In this Q&A, Robert Half’s Tim Hird explains the strong message that succession planning delivers to aspiring CFOs within organizations.
Few events are as disruptive to a business as an unexpected leadership change, and yet only 52% of CFOs in a recent Robert Half Management Resources survey indicated they have identified a successor for their position.
FEI Daily spoke with Tim Hird, executive director of Robert Half Management Resources, about the risks organizations face, including a leadership void impacting day-to-day operations, stalling strategic decisions and taking away legacy knowledge.
FEI Daily: Was it surprising to you to learn that nearly half of CFOs don’t have a succession plan?
Tim Hird: It did, actually. It was a surprise because the role of the CFO has become so integral to organizations, particularly in the last five to ten years. The role of the CFO has become so influential within organizations, it’s become so prominent, that the risk factors of not having a succession plan are a lot more significant now if a CFO departs than maybe what they were five or ten years ago.
Because of the nature of the role, whether it’s driving technology change or digitalization projects, whether it’s looking after the corporate governance and regulatory compliance for organizations, they’re in the boardroom now more than they ever were before. Maybe it’s because the CFO just hasn’t necessarily had as much turnover as other roles in finance, so it’s been less of a consideration for organizations.
FEI Daily: How does this compare with other C-level executives? Why do you think that is?
Hird: This survey was really only looking at the CFO position. All I know is that the CFO role now is more integral, it’s more pivotal than it ever has been. Part of this may also be driven by the fact that because the role of the CFO is more complex and more strategic in nature. It may be that organizations internally are struggling to find candidates who are suitable, who have the prerequisite skill sets to move up into the CFO position. The availability of potential candidates with these all-around skills is a lot less now, and of course, that’s compounded by a very good economy where there are lots of opportunities for people to leave companies and advance their careers faster. I suspect that’s probably the bigger reason for it.
But there’s absolutely no doubt about the benefits of succession planning. If CFOs aren’t concerned about it, they should probably begin to be. The risks are huge. You have disruption to day-to-day business operations, especially if you have CFOs who have been in that position or in the accounting department for a long time. They have a lot of knowledge, and that legacy knowledge goes out the window when they leave.
The CFO really is the leader of the finance department; if the CFO leaves, that can impact development and advancement of high-potential staff in accounting departments, which obviously can lead to more turnover. So there are a lot of risks for organizations if they’re not looking at this seriously.
FEI Daily: What are some of the ways that an executive benefits from grooming a successor? What are the ways a company can benefit?
Hird: Seamless business transition is always important, whether it’s a planned departure or an unexpected one. Obviously, the unexpected departure is often the one that’s harder for companies to deal with because they’re not anticipating it. Having very structured succession planning allows the business to transition very comfortably.
But you know, they also have to look at ensuring that there’s a pipeline of in-house successors for the roles. The whole concept of succession planning is not only about making sure the CFO position is there, but I think it delivers a very strong message to aspiring CFOs within organizations. They know that the CFO isn’t going to be in the seat for the next 20 years, and there’s an opportunity for them to advance their careers and gain skills, to be considered for those roles. It has a broader employee motivation and ultimately retention strategy, and the more those succession plans can be clearly communicated, the better.
When a company is hiring externally, and high-potential candidates are considering joining an organization, they want to know what their career plans are. They may not be expecting a succession plan, but a succession plan is definitely evidence that the company has structured management programs for career advancement. So it’s not only about retaining current staff; it’s also about hiring the best talent in the market externally.
And it’s not just about having a professional development or succession plan; it’s providing the professional development that goes with that to help these leaders of the future acquire the required skills.
FEI Daily: If a CFO is looking to leave their company, what steps should they be taking now?
Hird: Obviously, they need skilled, experienced people who have the skill sets or the potential skill sets who can step into that role. A lot of people argue that if you hire someone into a CFO role and they’re ready, you’ve almost made the move too late. So I think they should look for people who have the talents – technical, strategic, interpersonal, leadership – that are essential to become a CFO. But they should also identify the people within the department who have those skills and have the potential to step up. Also, not hesitating is important, because if you wait for the person to be ready for the CFO position, it may be too late, because the person may have left the company for other opportunities.
Sometimes CFOs have to be brave and recognize the fact that the people they’ve put into their positions to replace them may not be 100% ready for the role, but they have the core, inherent skill sets that I mentioned. And they should ensure that they have mentoring programs or professional development programs that the CFO is driving within the organization to promote those skills.
Now of course, if the CFO is concerned they may not have the right level of skills internally within the company, they need to then start partnering with their HR departments and external firms, like ours and other networking companies. They need to give themselves plenty of time and have a very structured external hiring strategy in place. This way, they can hire the person and then give them enough time to come into the company, understand the processes, transfer the knowledge, and get in a position where they’ve got their sea legs before moving into the CFO role.
With the talent market as hard as it is, companies are looking for alternative ways of engaging talent, and they may wait 12 to 36 months to find the right CFO. And in those instances, companies have to look more to the flexible labor market. Maybe they’re bringing in consulting firms or interim CFOs, or maybe a very senior finance professional who can sit alongside the outgoing CFO to ensure that the work is being done and the transition is in place. It may not be as simple as, ‘I want to go externally and hire someone in the market,’ because with the unemployment rates as low as they are, and the role of the CFO as in demand as it is now, it’s not always as straightforward as that. It can sometimes take organizations a long time. So they’re often using flexible interim-project professionals, even consulting companies, to bridge the gap while they’re going through that permanent hiring process.
This article originally appeared in FEI Daily and is republished by permission.