent months, and no women appeared on any of their short lists. (Read more about the workplace battle of the sexes.)

A handful of women have achieved C.F.O. status at major Wall Street firms. The select group includes Sallie Krawcheck (briefly) and Heidi Miller before her at Citigroup, as well as Dina Dublon at J.P. Morgan Chase and Barbara Yastine at Credit Suisse First Boston. None of them have moved to the top job at their firm or even to an obvious precursor position. Miller went on to become C.F.O. of Priceline and later Bank One; she's now in charge of J.P. Morgan Chase's treasury and security services business. Dublon retired in 2004, at age 51, after serving as C.F.O. for six years, and Yastine left her C.F.O. slot to devote herself to philanthropy. Krawcheck, whose coronation and sudden move sideways out of the C.F.O. office were documented breathlessly by the business press, is now Citigroup's head of global wealth management and no longer considered a contender for the top job. (Sexism or Not? You Decide)

For all their accomplishments, a quick study of precedent suggests that the C.F.O. job has effectively been a glass ceiling for women in finance. Despite its vaunted status in the corporate hierarchy, C.F.O. is rarely a path to the C.E.O. suite for anyone. (Stan O'Neal, the recently ousted Merrill Lynch chief executive, was an exception, but he is now seen as a disastrous example of what happens when a "numbers guy" gets to run the whole show.) According to CFO magazine, the number of Fortune 500 companies with female C.F.O.'s last year was 38, or 7.6 percent, whereas in 1995, there were 10, or 2 percent. The pace of advancement can be described only as slow, but the C.F.O.'s office looks downright progressive compared with that of the C.E.O.? Of the Fortune 500 companies, only 12, or 2.4 percent, have female chief executives (with zero on Wall Street), though that is certainly up from 1996, when there were none.

In banking and finance, the C.F.O. position is perceived as more of a support role-albeit a critical one-in which one keeps the books and deals with balance sheets and regulators, providing guidance to the C.E.O.? (To some, the job fits into the age-old gender stereotype of women as keepers of the family checkbook.) Meanwhile, the traders and bankers go out hunting, risking the firm's capital and bringing in the revenues (or losses) that drive the business; they are the cowboys who ultimately fill the pool of future chief executives. Of the current C.E.O.'s at the top seven Wall Street investment banks, six served previously as chief operating officers, responsible for day-to-day activities rather than toiling behind the scenes. Often, the top dog's background reflects a particular bank's culture and priorities: At firms that live and die by trading profits, for example, the chief tends to rise through the trading arm (as was the case with Goldman Sachs head Lloyd Blankfein and Fuld, Lehman's chief).

Ironically, when Callan's C.F.O. opportunity came along, she held just the sort of swashbuckling job that could have groomed her for future C.E.O. consideration. As head of Lehman's hedge fund investment-banking unit, she was knee-deep in leading I.P.O.'s for companies like Fortress, Blackstone, and Och-Ziff Capital Management Group. She was also instrumental in initiating a $500 million bond issue by Citadel Investment Group in 2006, the first such bond offering by a hedge fund. When she was approached about the C.F.O. position, she hesitated-but only for a second.

"My first reaction was 'Is it even conceivable that I wouldn't do it?' And I knew the answer was no," she says. "I had a desire that was building to be more of an opinionmaker, to have more influence in the organization."

On a late-autumn evening shortly after her promotion, Callan darts periodically across her office to check on the pricing of the Och-Ziff I.P.O.? A video screen pipes in images of her old trading desk. Framed photographs of her dogs are spread liberally across the shelves and wall where some executives might display portraits of their wife and kids.

"I did not have a single female client at any level of these organizations," she says of the hedge fund world she used to deal with. "This was a 100 percent male-dominated industry." She adds, however, that she managed to turn her outsider status into an advantage, one that helped her build trust as she served as an adviser and hand-holder to rich hedge fund founders with scary reputations-men like Citadel's Griffin and Cohen of SAC Capital Advisors. "I think people may let their guard down more with me than with others. Being different-being a woman-was helpful," she says.

Dwarfed by the high-backed leather chair in her office, Callan is wearing a short crocheted dress with a black belt slung low around her hips, gold hoop earrings, and knee-high caramel-colored high-heel boots. She seems to have rejected the path taken by some of her counterparts, who have erased all signs of their femininity to blend in with the pinstripes. "I don't subordinate my feminine side," she says. "I'm very open about it. I have no problem talking about my shopper or my outfit."

Callan says that she was able to bond with hedge fund managers and bring lucrative new business to Lehman at least partly because of her gender and her ability to play the role of confidante rather than rival. Her job also began to include tasks such as helping hedge fund entrepreneurs come up with compensation plans and track down general counsel or heads of investor relations. "Creativity, urgency, and execution-with Erin, you get the whole package," says Gerald Beeson, Citadel's C.F.O., who worked closely with her. "She's a real asset when you're tackling complex situations that require quick and clear thinking and fast action."

Callan is one of three daughters of a New York City police officer father and a homemaker mother. She attended Catholic high school in Queens and graduated from Harvard and New York University law school. She joined Simpson Thacher & Bartlett as an associate in the tax department, and Lehman happened to be a marquee client. She started nosing around for opportunities at the investment bank, which impressed her as a place where "everyone seems really into what they do." Lehman hired her initially to capitalize on her tax background in order to develop new kinds of investments for clients. She spent time in the fixed-income department before founding an internal think tank that designed esoteric financial instruments, a group that bankers could come to with their sticky client money problems. For example, if they were in the middle of an acquisition, with money trapped in France that needed to be moved to the Netherlands, Callan and her team would brainstorm for solutions.

Now, as an executive-committee member, Callan knows that she may someday be considered as a possible successor to Fuld. "She's brilliant, intensely focused, and you can rest assured, if it's on Erin's watch, she gets it done," says Gregory, Lehman's president. "I'm proud that Erin is our first woman executive-committee member, and I'll be proud of Lehman Brothers when she's one of many." But Callan demurs when asked about the role that gender might play in any future C.E.O. selection at the firm. "You know what? Dick [Fuld] is not going to care that you're one of the most successful women on Wall Street if he's not happy with the way you handled something," she says. "It's not really going to make a difference."

As for why there aren't more women like Callan-or even above or below her-she says that it's in part a numbers game. As the only woman on the executive committee, the most obvious pool of potential future C.E.O.'s, she has, at best, a 14-to-1 shot. A woman's slim chances and the dearth of female candidates, in turn, become mutually reinforcing: Since there aren't many senior women in finance, younger women don't go into the field.

Critical to Callan's success, she says, was having a network of peers and mentors-people she could bounce ideas off of, commiserate with, and who could provide a critical "sanity check" whenever she had a particularly conflict-ridden day or scarring political battle at the office. Without such people, she says, it's easy to be held back by self-doubt. "Probably the single biggest thing I had to get over in my career is not being liked by everybody and being okay with that," Callan says. "I think that's a challenge for a lot of women, when you've been socialized as a young girl and a woman to be polite and be liked."

Today, she has the unenviable task of taking control of the company's finances just as Wall Street finds itself in a state of crisis, coping with a hangover after a binge of easy credit and reckless risk-taking. She doesn't have an accounting background, which is increasingly key for C.F.O.'s as such regulatory requirements as Sarbanes-Oxley have upped companies' financial-reporting demands. But she's already trying to position herself as a big thinker rather than a bookkeeper.

"I see myself in more of the strategic camp," Callan says. "When you don't grow up in the accounting profession and you grow up more as a deal person, your bias is to look much more at the big picture." Otherwise, she says, "you really could consume yourself entirely just staying in the weeds."