The CFO pipeline won’t build itself

Young, aspiring CFOs, consider this your Bat Signal. Shawn Cole, president of Cowen Partners Executive Search, worries there’s “a huge crisis unfolding in the near term” as it relates to the C-suite pipeline.

“There’s not enough Gen X and millennials to fill the seats,” he told CFO Brew.

A recent Cowen survey of 50 S&P 500 companies and their CEOs’ and CFOs’ ages found a quarter of the surveyed CFOs were “within five years of retirement age,” labeling the phenomenon “the CFO time bomb.”

“When both the CEO and CFO roles face simultaneous retirement, companies are not managing two separate searches. They may lose their entire internal succession architecture in a single transition window,” the survey continued.

Amy Wang, CFO of AI procurement platform Procurify, echoed Cole’s crisis worries, and said the succession crisis is most concentrated in the office of the CFO due to a lack of succession planning.

The growing complexity of the office of the CFO certainly isn’t helping, either. “Ten years ago, [a CFO’s job] was very much about, ‘Hey, how do we close the books? How do we report? How do we make sure we are pushing out all the right information to the broader team?’ Now, it’s very operational in nature,” Wang said: “You need to understand how the go-to-market engine works, how marketing is behaving, and how [the] product is evolving.”

Deepali Vyas, head of data and AI at talent consultancy ZRG, told CFO Brew, CFOs “aren’t just the steward of financial reporting anymore; they’re expected to be a strategic operator.”

“The talent gap exists because finance careers used to reward accounting excellence, technical position, controllership, compliance, all that kind of stuff. But now companies want AI, automation, enterprise technology, investor expectations, geopolitical stuff, capital allocation, cybersecurity. Those aren’t skills that someone learns in one promotion,” she said.

Stacking skills. A major part of having a strategic CFO in the future is making sure candidates get real-world experience early, Vyas and Wang both said.

“We need to deliberately broaden their experience in terms of facing off to the board,” Vyas added. “If you’re a sitting CFO now, your team should be in that room with you, so they know what you are doing in the boardroom, what you’re communicating, all of that.”

And succession planning “doesn’t happen overnight. It’s people that need to rotate through your organization that really understand your business, then can ultimately rise up to the seat or have that exposure or background. So if you’re not planning for it now, I think you’re already behind in that sense,” Wang added.

“I think most companies assumed successors would naturally emerge, and they haven’t. And boards are now realizing that succession isn’t a six-month exercise. Most of the time it’s basically a three-to-five-year development process,” Vyas said.

Those years of preparing a future potential CFO should involve building experience in diverse areas of the business, like “FP&A, treasury, investor relations, corporate development, operations, digital transformation,” she said.

Loss component. The risks of not investing in CFO succession planning and pipeline development? The loss of institutional knowledge is a major one, Wang said.

“It’s easy to get comfortable that one person has that institutional knowledge, and if there hasn’t been good succession planning or training, that becomes very apparent when that individual retires…Sure, you can hand off a process, you can hand off things that are automated, or well developed and well documented. What you can’t hand off, really, is that institutional knowledge and behind-the-scenes decision-making that happens,” Wang said.

Another risk is the possibility of having to scramble to find the next CFO. “Mostly what happens is that they’re kind of waiting for the CFO to give notice, and it’s like, that’s not when you do this,” Vyas said.