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CFO succession planning: what boards need to know

By Jessica Tasman-Jones

This article is brought to you by Agenda, an FT Specialist publication that focuses on corporate boards

Senior finance staff are increasingly likely to be poached by rivals, which can give companies problems with succession planning, say recruiters.

Since 2005, 38 per cent of chief financial officers have been hired externally by S&P 500 and Fortune 500 companies, according to CristKolder Associates, a US executive search firm.

The CFO role is increasingly complex and businesses will only ever have a small pool of internal candidates. This has led companies to approach talent at rival groups, say the recruiters.

The responsibilities of today’s CFOs include strategy, mergers and acquisitions, and investor relations. The postholder is often “co-pilot” to the chief executive, says Stephen Tarrant, a partner at Eton Bridge Partners, a UK recruiter.

Companies typically promote internal candidates, mainly from the roles of group finance director or group financial controller. The advantages of this include a smooth transition and the approval of shareholders, who prefer people with a “corporate memory”, he says.

But good candidates are in short supply, especially as many experienced CFOs retired during the pandemic, Tarrant says.

Financial executives can receive up to 10 calls a week from recruiters in search of a CFO, or from other companies wanting a bigger range of candidates with the right skills, according to Jeff Constable, the CFO practice leader at Korn Ferry, a US recruiter.

Women and candidates from ethnic minorities may receive more inquiries as companies try to diversify their senior team, he says.

Directors should ensure that the audit committee is involved in succession planning, and that the topic appears periodically on the agenda for the full board.

Internal candidates often have to wait for a chance to apply for the CFO role, says Josh Crist, the co-managing partner of CristKolder. This can make them prime targets to be poached.

Companies are able to minimise the risk of internal candidates being lured away. Telling someone they are part of the succession plan can keep them in the short term, Tarrant says.

Internal candidates probably have a higher chance of promotion at their own group, says Mark Freebairn, head of board and CFO practices at Odgers Berndtson.

Pay that reflects or exceeds the industry average is another consideration. Average total pay for CFOs rose by 17 per cent in 2021, according to Compensation Advisory Partners, an executive remuneration consultancy.

Professional opportunities are also important to staff. It can help to move a prospective CFO candidate between projects and departments to improve their skills, Tarrant says.

This article is based on a story written for Agenda by Amanda Gerut

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