While CFOs play a crucial role in any organization, just half of them (51 per cent) have identified a successor for their position, according to a survey by Robert Half Management Resources.
Why? Most of them (59 per cent) said it’s because they’re not planning on leaving their employer anytime soon.
But that’s a very risky outlook, said Ramona Dzinkowski, founder of the RND Research Group in Toronto.
“I believe the turnover for CFOs is every three years, on average, so their mindset is they’re not going to lose their jobs. But if you look at the stats and turnover rates of CFOs, they should be thinking about it. But they’re not looking for their own replacement unless they’re planning on retiring.”
Change is inevitable — sometimes it’s drastic — and things can happen very quickly, said Evangeline Berube, branch manager for Robert Half Management Resources in Edmonton.
“I’ve seen organizations where the entire executive group… unfortunately, they all passed away due to an accident, and that left the organization in a real bind. That’s obviously an extreme example but that’s completely unforeseen change that can happen,” she said.
“Given the world we live in now — being so fast-paced and constantly shifting and changing — you need to be able to, as an organization, keep up with that, irrespective of what’s going on in your organization.”
Catherine Van Alstine, a partner at executive search firm Boyden in Vancouver, recalled a situation last year where an “incredibly healthy” executive died, with no successor in the pipeline. The employer needed a replacement as soon as possible, but it meant bringing someone in who lacked depth.
“There was nobody who understood the strategy or would be able to think through what the next steps were or be able to manage the process,” she said.
“A CFO search can take you six months to land the person, then they have to find out what it takes to lead, so you could be nine months without a CFO.”
And when high-level executives are absent, that can mean strategic decision-making is put on hold, which impacts long-term projects and initiatives, according to Robert Half.
“That is one of the definite downfalls of not having a succession plan in place… While your organization is looking to recruit that role, everything is essentially static. And we live in a world where that’s a risk because things are so dynamic,” said Berube.
In addition, if potential successors are not identified, employers are missing out on the opportunity and the benefit of training people, she said, “which then builds a better culture; it’s better for retention; there’s knowledge sharing and better communication within the organization.”
“They may never be the CFO but you’re helping them along with their career, and you’re also ensuring within your organization that you have a few different opportunities with individuals that you can look to to continue to move up into those roles, so you’re not just relying on one individual.”
One-fifth (21 per cent) of the CFOs also said they haven’t picked a successor because they have other priorities to focus on, found the survey of more than 300 Canadian CFOs.
“People have to think long and hard about what they’re doing in their organization, and how much emphasis do they put on professional development of the people in the organization (or) on people’s executive bonus programs,” said Van Alstine.
“People have to see people do what they’re paid for, and if training and development isn’t one of them, it’s so easy to say, ‘Well, my guys are too busy; I was going to let them but we’ve got this to do.’ And ‘this’ always takes precedence over training.”
It’s about working with your team to define career paths and have actual plans mapped out for the organization for key positions, said Berube.
“Right from the hiring process through, (it’s about) making sure that as you’re hiring new talent into the organization; you’re always mindful of where they’re going to fit into that plan. Because then you’re always succession planning without it being a huge exercise because things are laid out and you’re utilizing the other talent within your organization to support you in that.”
Another reason for the lack of succession planning is the lack of qualified candidates, according to 18 per cent of the CFOs surveyed.
There may be a lack of supply, but leaders may also not be seeing high-potential candidates within the organization, said Berube.
“They work hard, they’re motivated, they’re inspired, they inspire others, and that’s how you can identify and groom successors is really highlighting those individuals, and then look for different development opportunities for those people — helping them, maybe taking on projects, those kinds of things — to highlight their leadership skills and giving them milestones to meet so they can continue to progress.”
When it comes to supply and demand, there are quite a number of candidates coming through the education system, said Dzinkowski. However, finding potential leaders is more of a problem in the United States because of a fast-growing economy.
“That might change in a couple of years, but in last year or two, that’s been the number 1 issue for CFOs to fill the talent pipeline with highly skilled talent, particularly those savvy with AI, with big data, with a lot of business acumen.”
Today’s leaders have to be different than they were in the past, said Dzinkowski.
“They have to be more tech-savvy, obviously, understanding of big data, have a grounding in data analytics. So the next generation of CFOs will be much more IT-savvy than this generation,” she said.
“They may have more of a business generalist background because CFOs today, they have to be more strategists. They’ve got so much technology at their fingertips (compared to) 10 years ago, so now it’s about understanding what’s behind the numbers as opposed to reporting on the numbers.”
In conducting CFO searches, there may be two or three good people in the candidate pool, compared to 10 years ago when she had six or seven, said Van Alstine.
She makes a point to tell employers that it’s about doing your homework upfront to really know the kind of person you want, and potentially taking the first person you find because he may be snatched up by another.
“It’s not only because of the numbers of people (needed) but we have people who say, ‘I can’t commute one-and-a-half hours any longer because I have equal responsibility with our children, and my wife’s a professional, so I need to be able to get home and spend time with my wife and my kids.’”
In addition, a lot of companies have done a really good job at locking people in, she said.
“They’ve got equity in the business that will keep them from being able to leave to go somewhere else — unless somebody’s willing to pick up that equity… so that has a created a real problem… At a point, it gets too expensive for people to try to recruit that individual.”
Another challenge? Recessions in 1992, 2002 and 2008 have seen employers cutting out middle management, said Van Alstine.
“So now you have CEOs, CFOs, CMOs — all those people who are saying, ‘I’m now thinking about retiring’ (and) there’s a huge chasm between their level and the next level down.”
Employers also cut out training because in running lean, there was no chance to take people out of their jobs and move them someplace else to give them training, she said.
“So, we have a whole bunch of organizations who have… nobody with the breadth and depth of experience to be able to take on the roles, so that’s another issue that needs to be addressed.”