MIAMI — Jim Johnston has been a C-suite adviser and an interim CFO for 25 years, and he agreed to present on succession planning at this week’s CFO Playbook for Private Companies conference here. But he’s not comfortable with the term succession planning.
“It implies that you have an organized approach, great foresight, well-groomed internal candidates, and a time line like General Electric does for its high-profile CEO succession,” Johnston said in his speech. But many companies, especially the small and midsize ones that were represented in the packed conference room at the JW Marriott, have none of those traits.
CFOs, he said, are well positioned to observe the “slow-motion train wreck” caused by poor executive-succession management and bad hirings.
He listed the most common types of train wrecks:
- Delay in replacing an ineffective key executive, sometimes for years.
- Hiring an executive who fits the past needs of the business, not the future ones, or who fits in the wrong future.
- Selecting from a pool of candidates that’s tiny because it’s limited to people who are familiar and have been loyal, or who just happened to be on the radar at the moment.
- Launching a person into a key job without a clear understanding of what he or she could deliver.
Hiring the wrong executive can be a catastrophically wasted opportunity. “Recognize that each time your company fills a spot on the senior team, it’s a moment for creating the future of your company,” Johnston said. Comparing such wastefulness to a chess game, he recalled a friend who was a super chess player telling him, “There are people in the world who can beat me, but I can beat absolutely anyone who puts two moves to waste.”
The need or opportunity to hire could arise from a retirement, resignation, or firing. But it is much more likely to arise from changes in the business.
Johnston related an experience in which he was hired to find a CFO for a company that didn’t yet exist (five independent mattress manufacturers were rolling their businesses together). “They didn’t agree on centralized versus decentralized purchasing, accounting, or production scheduling. They didn’t agree on financing strategy or exit. So they necessarily had many conflicting ideas of the CFO role,” he said. It was a good thing Johnston spoke to the five CEOs before finding candidates. And, he noted, similar scenarios are not unique to brand-new companies. There is often a lack of clarity among company leadership on the type of CFO needed.
There are four common symptoms displayed by executives who are not the right fit. One includes avoidance, denial, and delay. “Avoidance is a coping strategy for staying inside your comfort zone while your world is crashing down,” Johnston said.
Another symptom: a failure to delegate. “Watch out for the executive who’s always overworked, always has his head down, and is lost in the weeds,” he said. “Among CFOs, this is probably the most common symptom of being in over one’s head.”
Once, Johnston was hired to assess the performance of a CFO whom the CEO was frustrated with and who also was insisting on a big pay hike. Johnston discovered that the finance chief was completely buried in controller work most of the time. “It was by design. He intentionally had a weak team. This CFO was candid with me: he was afraid a more competent staff would make him redundant.”
The third symptom: being always reactive and never proactive. “It’s not good enough to just react to what lands on your desk,” Johnson said. “After all, that stuff comes from the business’s past and present. To build a future, an executive must go actively looking for it. This is true for every senior role.”
Perhaps the most obvious symptom is that the executive has simply checked out. Perhaps he or she was very capable but has become nonresponsive; absent physically or mentally; or otherwise distracted, disabled, or in decline.
When these symptoms crop up with regard to a key role, there are usually bad consequences: competitors will pass you by; you’ll fail to enter growing markets and ride shrinking markets downward; while technology and methodologies move on, you’ll remain stuck; and your best people at all levels will start to bail out.
“Ignoring these symptoms is disastrous,” Johnston says. “Are they debits or credits? No. Are they balance-sheet ratios or profit margins? No. Are they outside the realm of the CFO? Some would say so. But [avoiding these symptoms] is about facing reality, asking tough questions, assessing performance, considering alternatives, and coming to objective conclusions. In other words, [it] requires exactly the strengths a CFO should have in more abundance than any other executive.”