Appointing a future-proof CFO

In its recent survey of Global CEOs, PwC revealed that 40% of respondents think their organisation will no longer be economically viable in ten years’ time if it continues on its current course. They believe they will have to reinvent their businesses to survive.

My reaction was, ten years, you do not have that much time!  Just consider the maelstrom of issues that confront company leaders: a deteriorating world economy; demographic change; war; supply chain issues; energy prices; climate change and decarbonisation; talent shortages not to mention inflation.

I could go on but while boardrooms are dealing with today’s challenges, they also must reinvent their business for the future, now.

The CFO has a vital role to play in this transformation. In fact, I would go so far as calling them the Chief Financial and Transformation Officer. The CFO role has changed a great deal over recent years. They are no longer ‘the number cruncher’, focused solely on budgets, reporting and cost control but the CEO’s strategic business partner with an in-depth understanding of the economics of both the business model and trends in the sector, providing the analysis and insight to create sustained business value.

During the pandemic years, companies wanted their CFOs to batten down the hatches. There wasn’t the impetus to look for new talent when many businesses were in crisis mode.  Also, many CFOs felt they should guide their companies through the bad times.

CFOs on the move

If a CFO did leave, there was a trend to appoint internally, even after an external search. This was not taking the easy or risk-free option, but a recognition that companies had paid much more attention to their succession planning and developing individuals below board level who could make that step up.

Planned leadership transitions bring many benefits such as continuity and deep understanding of the business and its challenges. The flip side of internal hiring can be missed opportunities to add diversity with its associated benefits of innovation, creativity and broader experience of different sectors and organisational challenges.

In the last quarter of 2022, we undertook an analysis of over 500 CFOs from across the FTSE 100, 250, S&P 100 and EuroStocks, in addition to private, (including PE-backed) companies. Data including demographics, career history, functional experience was then examined to identify trends from the sample.

This allowed us to identify how the career paths and experiences of CFOs have changed over time and overlay that in relation to the trends and changes in the global economy. We found that just 29% of CFOs had stayed within the same industry sector for their entire career. CFOs working in the business services, engineering and technology sectors were the most mobile in switching to other sectors, while CFOs within financial services were the least.

From our research, 46% of CFOs have stayed in the same sector since 2008 with just 21% of CFOs within financial services spending time outside. In my experience boards in the financial services industry, particularly in established segments of the sector, are very reluctant to appoint from outside the sector due to the complexity of regulation. This works both ways as CFOs from outside the sector are concerned about their lack of sector knowledge and feel that they will find it hard to add value away from the numbers.

Over the last quarter of 2022 there was some movement in the market with more companies looking for CFOs. So far in 2023, this trend has continued. Since the last quarter we are seeing more movement and an increased appetite from companies for calculated risk.  What do I mean by this?

What boards are looking for is better insight because with that you can make better decisions, faster.  The CFO’s workload has increased, he or she may have many more departments reporting to them from HR to Procurement, Property to Legal even IT and has taken on new obligations such as improving the company’s ESG performance to carbon emissions reduction. They will have the key role in digitising and automating finance functions and embedding that knowledge into other parts of the business.

Hiring the right CFO

What are the attributes a CEO and board should be looking for in a CFO? This is where some next generation thinking, and approach is called for. If every aspect of your business is subject to a complete rethink and redesign, why wouldn’t that apply to finding and hiring your CFO?

It is vital to look for people who have done different things and had different experiences and may have even occupied roles which are not core finance mandates. Whether you are promoting internally or hiring externally you need to think creatively to find them, be that across geographies or tangential sectors.

There is convincing research which demonstrates that increasing the diversity of leadership teams leads to more and better innovation and improved financial performance.

Obviously, boards will be looking at the experience of individuals, the different situations they have dealt with and their results, but we believe there are three essential building blocks:

1. Diversity of background. These individuals don’t have linear careers with one company. They have worked in different sectors, geographies, and different business structures from start-ups to PLCs.
2. Agility and adaptability. They have both strategic and operational capability so consider the big picture and detail concurrently.  This adaptability means they have a “growth mindset,” they promote innovation.
3. Natural leadership traits. This is the most qualitative of the three but is increasing in importance. These people have high levels of drive and motivation but also low egos. They lead through influence and persuasion.  They recognise that the key ingredient to enterprise transformation is collaboration, and they have to be excellent communicators.

Communications skills are a ‘must-have.’ CFOs are responsible for explaining and demonstrating how value is being created and sustained, known in some quarters as the ‘vision thing’,  but supported with the metrics.  They have to have the confidence of the board, their colleagues, investors, and regulators. They have to work out how to reconcile the competing demands and requirements of a plethora of stakeholders.

How to find individuals who possess this blend of talents and skills? The answer is the combination of human insight and technology.

The power and potential of artificial intelligence, natural language and machine learning make it possible to not only build an extensive talent pipeline but also pinpoint the capabilities, backgrounds and experiences of high performing leadership teams.

In this way the appointment of a pivotal role such as a new CFO gives a CEO and board the opportunity to address the balance of the top team. Leveraging technology allows the board and their advisers the opportunity to widen the net to introduce new thinking and experiences but ultimately it is the analysis and in-depth discussion at the beginning of the search to really clarify what the business actually needs in a CFO now and in the future which will pay dividends.

Because the cost of getting it wrong has never been higher.

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