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Many CFOs Don’t Have a Succession Plan. That’s a Big Problem.

In this Q&A, Robert Half’s Tim Hird explains the strong message succession planning delivers to aspiring CFOs within organizations.

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Few events are as disruptive to a business as an unexpected leadership change, and yet only 52 percent 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, which is why it's somewhat surprising. Maybe it's because the CFO just hasn't necessarily had as much turnover perhaps 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 a little bit by the fact that because the role of the CFO is more complex, it's more strategic in nature, it may be that organizations internally are struggling to find candidates that are suitable, who have the prerequisite skill sets to move up into the CFO position. The availability of potential candidates with these all-round skills is a lot less now, and of course that's compounded by a very good economy where there's lots of opportunities for people to leave companies and advance their careers faster, so I suspect that's probably the bigger reason for it.

But there's absolutely no doubt about the benefits of succession planning. Companies should absolutely plan for that. If CFOs aren't concerned about it they should probably begin to be concerned about it. The risks are huge. You have disruption to day to day business operations, especially if you have CFOs that 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, so 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 a very structured succession planning allows the business to transition very comfortably.

But you know, they've also got to look at ensuring that there's this pipeline of ideally in-house successors for the roles. The whole concept of succession planning, not only is it 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, they know there's an opportunity for them to potentially 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 communicated, can be clear, the better.

When companies are hiring externally and high-potential candidates are 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 are the steps they should be taking now?

Hird: Obviously they need skilled, experienced people that have the skill sets or the potential skill sets that 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, clearly looking for people that have the talents --technical, strategic, interpersonal, leadership -- that are essential to become a CFO. But also identifying which of the people within their department who have those skills and have the potential to step up. Also, not hesitating, because if you wait for the person to be ready for the CFO it may be too late, because the person may have left the company for other opportunities. Sometimes CFOs have got to be brave and recognize the fact that the people they've put into their positions to replace them, they may not be 100% ready, for the role, but they've got the core, inherent skill sets that I mentioned. And ensuring they've got mentoring programs or there's 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, so they can hire the person externally and then give them enough time to come into the company, understand the processes, transfer the knowledge, and get them in a position where they've got the sea legs, if you like, within the company before they move into the CFO role to ensure their success.

With the talent market as hard as it is, companies are looking for alternative ways of engaging talent, and they may wait 12 to 24 to 36 months to find the right CFO. And in those instances companies have to look to the flexible labor market more now. Maybe they're bringing in consulting firms or they're bringing in interim CFOs, or maybe not the CFO but maybe a very senior finance professional who can sit alongside the outgoing CFO just to ensure that the work is being done and the transition is there 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 being 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 try and sometimes bridge the gap while they're going through that permanent hiring process.