VideoWhen Oren Shaffer retired from his post as CFO at Qwest Communications earlier this year, controller John Richardson became the new finance chief. Assistant controller Bill Johnston took Richardson's old job, internal-audit head Pat Halbach became assistant controller, and director of financial reporting Mary Mowery moved into the internal-audit slot. No recruiters were called. No tasks languished while the new CFO scrambled to find replacements.
Following a process that is all too rarely practiced, each executive had been groomed for the next job as part of the telecom company's rigorous succession plan.
The plan targets a group of high-potential employees in the finance department, rotating each through different units and functions, where they receive on-the-job experience in preparation for a job at the next level. If you are not doing this, warns Richardson, you are hurting employees and the company.
If Richardson is right, a lot of companies are hurting. According to a recent study by Robert Half Management Resources, some 83 percent of CFOs say they have not identified a successor. The primary reason? Most believe they'll hold the position for some time. With CFO tenure hovering at three to five years on average, however, that may not be realistic. It is also shortsighted: according to Scott Simmons, vice president of recruiting firm Crist Associates, for the past two years approximately 55 percent of newly minted large-company CFOs were chosen from internal candidates.
Seamless transitions like the one at Qwest are clearly the exception, not the rule. Succession planning takes time, which is in short supply in the finance department. Singling out individuals to groom for the top job can create resentment among those not chosen, increasing the risk they will walk out the door. Moreover, shifting star players from one position to another for training can disrupt the flow of work in both the department the star left and the one he or she entered. One CFO estimated that a third of the up-and-comers he assigned to new posts didn't do as well in them as he'd hoped. But, says Richardson, "the bigger risk is if you don't do it at all." And even if the company does ultimately hire a new CFO from outside, programs to nurture finance talent can only help develop that CFO's team — a group of people who will be indispensable as the new finance chief gets up to speed.
Financial Planning
At the largest public companies, planning for CEO succession has long been a topic for board-level discussion — not to mention a blood sport. In the most famous example, when Jack Welch retired from General Electric, three of his top reports were widely known to be in the running for his job. Jeffrey Immelt got the nod; within days, the other two candidates quit.
While succession planning in the finance department takes a backseat to the CEO search, it has increased in importance in recent years, at least for the board. For CFOs themselves, not so much. "The person in the job is often not interested in talking about succession, because he or she wants to stay there," says Sharon Allen, chairman of Deloitte & Touche USA. And because succession planning doesn't affect the current quarter, it easily slips off the CFO's immediate to-do list.
An impending CFO job change would obviously jump-start the process. But to formalize succession, Allen says that the first step involves encouraging executives to think about what would happen to their companies if they couldn't do their jobs for some reason. "People then start thinking about the good of the organization as a whole rather than the protection of their own position," she says.
CFOs who do advocate succession planning tend to have experienced it elsewhere. Both Richardson and Shaffer, his predecessor as CFO, joined Qwest after long stints at Goodyear. "We came from a company that focused very hard on giving people the experience to move ahead in their careers, and we brought the same thinking to Qwest," says Richardson. Similarly, when Barbara Klein arrived as CFO five and a half years ago at CDW, a direct marketer of computers and software, she brought her knowledge of succession planning from past employers with her.
After gaining buy-in for a succession program, creating a formal planning document is a valuable next step. Working with a human-resources executive, Klein helped draft one for the finance department to aid managers in identifying high-potential employees. The document helped to institutionalize the process and got people focused on succession, says Klein.
At Qwest, Richardson meets with his senior team several times a year to discuss the highest potential candidates in every function from tax to investor relations. These staffers are paired with mentors and considered for different career-development possibilities, including assignments to new roles. Richardson also runs an annual performance-appraisal process. "I'd say I spend a few hours quarterly [on succession planning], but it's really a continual process," he says. "It's important to make succession planning a way of life."
Rotating the Talent
Central to that way of life is the rotation of high performers through different jobs in and outside finance to broaden their perspective and expand their skill sets. Rotations also help finance chiefs assess whether their instincts about a particular employee are right. But "getting a rotation program started is tough," says Steven Ehrenhalt of Deloitte Consulting's Finance Transformation group. Because finance departments feel short-staffed, "there's a lot of trepidation when you talk about moving someone out of his or her role."
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