Today’s executive financial hiring numbers reveal a surprising trend! Recent data shows that the rate of companies hiring externally for their Chief Financial Officer (CFO) role is at a 10-year high. The prevailing theory as to why so many companies are looking outside their organization to hire a CFO is that succession planning for CFOs has been deprioritized in recent years as they have focused on tackling their organizations’ more pressing needs instead. And yet, succession planning remains a critical activity to avoid the disruption and cost associated with needing to look externally for a replacement when an organization’s CFO leaves or retires.
The Importance of Succession Planning
Succession planning is important for CFOs because their leadership touches so many areas of the business. When an organization loses their financial leader, whether the loss is expected or unexpected, a hole is left that has wide-reaching implications. Everything from cash flow and profitability to risk and regulatory compliance are at jeopardy of being compromised without strong, experienced financial leadership at the help of the organization.
CFO succession planning is a key business continuity measure. Ensuring there is a clear plan to bring in another well-qualified individual to lead enables business as usual to continue. This promise of continuity can go a long way in increasing investor confidence to keep cash coming into the business from outside investors. This is one way that succession planning aids in overall risk management, but it’s certainly not the only way. Avoiding a gap in an important role like CFO is nonnegotiable from a compliance perspective as well. Lenders and other regulatory bodies will want to ensure that their investment is being well protected with the assurance of continuous qualified leadership.
Additionally, developing a plan around strengthening internal talent to prepare them for the role creates a talent pipeline that can mitigate the risk of turnover at lower ranks by demonstrating that the organization wants to invest in employees and partner with them for growth. This is a win-win for organizations because hiring from within is not only less disruptive but less expensive as well. The cost of investing in your bench to develop a new starter is much more cost effective than going out and hiring a new star player.
Ultimately, succession planning is also better for long-term strategic decision-making because it infuses stability into the equation around an area that can be tumultuous if handled improperly.
How to do Succession Planning Well
Effective CFO succession planning will equip an organization for the loss of its financial leader by preparing staff for the change and setting the organization up for success after the transition is complete. To do succession planning well, CFOs will need to:
- Identify the core activities and functions of the role. Include both what the job description already says it entails as well as the evolving day-to-day demands of the role.
- Define the skills and attributes required to succeed in the role. Consider both the “hard skills” around financial acumen as well as “softer skills” like communicating clearly.
- Assess internal talent for individuals that have the potential to succeed in the role. These individuals may already have a skillset that matches the requirements of the role, or they may be the kind of people that pick new things up quickly and have a strong willingness to learn.
- Begin developing top talent by structuring a development plan to help them grow. This plan may include things like providing formal training, assigning new responsibilities, doing rotating assignments, or giving other on-the-job opportunities to learn. The goal is to expose them to the many facets of the CFO role to prepare them to lead over time.
- Take on a mentoring or coaching role to be personally involved with potential successors. That personal relationship can go a long way in keeping your top talent if they start to get noticed by other companies as they grow into leadership material.
- Formalize the plan, including as much specificity as possible, and communicate it with key stakeholders.
- Test potential successors on their willingness and capability to do the job by giving them added responsibility and evaluating their performance in response.
Don’t forget to plan for alternate scenarios as part of your succession planning efforts as well. Include more than one name as someone that could potentially serve as a successor to give your plan the best chance of succeeding by anchoring it to the process, not the person. If you have an effective development plan in place, this should be feasible because you will have a deep pipeline of talent to draw from when the time comes.
Once you’ve taken these steps you’ll have the pieces in place to better plan for a leadership transition. However, your job isn’t done yet! Remember, CFO succession planning isn’t a “one and done” activity. A succession plan is a living document, which means you’ll need to regularly review it to ensure it still fits business needs and talent as time passes and changes occur.
Being Prepared to Change Direction
The goal of a succession plan is to have a successor lined up ahead of time to minimize disruption to the business so that growth isn’t affected. However, even the best succession plans can end up needing to be modified when extenuating circumstances arise. Keep an eye on external talent that could be a good fit for the role someday as well, just in case there doesn’t end up being anyone internally that’s going to be the right match. Prepare for how you will find your successor if you need to go outside the company and what that transition period will look like as power is handed over to someone who will need to get up to speed on how the business operates. Determine who you can turn to for interim leadership and executive recruiting in this circumstance if needed. Proactively identifying an interim CFO solution and a CFO recruiting firm can help ensure that things run smoothly even if your organization ends up needing to hire externally for the role instead of following its plan to name a successor internally. This kind of business contingency planning has always been important but is even more critical these days as change has continued to accelerate across the business landscape.
At CFO Selections we offer not only interim CFOs but also executive search services to help you hire your next CFO. Don’t leave finding someone to fill your shoes to chance – contact us to find out how we can help when the time comes!
