When CFOs of large North American companies were asked by Deloitte about the legacy they wanted to leave, they said, in overwhelming numbers, that they wanted to have had a strong influence on their company’s ability to perform well in the future and to have left things better than they found them.
One of the keys to achieving those goals is a well-thought-out CFO succession plan that ensures there is a bench of highly skilled finance leaders ready and able to take the baton — ready not only from the CFO’s vantage point, but also from the perspective of management, the board of directors, and Wall Street.
Although CFOs face significant demands, making time for succession planning can pay dividends. With a deep bench of talent prepared to step into leadership roles, CFOs free up their time to focus on their expanding roles as strategic leaders and drivers of change initiatives. That’s particularly important in this era of digitalization, industry convergence, and disruption. A strong succession plan can also help protect the finance organization from unexpected leadership departures and avoid sudden gaps in talent.
Moreover, CEOs and boards expect their CFO to have a roster of “ready-now” and “ready-soon” successors in the pipeline. Executive recruiters tell us that a candidate’s ability to build strong teams and develop successors have become top criteria for CEOs and directors in today’s CFO searches. That is especially true as CFO tenures continue to shrink and the gap between the demand for experienced finance leaders and the supply of them expands.
What does it take to develop and sustain a strong succession plan? First and foremost, it requires that a CFO makes a commitment to invest his or her time and the organization’s money to talent recruitment, assessment, and development. The more a CFO understands their team’s capabilities, the better equipped they will be to develop their succession plan and to avoid leadership holes.
A CFO succession plan should include readiness assessments of internal talent at least two levels beneath the CFO, finance-specific leadership development programs, and recruitment of external hires for certain skills, like investor relations (IR) or mergers and acquisitions. CFOs should understand and be able to communicate to the CEO, board, and other key stakeholders potential successors’ strengths and what they need to do to get to the next level. They should also be able to identify external talent who could help fill leadership gaps.
The following seven practices can help CFOs build and sustain a succession plan, which in turn, can position them to leave a legacy of leadership and high performance:
1. Involve the CEO in planning and keep the board informed. Make sure the CEO and directors, especially the audit committee, are regularly kept up-to-date on CFO succession planning and talent decisions, and provide them opportunities to see high performers in action. These interactions can assure a CFO’s most important stakeholders that finance’s future leadership is in good hands and provide high performers important development exposure.
2. Understand direct reports’ ambitions and qualifications for their promotability. A CFO’s senior finance leaders are a natural source of potential successors. In reality, some will not make the grade. Nevertheless, ensure they understand what is expected of them to carry out your agenda and provide them with robust development opportunities. Also, have them develop their own succession plans. The plans should be realistic and not list all the same people. If some direct reports are not interested in becoming a CFO or do not feel prepared for the role, they can be helpful in identifying other candidates.
3. Identify, assess, and develop successors early. Take succession planning into consideration when recruiting, even at the entry level, and provide developmental programs appropriate to experience level. Focus efforts on identifying and developing high-potentials, starting at the manager level. Assessment and development programs should intensify as finance professionals advance on their career paths.
4. Rotate people into new roles to expand their knowledge and skills. Rotation programs should provide diverse assignments both within finance and in other functions and the business, given CFOs’ expanding strategy development and execution roles. In fact, corporate strategy, industry experience, and IR were named by more than 60% of CFOs participating in Deloitte’s Q2 2018 CFO Signals™ survey as the top three qualifications for their successors, besides technical financial experience. Another consideration is the impact of technologies on the finance function and what new skills may be needed.
5. Emphasize “soft” skills in succession readiness assessment and development. The ability to build and lead teams, and to influence, collaborate, and communicate effectively with stakeholders are key to determining whether finance leaders are capable of making the leap to the CFO role. These skills are seldom part of performance assessment or development until executives advance further in their careers. Start leadership, teamwork, and communication training and performance evaluation at the manager level, if not sooner.
6. Consider external hiring part of the succession plan. Even the most successful development program is unlikely to fill all finance leadership needs. Stay in touch with executive recruiters on top talent who might be available, and understand what the market and your competitors are seeking in a new CFO. If you cannot identify two successors for a critical role from within the organization, be prepared to search outside and manage the expectations of internal talent, particularly high performers you would like to retain.
7. Re-assess the succession plan throughout the year. The fast-changing business environment and new expectations for finance could reveal soft spots in a potential successor’s skillsets and experience. That means updating both the talent agenda and readiness evaluations of potential successors periodically to ensure that their experience and business acumen align with the evolving needs of the organization.
Few things can assure a CFO’s success more than investing in building and retaining great talent. Time and again CFOs tell that us that talent is the critical differentiator between being a good finance leader and a great one. Purposeful and sustained succession planning is the lever that CFOs’ have at their fingertips day in and day out to shape their legacy, their company’s future success, and their contribution to long-term shareholder value.
Sandy Cockrell III is national managing partner of the U.S. CFO program at Deloitte LLP. Charles Holley, retired CFO of Walmart, serves as an independent senior advisor to Deloitte as CFO-in-Residence. He also is the audit committee chair of Amgen.
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