Surviving CFO Turnover: Lessons from Companies that Nailed Succession Planning

Failing to plan for succession poses significant risks

While all C-suite changes influence organizations’ financial and operating performance, CFO departures are perhaps the most impactful. As an integral executive management team member, the CFO serves as a business partner to operational leaders, a trusted advisor to the CEO, and an active participant in the board and investor community. Accordingly, as referenced by the Wall Street Journal, hasty CFO departures can cause an organization’s share price to decline, as it can be a bellwether to investors about its stability.¹

Mitigating the risk of an unforeseen departure has become increasingly important. Russell Reynolds Associates’ H1 2023 Global Leadership Monitor found that 40% of sitting CFOs are very likely/likely to make a career change today. Yet despite its importance, many organizations are not approaching succession planning effectively. Our monitor also found that organizations are 2x more likely to have an informal, reactionary approach to succession planning than a formal, proactive one.

This lack of planning opens organizations up to inordinate risk, given the connection between the CFO and market, financial, and operating performance. To better understand best-in-class succession transitions, we interviewed ten current and former executives and board members whose organizations have developed robust CFO succession plans. Read on as we delve into their methods for assessing, identifying, developing, and transitioning potential CFO successors, as well as their advice for boards and the C-suite beginning their succession planning journey.

CFO succession planning — better late than never

Formal succession planning is started three to five years before a contemplated transition and, at a minimum, two to three years prior. The new CFO’s arrival is a trigger for an organization to evaluate its finance function, focusing on bridging existing gaps and formalizing development plans.

Remember, CFO succession planning doesn’t just fall to the CHRO; numerous stakeholders are involved (Figure 1). The CEO and board—notably, the audit committee chair—have a duty to contribute to succession efforts, given the importance of their relationships with the CFO. In fact, public company CFOs themselves should be involved not only to benefit the organization but also to benefit their own development, helping them achieve their career goals on their personal timelines.

Figure 1. Key CFO Succession Planning Stakeholders

The 5 key CFO competencies you can’t ignore

The ideal CFO success profile is iterative and should be reviewed annually (best practice is quarterly). While success factors are unique to an organization’s strategy and context, interviewees consistently identified five competencies as critical to becoming a CFO (Figure 2):

• Foundational finance skills to execute
• True business partner to the CEO
• Ability to manage and influence stakeholders
• Disposition to lead with gravitas
• Lifelong learner

Figure 2. The top five competencies of CFO successors

A succession plan outlines a clear plan, but also provides an opportunity to adjust

Just as the success profile is iterative, the CFO succession planning process outlines a clear plan within talent management practices but leaves space to adjust. Interviewees shared their best practices when it came to assessing and selecting both internal and external succession candidates:

Assess against the success profile

"The best assessment tools are the ones that provoke the right discussion about the candidate and not where you run the test and its thumbs up or thumbs down”

- Former Fortune 1000 CFO and Board Member.

There are a variety of assessments to choose from. Regardless of the type, ensure they aren’t used as criteria for promotion and to disqualify succession candidates from the process, but to be foundational and informative to mentoring and development plans.

Select two or three internal succession candidates*

Using the information you’ve gathered from your assessments and performance reviews, host calibration sessions with key stakeholders to identify two to three internal successors and understand their development needs and time to readiness.

Identify an emergency succession candidate. No matter how much you plan, things can always go awry. Ensure an emergency succession plan is in place for an interim CFO in the unfortunate event you have an unexpected departure.

*While ideally, you want two to three internal successors, sometimes your bench strength isn’t as robust as desired. In that case, assessing whether you have the runway to develop those gaps on your team immediately or whether you must hire externally is paramount. RRA’s turnover data suggests that hiring a CFO successor less than two years before the succession is often too short of a window to onboard and appropriately develop an external hire.

From planning to action: How to ensure a seamless transition

From the identification of candidates to a successful transition, your biggest hurdle will be consistently recognizing, empowering, and coaching your internal candidates to the top seat. Below are the top five points of advice to ensure success from development to transition.

1. Execute and monitor development plans

Once gaps are identified, create individual development plans and identify critical trends for potential cohort development opportunities. Expose internal candidates to situations where they will build these competencies, then coach them to success.

The top developmental experiences across our interviewee’s approaches included:

• Business rotation outside of finance: Business acumen is foundational to being a partner to the CEO. A rotational role outside of finance in sales, internationally, or operations can fast-track a succession candidate’s knowledge.
  
  
• Board exposure: Having candidates present to the board can be great exposure to the board and a learning experience for the candidate.
  
  
• Rotational roles within finance: Create rotational roles where successors need to develop. For instance, a stint in investor relations is often considered an essential rotation to gain experience with the investor community.
  
  
• A CFO mentor: A newly appointed CFO will be challenged beyond anything they have experienced earlier in their career. The value of a trusted, independent mentor who brings specific executive experiences and has faced similar challenges is invaluable.

2. Engage and retain your succession candidates

Your CFO succession candidates should know they are being considered for the top job. Consistently recognizing, empowering, and coaching them is critical for retention.

"Be especially cautious with your ready-now successors: If they are truly ready now, they are better off going elsewhere if they aren’t being engaged in a thoughtful succession process.”

- Former Fortune 100 CFO and Fortune 50 Board Member

3. The future CFO’s skillset may not look like the current CFO’s

When selecting your CFO successor, the next CFO may need a different skill set than the current CFO. When defining the success profile, be clear on where the company is today, and ask if the focus is on what is needed today or what is needed in the future. For example, our recent research found that big four accounting experience—once the gold standard for top public company CFOs—is becoming less prevalent, as CFOs with an investment banking background are trending given the focus on capital allocation and financial strategy.

4. Communicate your career plan with intention

Engage in ongoing development conversations with your CFO and continuously plan based on their career goals and timelines. Open communication with key stakeholders (the board, CEO, CHRO, and investors) will ensure the transition goes as seamlessly as possible.

5. While an overlap might sound good on paper, it doesn’t always work in practice

Ideally, a thoughtful overlapping period enables the incoming CFO to quickly get up to speed. However, a prolonged overlap can be hard for the incoming CFO if it goes on too long, as it prohibits them from taking the reigns and could impact the new CFO’s credibility with key stakeholders.

If an overlap is deemed necessary, the prior CFO should act solely as an advisor in the background and should not be involved in the day-to-day. If the departing CFO is remaining at the company in another position, make introductions with all key stakeholders and have the incumbent fully transitioned into the role to avoid confusion amongst the leadership team.

Invest in a CFO succession plan today

Neglecting CFO succession planning carries many risks for organizations – engaging an experienced partner to meet you where you are in your CFO succession journey can prevent costly business disruptions.

A proven methodology to identify and assess your succession candidates and the success profile needed for tomorrow can ensure you find the best fit for now and that your future company’s financial steward can navigate what’s yet to come.

Our verifiable process for identifying a successful CFO

Appendix

Our insights would not be possible without our esteemed participants' generous time and input.

• Judy Bruner Retired CFO for SanDisk, Audit Committee Chair and Member for Applied Materials, Qorvo, Rapid7, and Seagate Technology

• Andrew Clarke Former CFO for CH Robinson

• Kathy Crusco Retired CFO for Epicor Solutions, Audit Committee Chair and Member for Calix, Inc, TD SYNNEX, Acumatica, Code42, and Bonterra, Board Advisor for Corel Corporation

• Dan Comas Retired CFO for Danaher, Board Member for Fortive and Veralto

• Chris Hix Retired CFO and Current Advisor for Enovis, Board Member, ESAB

• Georganne Hodges Retired CFO for Motiva, Audit Committee Chair and Member for PBF Energy, TransAlta, and BWC Terminals

• Cathie Lesjak Retired CFO for HP, Audit Committee Chair and Member for GE HealthCare and PROS Holdings, Audit Member for General Electric

• Stefan Schulz CFO, PROS Holdings, Board Member for Outreach Corporation

• Tom Sweet Retired CFO for Dell, Board Member for Trimble

Authors

• Linda Barham leads Russell Reynolds Associates' Americas Financial Officers Practice. She is based in Chicago.
• Ben Jones co-leads Russell Reynolds Associates' EMEA Financial Officers Practice. He is based in London.
• Mohammed Khan is a member of the Financial Officers Practice Knowledge team at Russell Reynolds Associates. He is based in London.
• Jim Lawson co-leads Russell Reynolds Associates' Global Financial Officers Practice. He is based in New York.
• Clare Metcalf is a member of the Financial Officers Practice at Russell Reynolds Associates. She is based in Chicago.
• Marla Oates is a member of the Financial Officers Practice at Russell Reynolds Associates. She is based in Houston.
• Catherine Schroeder leads Knowledge for Russell Reynolds Associates’ Financial Officers Practice. She is based in Toronto.

References

^{1. Stuart, Alix, “A quick CFO Exit Can Spell Trouble”; Wall Street Journal, Newspaper. New York: Wall Street Journal, 2016. Website. https://www.wsj.com/articles/a-quick-cfo-exit-can-spell-trouble-1470068396 (accessed Jul. 27, 2023).}

^{2. Russell Reynolds Associates’ H1 2023 Global Leadership Monitor}

^{3. The Evolving Academy Finance Landscape | Russell Reynolds Associates}

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