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.
Our experience has taught us that even the most talented, mission-ready finance leaders will struggle when there is not broader organizational framework behind them. Obviously, an individual candidate will have the onus of learning the business and finding their way in their new role, but a company’s actions can either help or hinder their odds for success. There is no better financial strategy than putting a firm foundation in place before hiring a CFO to help them succeed in their efforts after the hire.
So, what should you do before hiring a CFO?
Understand the Role
Work with existing financial personnel to define the role related to responsibilities, expectations, and deliverables. When you are creating a new CFO role, you need to know how you will evaluate performance before bringing someone in. Our team recommends “Lean[ing] 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.”
Additionally, our own Alex de Soto, an experienced CFO recruiter, reminds us that the most common question CFO candidates ask is ‘Why is the position available?’ He explains,
“It is natural to want to know – ‘What happened to the last person in the position?’ Or if this is a new position, ‘Why now?’ What happened to make this CFO position needed? The candidate needs to hear the history to project the future, just like they do in their CFO job. What are the historical financial results, and given what I know about the present, what do I forecast/project the future to be? And if the past was not so rosy, what can I do to make it a better future (i.e. manage the risk)?”
Younger companies should be able to answer the “Why now?” question, not just because it will position the company better during recruiting but because it is crucial to understand when structuring the role.
Establish a Mentoring Relationship
Every CFO needs a mentor, and while most organizations assume the CEO can serve as a mentor to their CFO, the McKinsey article on how CFOs can do their best work explains,
“Forty-six percent of the respondents said that the CEO had mentored them, but the relationship appeared to be quite different from the traditional mentorship model, because many CFOs felt uncomfortable telling the boss everything about the challenges they faced. As one CFO put it during an interview, ‘being a CFO is probably one of the loneliest jobs out there.’”
This sentiment expressing executive loneliness is by no means a recent trend, but it does appear to be getting worse in recent years as executive-level positions take center stage on social media and news outlets (even among private companies). For this reason, a CFO should have a mentor (or two) externally to provide support, act as a sounding board, and help with their professional development.
While it may not always be appropriate to appoint a mentor for your CFO, facilitating business connections and encouraging your CFO to find a mentoring relationship is always beneficial. Some companies are hesitant to do this because of a perceived “flight risk” associated with strengthening an executive’s professional network. However, the opposite is typically true – better connected CFOs are more likely to stay in their roles because they feel better supported in them. Additionally, they are more likely to do a better job because they have the network needed to continually grow their financial acumen.
Executive leadership tends to burn the candle at both ends – working long hours on high-profile, business-critical work, making them more likely to burn out than mid-level employees. This is reflected in recent data, which shows that 16% of employees leaving their jobs these days are doing so because they feel “their well-being is not supported by the company.”
Having the right benefits package in place in the way of paid time off and work flexibility is a good start to supporting your CFO, but the pressures of the job are significant enough that these on-paper benefits are not enough. Finance staff, especially executive-level employees, need to be supported in a more palpable manner by eliminating busy work from their jobs, making time for professional development, and allowing them time to invest in their personal interests. While these initiatives should be available to all employees, they are especially critical at the top where replacing personnel is especially challenging.
Conduct a Third-Party Financial Assessment
If you are considering hiring a CFO or Controller, an independent financial assessment is a good place to start. Having a third-party analyze your finances to find your strengths and weaknesses is a crucial exercise when determining which roles to recruit for and how best to fill those positions.
While assessments can vary in scope and depth, they should cover the following areas:
- Internal financial reporting to management and investors
- External financial reporting to governing authorities
- Current and past projections and financial models
- Processes, systems, and tools
- Bookkeeping methods
- Internal controls
- Operational focus
- Financial goals and expectations
When you are ready to bring in an experienced firm to conduct a financial assessment, please reach out to us. We would be happy to take a look at your financial systems, processes, and deliverables to make recommendations on where you can improve and what kind of personnel will best assist you in these areas.