According to CFO.com the most common reasons for a CFO change are:
- As a follow-up move to a CEO change
- A voluntary decision to pursue a better opportunity
- To get the right personnel in place to take a growing company to the next level
The article goes on to say, “Finding out precisely how many finance leaders have been asked to take a hike in the wake of accounting fiascoes, earnings disappointments, failed mergers, or unsound investment decisions is trickier, since most of them are effectively silenced by generous severance packages.” While this article speaks directly to publicly traded companies, the same rationale holds true for private companies. We know that firing a CFO for performance-related reasons is by no means the most common reason for separating. However, it is difficult to pinpoint the percentage of companies that have let their CFO go due to underperformance because neither party is going to readily admit that was the reason for dismissal. However, it certainly happens. And when it does, the process poses a uniquely difficult scenario.
Firing an executive of any sort is a daunting task, but letting your CFO go provides an added host of challenges. Since companies task their CFO with the financial management of the company a CFO may possess critical financial knowledge and planning information that can be lost when they are terminated.Therefore, letting your CFO go must be approached the right way to avoid stymieing the company’s future growth potential because:
- Negative reviews from former employees (especially at the executive level) can limit future chances to bring on top talent.
- Your firing process will never be a great brand builder, but it can certainly do brand damage when done poorly.
- Improperly handled firings can put the company in legal jeopardy.
While we are not lawyers, our extensive experience working with companies looking to hire new financial leadership equips us to speak to the strategic planning and communication best practices regarding letting your CFO go.
So, when your CFO is not cutting it despite attempts to correct the situation, how do you move on? When a company comes to us to hire a new Controller or CFO if they have taken the right steps in the firing process, this is what their journey looks like:
Understanding What Went Wrong
Firing someone should be your last resort. Every effort should be made to understand an employee’s situation and correct their performance before terminating them, whether the employee in question is in an entry-level position or an executive leadership role. However, if previous efforts have not yielded better results and it is time to fire your underperforming CFO, you will want to thoroughly prepare for letting them go before having the difficult conversation to do so.
Try to determine what went wrong and what you could have done to avoid this outcome. In some cases, the CEO could have helped shape a different result, and in other cases the solution may need to come from the broader organization. The most common reasons that CFOs get fired are typically personality-based shortcomings like poor communication, resistance to change, inability to delegate, or a misaligned skillset. And while these are often internal shortcomings, they may be exacerbated by barriers within the company like a siloed organizational structure, ineffective tech stack, or toxic office environment. If there is some way to improve on existing operations and company culture, use this opportunity to correct these issues before bringing in a new CFO.
When firing an executive Ben Horowitz reminds us that, “The wrong way to view an executive firing is as an executive failure; the correct way to view an executive firing is as an interview/integration process system failure. Therefore, the first step to properly firing an executive is figuring out why you hired the wrong person for your company.” He goes on to identify a number of hiring issues that can lead to bringing the wrong person into your CFO role, which include:
- Not defining the position effectively
- Waiting too long to hire into the role
- Hiring an executive who does not have experience with companies in your growth stage
- Giving into stakeholders’ expectations instead of hiring who you want to hire
- Hiring someone that has broad-based skills but lacks a depth of expertise
- Hiring for the future instead of for your current needs
- Mistaking personal ambition for a passion for the company
Once you have a sense of where the failure occurred, you will be better poised to hire someone new into the role after letting your existing CFO go.
Preparing to Fire
Before you fire your CFO, there is work to be done to prepare. Make every attempt to transfer position-specific knowledge to avoid having to reinvent the wheel when a new CFO is hired. Functionally, you should also ensure that the company has access to all accounts that bear the CFO’s name and all login credentials have been obtained. This will allow you to retain access and avoid the potential for a security risk after your CFO has been terminated.
Furthermore, you will need to put together a severance package to offer your CFO at the time of dismissal. Depending on the nature of the termination, your CFO may try to negotiate the terms of their severance package. Common areas for negotiations include:
- Payment frequency
- Payment timing
- Stock options
- NDA duration
You will need to decide what you are willing to compromise on in a negotiation discussion and what that compromise may look like.
Talking to the Board
Before talking to anyone else about the firing, tell the board about your intentions first to eliminate the degree of shock. You want to make your board feel like they are trusted partners, not an afterthought. The earlier you can bring them into the process, the better. Once they have been informed, have them review the planned severance package and explain how you plan to announce the decision internally and externally. Typically, you should plan to tell your accounting and finance departments first since they will be the most affected as direct reports to the CFO bout who you tell after that will depend on your unique circumstances.
Looking for an Interim CFO
Once you are in discussions with the board, you should begin working with a company that provides interim CFOs and start the process of bringing someone in to fill the gap. Work with a reputable firm to ensure confidentiality and do not tell anyone else as this point because the worst thing you can do is to let your CFO receive the news secondhand from someone else.
Having the Tough Conversation
Firing someone should not be a blindside because all employees should get regular performance-based feedback and open communication should be encouraged. Now, that does not mean that your CFO should be seeing the writing on the wall based on the rest of the c-suite’s behavior, but that does mean that they should be aware of the fact that their performance has not been in line with the company’s goals.
Plan what you will say ahead of time and stay in control the conversation. Avoid legal landmines by focusing on hard data instead of emotions or beliefs that could be considered biased in one way or another. Be clear and direct and always stay respectful and dignified.
Communicating the Decision
Once your current CFO has been told that they are being let go communicate the decision to the company and the public according to the plans you discussed with the board. If possible, you may be able to incorporate your departing CFO’s wishes into your communication strategy if they have requested that the news be shared in a particular way or at a certain time. Announce plans to bring in an interim CFO while you search for a full-time hire to allay concerns and assure your employees, customers, and partners that you value business continuity.
Hiring a Replacement
As you work with an executive accounting and finance recruiter to find your next CFO take the information you have acquired about what did not work to look for a better fit. Trust their process to find someone who will be a better performer for your business environment.
Reach out to us today to work with our experienced team of CFO recruiters. We have the right methodology in place to find a new hire for your CFO role that will be a stronger performer. We have a deep understanding of what makes a CFO successful, and we will bring that skill and knowledge to your specific needs and cultural environment.