As executive financial recruiters we work with companies every day who have lost their CFO for a variety of reasons. The CFO may have left to pursue a better opportunity, retired, or made a career change. And in some instances, the CFO may have been shown the door due to subpar performance.
In all honesty, the latter scenario is the least common. Most organizations are hesitant to let their CFO go because of the inherent doubt in the process of doing so. First, there is the big question of how to determine whether your CFO is making the grade. (You certainly do not want to let your CFO go if you cannot be certain that someone else will be able to do the job better!) And, secondly, there is the daunting prospect of needing to find a replacement that is going to be better performer.
But just because it is not very common in practice does not mean it should be. Companies, especially those with owners and CEOs that do not have strong financial acumen themselves, do not typically evaluate their financial leadership as thoroughly as they should. Unfortunately, if your CFO is underperforming, not identifying this in a timely manner or not doing anything about it, can be extremely costly. When your financial leadership is falling short of expectations, strategic planning can fail, affecting revenue and profitability.
Find out how to do a CFO evaluation to assess whether your CFO is helping to drive growth or hinder it:
Establishing a Framework
The first thing you need to determine when asking, “Is my CFO underperforming?” is what your framework is going to be.
“Underperforming” compared to whom or to what? …Their predecessor? The CEO's expectations? Other CFOs you know? Industry averages? Common financial KPIs? Overall business goals?
If you are worried that your CFO may be falling short, you need a strong handle on what you think they should be doing better or where you think your company should be in the hands of a well-equipped financial leader. This where industry professionals can be an invaluable resource. Lean on colleagues, industry contacts, and financial leadership experts to give you advice on what to expect and what kinds of signs signal positive or negative performance.
CFO Performance Metrics
A CFO’s performance can be evaluated in reference to their primary activities related to:
- Cash flow
- FP&A
- Reporting
- Financial policies and procedures
- Budgeting
- Funding/financing
- Tax strategy
- Financial technology
- Accounting and finance staff management
Metrics respective to these financial deliverables and strategic planning initiatives can be used to analyze the company’s financial performance, which is a reflection on the CFO as well. A CFO that is excelling in the role will:
- Make operational changes to increase positive cash flow
- Make smart investment decisions related to PPE (property, plant, equipment)
- Improve forecasting to inform better decision making
- Be technologically savvy with data analysis tools
- Ensure reporting is being done accurately and on time
- Clearly communicate reports and key metrics with stakeholders
- Implement and oversee internal controls to mitigate risk and improve data accuracy
- Approve budgets and manage spending relative to those budgets
- Secure outside funding sources
- Improve the terms of financing agreements
- Reduce tax liability
- Evaluate, implement, and oversee financial platforms and related technology
- Hire and train accounting and finance employees
- Manage and mentor subordinates
Analysis: A CFO Evaluation
A CFO should use their expertise to provide financial insight and drive forward-looking, strategic decision-making, enabling an organization to reach its goals. If this summary does not describe your CFO, they are likely underperforming in the role.
Remember, while a CFO is not solely responsible for whether an organization reaches its short-term and long-term goals, a stumbling company may be a signal that the right financial leadership is not in place to lead it through the difficulties it is facing. A strong executive that is the right fit for the role will get a struggling or stagnant company on track financially to turn it around and foster growth.
A successful CFO will look for ways to make the kinds of changes that drive a company forward instead of just perpetuating a “the way things have always been done” approach. This is especially true right now amidst sweeping supply chain disruptions and labor availability issues. The biggest red flag would be if your company has been "business as usual" over the last year and a half because every organization has had to make changes during this time (whether their business model has been helped or hurt by the pandemic). A CFO who is unwilling or unable to adapt to market, industry, technology, or regulatory changes, is likely not the right person for the role.
When your CFO is no longer meeting your needs and has not been responsive to direct feedback, the company will need a new financial leader at the helm. Let our Executive Search Team find you a new CFO to lead your company forward. We will work with you every step of the way to find a candidate that is the right fit for the role and your expectations.
For emerging professionals, think of key performance metrics as the foundation of your analysis.
Whether you’re an aspiring manager or a seasoned executive, the KPI metrics outlined in our eBook will provide key insights to better understand key performance indicators.
