The CFO'S Perspective

A large part of any Chief Financial Officer (CFO) role is strategic decision support, whether those decisions are related to staffing, pricing, selling, manufacturing, or any other area of the business. A CFO’s forward-looking point of view combined with their financial acumen makes them ideally suited to provide actionable information to their CEOs and other corporate decision makers and integral to the success of the organization.

Leaning on a CFO for strategic decision making support offers the following benefits:

• Adding value to the company in the short-term as well as the long-term
• Providing data-driven guidance during business shifts
• Aiding in weathering a crisis or downturn

Last week we shared the first article in our two-part series on today’s top challenges for CFOs. That article discussed the pressure that inflation has put on companies nationwide as well as the problems with expense reduction strategies and the added complexities of usage-based pricing models.

If you missed it, you can find it here: The Top 6 Challenges Faced by CFOs Today

Today we will jump right in with the last three challenges for CFOs:

The pressure on CFOs today is more intense than ever before. Their roles have become increasingly complex amid an uncertain financial landscape, resulting in the kind of financial challenges that CFOs 10 years ago could never have imagined they would be facing today.

Rapidly changing consumer and business purchasing habits have caused demand to fluctuate wildly, nullifying forecasts and ongoing financial projections. At the same time, rising costs on raw materials, packaging, and transportation have cut deeply into the profit margins that CFOs are tasked with managing. And soaring inflation has only exacerbated the challenge of rising costs across all industries.

We came across a recent McKinsey article that provided advice for new CFOs on how to succeed in their first 100 days. Their premise was:

“In recent years, CFOs have assumed increasingly complex, strategic roles focused on driving the creation of value across the entire business. Growing shareholder expectations and activism, more intense M&A, mounting regulatory scrutiny over corporate conduct and compliance, and evolving expectations for the finance function have put CFOs in the middle of many corporate decisions—and made them more directly accountable for the performance of companies. Not only is the job more complicated, but a lot of CFOs are new at it—turnover in 2006 for Fortune 500 companies was estimated at 13 percent. Compounding the pressures, companies are also more likely to reach outside the organization to recruit new CFOs, who may therefore have to learn a new industry as well as a new role.”

And while we agree with this assessment, we feel that it leaves out an important piece of the puzzle: organizational support.

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.

Like a lot of small business owners, I never expected to own a business. I didn’t think that I had an entrepreneurial bone in my body. I had always been a corporate guy. It's not latent in my DNA either. My dad spent his 40+ year career with General Motors. His dad tried his hand at owning and running a commercial painting business, but alas, after years of struggling, it failed.

A business owner should always have a succession plan, yet at the same time be ready when a member of their executive team is ready to implement their own exit strategy, i.e., retirement. The Great Recession caused many people to need to work longer until retiring because of the loss of income and value of retirement assets. But now, a decade has passed, which has given some the time to replenish their retirement savings. As a result of the COVID19 pandemic many people are re-evaluating what is important to them, and in many instances, it means retiring a few years sooner than originally planned.

Hiring for any executive leadership position can be a complicated process, but a CFO brings its own unique set of challenges. Organizations that downplay the importance of a thorough job description or attempt to rush through the steps can end up needlessly prolonging the search process or settling for a candidate that does not fit their needs.

Hiring a CFO hinges on writing an effective job description for the position that outlines not only the required qualifications for the role but also the expectations for someone acting within the role. And while this is a foundational piece of the search, it is only the first step in the process. Once the role of a CFO is defined, the active process of hiring a CFO begins. Each subsequent step must then be undertaken with an understanding of how it will build on previous steps and make additional progress toward finding the best candidate for the role. From identifying key decision-makers and setting a hiring timeframe to talking to a recruiting firm and evaluating your hire, each step is integral to the overall process.

So, how is today’s CFO hired exactly? Our executive search team answers your most common questions to explain the process.