First, a disclaimer: If all CFOs were replaced by internal successors, I would be out of business. That said, a trend that’s played out over the last several years could be problematic for mid-career finance executives who aspire to the CFO’s chair.

The problem is this: The gaps between organizational levels have widened to the point where it’s difficult for many companies to promote finance professionals into the most senior positions because they have not been adequately prepared to take on the broader responsibilities.

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John Touey

The root of the problem can be found in the year following the financial meltdown — in late 2008, when companies came to realize that things were going to be bad for more than a short time. In response, they began to tighten their belts. At a mid-management level, that led to downsizing. At a senior level, while there perhaps weren’t as many positions eliminated, when a leader left a company, the decision to replace that role was given much more scrutiny. In many cases, those responsibilities were divided up among the remaining members of the senior finance team. For example, when a company’s tax leader left, the treasurer became vice president of tax and treasury.

On the face of it, that may not seem to be a problem as it relates to CFO succession. But when one examines how work got done after the belt-tightening, it becomes more explicit.

The result of downsizing mid-management is that the remaining managers are given more of the same work to do. On the other hand, when a company does not replace a senior executive, other executives end up expanding their spans of control — sometimes over several departments or functions. What develops is an organization where mid-managers are going deeper and senior managers are going broader.

That’s not a great recipe for a robust succession plan. The end result is a significant widening of the gaps in responsibility between levels within an organization. Mid-level managers are not getting the type of development and experience required to take on the most senior roles. Additionally, while some companies have replenished their ranks after earlier downsizings, others have not, turning a temporary problem into a more systemic one.

So, as CFOs and their direct reports retire or leave their companies for other positions, more and more frequently there is a need to look outside for replacements. Companies are beginning to fight for the attention of a diminishing pool of qualified candidates. If you’re already at that level, you’re in a great position in the near term. If not? Tough luck.

Let’s hope this is a short-term blip. To help replenish the stock of senior executives, sitting CFOs need to take a hard look at whether the current structure is adequate —to meet not only current operating needs but also longer-term talent needs. If the gap in responsibility has widened between them and their direct reports — or, more likely, between the direct reports to the CFO and their direct reports — then developmental investments should be made to that the company isn’t constantly going outside to replace their most senior financial talent. Given the impact that failing to promote from within has on employee morale, in addition to the iffy success rate of externally sourced CFOs, maintaining the status quo really is not an option.

Conversely, it is incumbent on middle managers to take on whatever developmental opportunities are available within your organization. Take a look at the logical next step in your career path, and ask yourself if you’re ready for that position or if your boss’ job has become so big that your current role isn’t adequately preparing you to take it on. If not, perhaps a strategic lateral move is in your best interest.

But if your company is consistently looking to the outside to fill the positions above you, then it’s probably in your best interest to look outside as well. Just make sure the companies you investigate put more emphasis on development than your current employer does.

John Touey is a principal at executive search firm Salveson Stetson Group with 20 years of experience providing executive search, human resources and management consulting services to organizations in the health-care, financial services, utilities, manufacturing and pharmaceutical industries. Follow him @JohnTouey.

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6 responses to “The CFO Candidate Pool Is Shrinking”

  1. My experience seems to validate this. At my longest-term employer, we pushed ever-expanding work onto the same middle-managers and pulled the senior executives into more strategic discussions. This did leave a knowledge gap between the two levels. In my experience, almost no one really gives due focus to development of middle-managers, as it is seen as an extra expense instead of an investment.

  2. I agree with you as well, but I will add to Eileen’s statement. Most of the larger organizations that have the flexibility to have management gaps usually have a forms development programs for their different level of management. Many organizations use this program to assist with the preparation for their next future leader. My experience is that organizations have funneled so much of the grunt work of senior management onto middle management they become burned out far too quickly. Their workload has increased to the point that they are required to become human robots just to keep up. Innovation use to be something that was valued by every organization. It’s a little difficult to prepare for senior management when you can’t slow down enough to learn the required functions to become successful in this capacity. Obliviously these organizations are instead preparing their middle managers to become another organization’s senior manager at the cost of whom? Imagine that.

    I was once told in my executive educational courses, “Don’t pay for senior-level development training.” “Only pay to perfect the skills these employees already possess.”

  3. I have witnessed this phenomenon in several companies. Such dysfunction, along with the growing number of startups, has provided me with new client opportunities – either as an outsource CFO or as a project-based consultant. Companies that have failed to cultivate their CFO gardens should beware the weaknesses that are developing. Startups should take note that their competitors’ weakness is their opportunity: new systems are faster and easier to implement at new companies.

  4. I agree. I moved from the CFO position several years ago to managing a consulting firm. I found that many CFO’s with whom I worked were hired to fill the position, although their knowledge of finance was limited. One of my business associates said he hired a fellow student in an MBA program as the CFO because he knew the person well, and would teach him the CFO responsibilities. Starting salary for this individual was $100,000. This was five years ago; the firm is still undercapitalized.

  5. That is amazing @Alan. I was recently in a discussion with an MBA Candidate that was interested in pursuing his MBA in Finance. He asked my opinion on this decision. I asked him to pull up his degree plan for his university before we started the discussion. In reviewing the degree plan we noticed there weren’t any MIS courses required for his degree. They listed the typical finance courses, stock valuation, managerial, forecasting and some accounting. How does this organization expect to become capitalized with someone that doesn’t possess the skill sets required? Even small organization has a required skill sets for their CFO candidates because most require the CFO to spearhead the IT department as well as Accounting/Finance. This one was very interesting.

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