This story was updated at 2:25 p.m. with additional commentary on CFO hiring practices in Japan, Hong Kong, and India.
More CFOs vacated their positions at global companies in the third quarter (74) than in any of the previous four quarters, according to leadership advisory firm Russell Reynolds Associates. (See chart below.) For the first nine months of 2023, 200 finance chiefs at publicly held companies left their jobs, about the same number that did in 2022, according to the Russell Reynolds Global CFO Turnover Index.
The S&P 500 had 5% of its CFOs leave in the third quarter, as did the FTSE 100. Outgoing CFO percentages were higher in the Euronext 100 and the DAX 40. In the first three quarters, 55 S&P 500 CFO seats have been vacated.
The global CFO turnover rate (incoming CFOs divided by total number of companies) has climbed since the pandemic, hitting a four-year high of 15% last year, according to the Russell Reynolds data. That’s up from 14.4% in 2021 and 12.9% in 2020.
Besides the tendency for CFOs to stick around during the pandemic disruption, one explanation was the frothy IPO market in 2021. Russell Reynolds said it significantly increased the number of public company CFO opportunities and put more finance chiefs in reach of retirement.
In a positive sign for ambitious finance staff, globally, nearly 60% of incoming CFOs were promoted from within in 2023. But the tendency to hire from within is stronger in some geographies than others.
“[Japanese companies] have traditionally followed a policy of shanai shoshin, which can be translated as ‘promotion from within.’”
Adelin Choy
Asia Pacific financial officers practice leader, Russell Reynolds Associates
Companies in the FTSE 100 and the S&P 500, for example, hire a third or more CFOs from outside the organization. In contrast, Asian companies almost exclusively choose internal candidates in some years. Culture plays a role: by many accounts, age, tenure, and gender matter more in places like Japan, India, and Hong Kong than they do in the West.
Japan is well known for “promoting internal talent for critical senior positions,” and their mentality seems to be more risk-averse compared to other countries regarding external hires, said Adelin Choy, Asia Pacific financial officers practice leader, Russell Reynolds.
“[Japanese companies] have traditionally followed a policy of shanai shoshin, which can be translated as ‘promotion from within,’” said Choy. It means Japanese firms view their own employees as the only talent pool.
In Hong Kong and India, 70% of the listed companies are family-owned, and their CFOs tend to have worked with the families for a long time, Choy said. “They have complex governance practices, which is one of the reasons why the business owners find it ‘risky’ to appoint external CFO candidates.” In addition, “each family business has its unique culture, and trusting relationships take a long time to build,” said Choy.
Going outside a company for the next finance chief is more likely in the U.S. and Europe, according to Russell Reynolds, due in part to “an increasingly complex and difficult market that pushes companies to look for proven experience at the top finance spot. ... At a certain size and without an internal succession candidate, an experienced hire is a more risk-averse choice.”
The lack of formal and proactive succession plans may also play a role, as noted in CFO’s October 27 story on CFO succession planning.
Remarkably consistent since 2019 is how many CFOs are named to the job as first-timers vs. those with previous CFO experience. (See chart below.) Annually, about 62% of global incoming CFOs at public companies are new to heading up finance, according to Russell Reynolds. “Next-generation CFOs are here,” as the Russell Reynolds report described it.
With the overall shortage of CFO talent, companies hiring externally are grabbing other companies’ number-two finance executive, such as divisional CFO or a controller. That trend lines up with data from Crist|Kolder published in August that found that 74% of the CFOs in Fortune 500 and S&P 500 companies had come directly from a number-two position, internally or externally.
Hiring first-timers outside the organization can open up the diversity landscape, Russell Reynolds noted. Its data on gender found that globally, 49 women were appointed CFOs in the first three-quarters of 2023. The percentage of newly appointed CFOs that are women has not increased much in the past three years, hovering in the mid to low 20s.
