CFOs fall short when it comes to succession planning

Here’s what CFOs and Logan Roy have in common: They’re scrupulous, dedicated to their work, and maybe a little intimidating in board meetings.

Here’s what they don’t have in common: a succession plan.

A whopping 25% of CFOs lack a formal succession plan, according to the latest CFO Signals survey from Deloitte, which is only made more surprising given that the survey concerned businesses earning more than $1 billion in annual revenue. It’s even worse the higher you go: 28% of respondents with companies bringing in $10 billion or more in revenue said they had no succession plan.

That’s…not great. But the great thing about starting at zero is that it doesn’t take much to get to Step 1: starting.

For advice on that, we turned to Jenna Fisher, a CFO practice leader for Russell Reynolds Associates who has recruited more than 700 CFOs and audit committee members to companies around the world, and knows a thing or two about finding a qualified, potential CFO.

While CFOs have long thought about mentoring direct reports and providing opportunities to practice skills that would be valuable if they ever took over the top finance seat, Fisher told CFO Brew that from her observations “there wasn’t as much formalized succession planning until really a couple of years ago,” as more people realized the intense business disruption that could come from CFO turnover. “As a result, there are a lot more well intentioned and well thought-out transitions,” she said.

Still, as Deloitte’s survey findings reveal, there’s a lot of room for improvement. If anything, Fisher thinks the seemingly slim number of CFOs with a formal succession plan might even be an improvement from years prior.

“My sense is that more and more companies are getting religion around succession planning, but we’re still not where we need to be,” she said.

Where to start. Here’s some comforting news: The first step that Fisher recommends actually involves offloading the work—at least in the beginning.

Step 1 is simply finding a partner, whether it’s HR or an external advisory firm, to share some of the burden. You want someone “who lives and breathes this, and who can take a lot of that effort off your plate, so it’s not a heavy lift for you,” Fisher explained. After all, that’s likely why succession planning has fallen to the wayside for so many CFOs. “Being a CFO of a public company is a hard job and lots of lots of things are competing for your time,” she pointed out. “If time were limitless, of course, everybody would want to do this.”

Regardless of who you turn to for guidance and support, you’re not just going to sit back and relax after that. That’s just Step 1. Alongside your chosen partners, you’ll want to analyze the possible scenarios that might lead to a CFO switch-up, Fisher recommended.

Plenty would be good news: You’re promoted to CEO; you’re making an exciting switch to a new company; you’re retiring. Sure, there are plenty of less desirable scenarios in the mix as well: You’re ousted; broader business conditions change, and on and on.

The key, Fisher said, is to analyze both the likelihood of each scenario and the timeline it would elicit, as well as the kind of CFO might be best suited to fill the gap presented by the CFO switch-up at hand.

Let’s say both your departure is going to be part of a broader executive shake-up: Maybe you’ll need an insider with deep institutional knowledge. Maybe the company is preparing for an IPO, so you’ll want someone more external capital markets-oriented, or maybe it’s an underperformance issue and you need a turnaround CFO.

While it’s unlikely too much external recruitment will fall on your desk, you’ll play a key role in assessing your current team, and analyzing “who on the team potentially could be a successor, in the next call it three to five years,” Fisher noted. You might put them “through a formal executive assessment to figure out where there are gaps, and where might you be able to ameliorate those gaps by giving them stretch opportunities [and] helping them gain exposure,” she added.

“It could be for example, ‘Hey, I’ve got a fantastic chief accounting officer who also has spent time in treasury, but she’s never had much interface with investor relations.’ Are there ways of getting that person involved in external communications?” she asked.

And while this is all the starting point, you want to stay “very intentional and programmatic in your approach,” Fisher added, formally revisiting opportunities “every six months” to see where there are any new experience gaps that could be filled.

Something new. This all ties into another important changing tide in CFO succession plans more broadly: In an evolving business landscape, outgoing CFOs are often looking for a new set of skills in their successors.

Per Deloitte’s survey, CFOs listed familiarity with new technologies, including generative AI and cloud computing, as one of the three most important skills for a potential successor. That put FP&A near the bottom of the list, with only 24% of respondents citing it as a top three trait.

Evolving business demands are something current CFOs simply need to keep top of mind in the hunt for a successor, Fisher said. “You really have to look at: ‘What is the future state of the organization and what is the gap from where we are today to get to that ideal future state?’” she explained. Let’s say you’re trying to build up AI capabilities, and doing so will require a more aggressive M&A strategy. “Therefore, we need a CFO who has M&A experience, and who has strategy experience to think about the market,” she added.

“Clearly understanding one’s place in the company, and the ecosystem of how you can continue to grow the business is really important,” she stressed.