CFOs today need to be focused on more than just the numbers. They need to be able to play a central role in enabling the business to operate effectively, especially when going through business transformation.
But how much of a role are CFOs playing when it comes to succession planning and people development within the function? And how much of a role should they be playing?
Research by BIE revealed that 46% of CFOs meet with their HR Director at least every six months to discuss leadership development and succession planning. 23% meet with them at least once every 6-12 months, and 19% have never done so. What’s more, 66% of CFOs believe their successor will come from external sources.
These results suggest that CFOs aren’t taking the time to invest in the appropriate framework for developing the future leaders of the finance function.
PLC versus private equity-backed
The focus on succession planning really depends on what the CFO is there to do, what the size of the business is and whether it’s a PLC or private equity-backed business.
PLC companies tend to have a longer term outlook on their plans for the business, which may well include succession planning and people development. These companies are more likely to have a mature HR function with a strong drive for performance management.
A PE-backed company, on the other hand, is likely to be smaller and will therefore have less resource to invest in development. Of course, that also means you’re going to have a much leaner finance function, so there may be a more natural successor to the CFO. But whether they’ll have the opportunity to progress is another story. In theory, by the time the company is sold it will be considerably bigger and the capability gap will probably be wider, in which case they’ll need to invest in a different kind of leader at that point.
From an employee perspective, this doesn't necessarily mean that those wanting to progress to the top spot should be sticking to working in PLCs. If you are inquisitive about improving business performance and want to make yourself more visible by presenting ideas, both financial and commercial, to the board you will undoubtedly have the capability to be a successful CFO and you will rise to the top. You will gain that opportunity whether you’re in PE or a PLC.
Whose responsibility is it?
Is the CFO the right person to force the issue of succession planning and development within the finance function? Should it be their role and responsibility to provide their team with the opportunities to plan their career and develop their skills? Or should the HR Director take the lead to ensure employees get the chance to move around the function?
On the one hand, you could argue that it should fall to the CFO as the best leaders care about their staff and want to invest in their progression. You can say that in any walk of life - be it in the armed forces, in sporting teams, or in business. The best leaders will also try and recruit people who are better than them - and that in itself is a form of succession planning.
But on the other hand, if you’re a CFO your focus is on being the right-hand person to the CEO, supporting the direction and strategy of the business, and ensuring the business has the cash available to do anything it wants to do. That is your priority. And behind you is a finance function to give you all of the information you need to ensure the business is kept where it should be. In that sense you're not really thinking about who is going to take your place further down the line.
However, when the CFO is starting to look for their next role or is approaching retirement, succession planning may naturally become a priority. But how do you plan for this from an HR perspective? It's not like the CFO will be going to HR and telling them they plan to leave in two years' time.
Reactive rather than proactive
The world of succession planning is not clean cut - it’s a real challenge. A 36 year-old CFO isn’t going to give his company the heads up that they plan to head on to bigger and better things in two years. So how can you plan for it? Unless you’re looking at a CFO who is closer to retirement, the reality is that securing the next person for the top spot is much more likely to be reactive than proactive.
Ultimately, succession planning within the finance function needs to be a joint effort from both the CFO and the HR function. HR are likely to be more engaged in what’s happening in the finance team and able to identify and develop future leaders. But CFOs need to be aware of the importance of people development. Instead of just looking after themselves and having their team in place, they need to be driving succession planning on the basis that it will improve the culture within the function.
In our Finance Succession Planning and Transformation Survey 2018, we investigated how organisations are dealing with succession planning within their finance function. To download your copy of the report, click the link below.