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Strategy and innovation
This is how the CFO succession plan is organised.
What differentiates a good chief financial officer from an outstanding one? Their succession plan
It is said that what differentiates a good CFO from an outstanding one is how they plan their succession. This does not mean that they have been secretly chosen, but that they have established the long-term framework so that the process proceeds in an orderly fashion, whether they leave the company or are promoted to a higher position.
Chief executive officers and boards of directors, not to mention the audit committee, particularly appreciate the existence of an internal protocol for the replacement of the most important positions so that an unexpected vacancy does not trigger an internal crisis that affects the business and even threatens the company's stability. At times of high turnover and M&A operations, CFO profiles are in high demand.
All CFOs, in surveys of the profession, acknowledge that their own succession is a strategic matter, but at the moment of truth, according to these same studies, only a tenth have it structured and organised. One of the most frequently-cited causes is that the process has such a long horizon that tackling it can be counterproductive, since there is no immediate reward for potential internal candidates, or because that search destabilises the CFO themself. This results in the problem being postponed until there is no other choice because the succession is imminent.
The succession is sometimes approached in a very theoretical way - scenarios, deadlines, skills or challenges that the CFO must deal with are drawn up -, without working on internal talent management and the development of professional careers in the financial area. Nor does the board usually become involved until the succession becomes an issue.
According to the consulting firm PwC, in succession processes a common mistake is to look for a “great leader” who will solve all of the company's problems alone. Recruiters ask who, when the important thing is to deal with the what: what profile is required and how the CFO position will evolve in the future. In the article What makes a good chief financial officer according to headhunters we stated that the best recruiter of a CFO is the CFO themself.
According to a survey by Robert Half Management Resources, 52% of CFOs have already identified their replacement.
The solution can be outside or inside the organisation. If the company believes that it should look for the CFO in the market, it must be aware of movements in the sector and identify potential candidates. If the option is in house, it is necessary to design a training plan within the finance area and attract talent for positions of medium or high responsibility with that ambition on the horizon.
The exemplary succession of Steve Jobs: everything tied up in advance
How would Steve Jobs have done it? It is a question we often ask ourselves: the founder of Apple is always a source of inspiration.
Let's rewind to 2004. Jobs is diagnosed with pancreatic cancer. It will take a while for the news to be made public and, above all, for the seriousness of his condition to be recognised, but in the meantime, his succession will be planned. When the effects of the disease became more visible, in 2008, he had already arranged his replacement by making Tim Cook COO.
But this is not all. He also organised a universal training process in the company and a roadmap was created for employees to develop their careers and share the culture and vision of the founder. The creation, three years before his death in 2008, of Apple University played a key role here.
90% of employees had never met Steve Jobs in person, but this top-notch academic centre has generated a pool of future executives and enabled the entire organisation to assume the vision of Jobs as if it had worked alongside him since the days of the Macintosh.
There are four pathways to CFO succession planning: only one really works
No two companies are the same But experience leads us to observe four different approaches when dealing with a CFO succession process. According to Deloitte, these are the family model, the traditional model, the competitive model and the centred model.
Family model
This is a model that the consultant calls “comfortable”. It is found above all in family businesses, where the succession is overseen by a small group and there is less transparency. In choosing the future CFO, the most important considerations are reputation and the candidate's adherence to the well-established values of the company. It is a less objective process.
Traditional model
Typical of companies that entrust Human Resources with this task and opt for standardised processes. It is more impersonal and greater consideration is given to technical skills than what the replacement will contribute in the future. The entire organisation is not involved nor are training plans proposed in the finance area so that the selection is more natural.
Competitive model
This is practised by organisations that encourage competition for positions and which have a strong focus on professional development. It is usually an effective model for identifying strong internal profiles within the company, but it runs the risk of generating unwanted movements and situations of mistrust, both in the leaders to be replaced and in their teams.
Centred model
The ideal process: both current executives and those expected to succeed them within their teams are involved. There is a real culture of succession. The procedures are transparent and professional careers are developed where it is known how far one can progress, with criteria shared by the entire organisation. The bench moves in an orderly manner.
Six tips for a smooth CFO succession
Motivate managers
They are the first to be wary of these processes because they can identify them with an imminent departure. To prevent them from not wanting to get involved, from lacking time or from feeling that it does not provide them with anything positive, experts advise encouraging them by having them lead this process and involve their teams.
Define the person responsible
It is not always the CFO. It can be the CEO, the management committee or the board. The audit committee has a great deal of influence. The important thing is that it is known who heads the board and where it is necessary to report. It is advisable to always involve the CEO in the process. This is the individual with whom the future CFO must establish a relationship of maximum trust. It must not be an alien protocol to them.
Train the financial area
This must always be done, but in this case it is crucial to get a 360-degree vision of the company and the area. It is about fostering a culture of exchange, so that professionals learn other functions, there is turnover and they get involved on the commercial and operational side. They must be motivated to set their sights higher and given opportunities to shine and grow professionally. Some experts recommend hiring seasoned professionals who have ambition. It is also good to observe how they lead teams and their maturity in relationships with senior managers.
Transparency
Processes and tools must be clear and create trust and transparency. It does not have to be something that is talked about every day, but employees who enter the company must know from the outset that there is a professional development plan and that there are standardised processes.
Always alert
The position of chief financial officer is tough to fill and it is crucial for the company to have this succession guaranteed, due to its technical complexity, the confidentiality of the information handled and the extreme trust associated with this profile. Some experts even believe that when a new CFO is hired, a replacement should already be in the pipeline within the organisation. Trying to bring in the best candidate is a no-brainer, but pinpointing the necessary qualities for this ideal CFO is a plus: strategic vision, delivery capacity, sector know-how, leadership, etc.
Reassess the succession process
Everything that is measured improves. The succession protocol can also be measured throughout the year and incorporated into the objectives to be evaluated in the CFO's performance. Not only the candidates identified internally and externally, but also assess in this changing environment what is the updated profile that is required as CFO.
What does a CFO ask of his successor?
Corporate strategy, sector experience and investor relationships are named by more than 60% of CFOs surveyed in Deloitte's CFO Signals survey as the top three qualifications for their successors, in addition to technical finance experience, which is a given. This is the top five of the qualities that their successor must have:
- Corporate strategy.
- Sector knowledge.
- Investor relationships.
- Corporate development and M&A
- Experience within the company.
The average time a CFO spends in a company, at least in the US, is five years. This may seem a long time, compared with other positions where there is more turnover, such as in operations or marketing, but it really establishes a point in time for the succession plan: Five years of preparation, like undergraduate studies, so that the department is ready when one leaves. How to say goodbye to a company would be for another article, but if there is something important it is to be able to look back and know that everything is in good shape. There is no greater satisfaction.
