The days of retiring from a job with a gold watch, a healthy pension and fond memories of decades at the same place are long gone. The career path for the modern CFO could take the form of multiple positions at different firms, followed by semi-retirement as a consultant, fractional CFO, board member, or volunteer.
According to the Boston Consulting Group, a talent turnstile is the new reality, with an estimated 10% of CFOs departing within one year and almost half exiting before their sixth year. A shortage of experienced and knowledgeable CFOs can depress shareholder value and curtail corporate growth, especially since CFOs increasingly play a role in mapping out strategy.
A comprehensive succession plan is a recommended solution for the quagmire created by high CFO turnover and a dearth of available and qualified chief financial officers. The ideal process requires diligence and care, a shared professional commitment to a smooth transition, transparency and excellent communications among all parties involved. Hear what three experts have to say about creating a win-win for everyone involved.
A problem-solver plans ahead
Bruce Cooperman, founder and managing partner of Nereus Advisors, draws on his 25 years as a CFO to advise others in that role. To effectively implement a succession plan, “Identify a qualified internal replacement as soon as you can. This gives you ample time to close any skill gaps. It also makes your job easier if you have a deputy who can begin to manage part of your work right now,” Cooperman said. “When I was the CFO of International Securities Exchange Holdings, I mentored my successor, the vice president of finance, two years before I left. Ironically, he quit before me, for an opportunity to be CFO elsewhere.”
Cooperman, a self-described fixer, admits it’s harder to realize a smooth succession when outside candidates are involved. He explains, “Personality is a big unknown when you recruit from a pool of strangers. You can have the most experienced CFO on paper who won’t pass the test of being able to adroitly acclimate to your company’s culture. A failure to work well with others is a sure way to derail longevity in the job which unfortunately translates into uncertainty and extra expense.”
Time is another factor. “When a CFO is ready to retire, there is less pressure to hurry up and find a successor. This is a plus for shareholders. You want the process to be as frictionless as possible,” Cooperman said. “There is less stress and a smaller chance of missing something essential when onboarding a new executive or handing over the reins to an in-house colleague. If needed, the soon-to-retire CFO may remain as an interim or part-time CFO.”
“Think of C-suite succession as part of your human resources strategy. Create a detailed action plan and modify as needed.”
Bruce Cooperman
Founder and managing partner of Nereus Advisors
Cooperman describes the complexity of a succession plan as a function of private versus public status. He explains that a private company is unlikely to have to deal with, or may be able to operate without, a CFO change until revenue exceeds a pre-specified milestone — a benchmark often set by a bank or private equity investor.
Operational complexity is another determinant of the role of the CFO, and, by extension, what happens if that individual opts to go elsewhere. When a CFO is a founder and wants to leave, the company and that CFO must calculate the cost of an equity or option buyout. Both parties may decide to delay their CFO’s departure until the executive’s benefits have vested. Cooperman tells his clients, “Think of C-suite succession as part of your human resources strategy. Create a detailed action plan and modify as needed.”
A non-profit CFO shares his tips
Neil Shah, a former CFO of three educational non-profit organizations, is currently active as a fractional or interim CFO of other non-profits, depending on the needs of each client. He favors a significant overlap between the present CFO and the incoming executive of at least two months. Shah explains, “You want the new CFO to attend board meetings with you, interact with the existing accounting and finance teams and prepare compliance reports together. You want the new CFO to gradually take over. It’s like teaching someone how to ride a bike. You hold onto the bike for a while and then let go when it’s appropriate.”
Shah emphasizes the consequences of correctly matching an organization’s culture with the replacement CFO’s personality. A mismatch spells disaster. With every transition, Shah, as the departing CFO, assembled a formal plan document that included usernames and passwords, financial and regulatory deadlines, a calendar of meetings he would jointly attend with the incoming CFO and contact information of key personnel, board members and clients.
In the event of a health emergency or the firing of a CFO, Shah encourages organizations to take advantage of contract talent. “Non-profits with tight budgets can greatly benefit by utilizing a fractional or interim CFO to keep things humming along until a permanent CFO can be hired,” he said.
“You want the new CFO to gradually take over. It’s like teaching someone how to ride a bike. You hold onto the bike for a while and then let go when it’s appropriate.”
Neil Shah
CFO for non-profit organizations
An appraiser weighs in
James Lurie, a founding member of business appraiser CapVal-ABA and now a managing member emeritus after his retirement, encourages companies looking for their CFO successor to make sure they know “the 360-degree aspect of running a company.”
“If your CFO doesn’t understand how a business operates, you can quickly run into trouble,” Lurie said. “I’ve seen bad situations occur as the result of the CFO’s siloed mentality. Understanding [solely] finance is insufficient. The replacement CFO must understand, and have input on, the details of production, sales, logistics, insurance, currency management for cross-border transactions, staffing and much more. It’s not easy to find someone like this — that’s why a company must plan far in advance.”
Lurie said it is important to replace the CFO as revenue grows. As he tells it, “A small to mid-size company CFO is, too often, really a glorified controller or treasurer. Once a company achieves a steady cash and profit performance, the CFO role should logically expand to include capital raising, restructuring, and strategic planning.” Lurie’s advice is to review non-compete and non-solicitation agreements on an ongoing basis. Absent these agreements, the company and the exiting CFO should come to terms based on good faith and fair dealing. He adds, “An attorney must vet these issues. Of course, when a CFO is retiring, these issues are moot.
