CFOs not doing enough succession planning

When CFOs leave a company, there’s often no succession plan to replace them. A study last year by recruiting firm Korn Ferry found that only 34 percent of CFOs surveyed agreed there is a succession plan in place for their roles. When asked if there is an internal successor who is ready to take over their role, 81 percent of the CFOs surveyed reported there is none.

The Institute of Management Accountants has seen similar findings in other research. “I think it aligns with what some other studies have also said, and I think CFOs in general may say that they're too busy or the demands on them are too great or they have a unique skill set that doesn't exist elsewhere in the organization,” said IMA CFO Doreen Remmen. “Those are all problems and things that we need to recognize and make sure that we have plans in place. We believe that succession planning is critically important to the sustainability of organizations and long-term business health. It's a responsibility of every CFO to have a succession plan, whether that is internal staff or thoughts about external recruitment. It's every CFO’s responsibility to make sure that their house is in order so that their successor can also be successful in the role.”

The Korn Ferry study also found that just over half, or 53 percent, of the CFOs polled who have been at their company for more than 10 years agree they have a succession plan. Public company CFOs reported their company is more likely to have a succession plan in place compared to private companies (46 percent compared to 28 percent).

CFO successors can be drawn from internal roles such as the controller or chief accounting officer, or they may come from outsiders recruited by the company board, especially as the traditional role of the CFO changes. “My own career path was through the controllership role,” said Remmen. “That’s a very traditional role, although I think that the CFO of today typically has responsibility that goes far beyond controllership and accounting. The CFO of today is probably involved in strategy and operation. Here at IMA, I have responsibility for operations and also for human resources and technology. I see it as my responsibility to have succession plans in place not only for myself, but for each of those key roles that report to me and even another layer below that.”

The study found that 31 percent of the surveyed CFOs reported leadership skills and executive presence are the number one capability that CFOs focus on in developing direct reports.

“We try to inform our members about how they can ascend to leadership roles, eventually the CFO role,” said Remmen. “I think that no matter what size the company is or what industry you're in, people who are early in their career may think that they need to acquire more and more and more technical and broader skills. That absolutely is important, to be very technically proficient, but to ascend from comptroller to CFO you probably need another set of skills. That's where your leadership skills become even more important.”

The IMA recently released an updated version of its Management Accounting Competency Framework, which can help accountants go up the career ladder to become CFOs. “We have highlighted a number of different skill categories,” said Remmen. “In addition to reporting and control, which are probably the things that people think about first, we're encouraging our members to achieve skills in strategy and planning and performance management. They need to be really aware of technology and how that's changing the profession, and making sure that they understand where technology is taking business in general and the accounting profession specifically. Our members need to have business acumen. They need to get involved in operations. Cross-functional training is really important if they hope to ascend to the CFO role. They need industry-specific knowledge. If they're working in manufacturing, they need to understand how their product comes to be. They need to understand quality and continuous improvement, and they need to have a strong ethical foundation. That’s a skill set that’s very critical as you ascend that leadership ladder. Communication skills, presentation skills, how to motivate others — change management is a critically important skill category, and conflict management, negotiation skills — those are things that need to be developed. There's a whole set of skills that need to be developed that the CFO needs to focus on developing in his or her staff, and that each person who is hoping to ascend to the CFO role also needs to be working on developing.”

As a company evolves, she noted, it needs different skill sets in its CFO, and that’s how CFOs can advance their careers and choose appropriate successors to take on their earlier functions.

“A company might be in disarray, and you might be a turnaround expert, and that might be why you were hired as CFO — to cut costs and to get the house in order and begin to present financial information in ways where good decisions can be made,” said Remmen. “That might be why you were hired, but the sooner you can develop a strong successor for that role that you were hired for, the faster you can explore opportunities for yourself within the company. For example, you could go from being a cost expert to being the strategy expert and be working to develop the strategy of the organization. You might go from returning the company to profitability to going on to lead an IPO or to negotiate a series of acquisitions. The ambitious CFO is always looking for a successor, getting something under control and then handing it off to somebody else to manage so that they can move on to different work that the company needs as it evolves.”