Radical honesty: A crucial factor in mitigating early CFO departures

At a time when CFOs have been taking on added responsibilities, organisations have been dealing with high CFO turnover.

Job satisfaction, better pay from competitors, internal relationships, and desire for new challenges often contribute to early departure from C-suite executives.

However, organisations can mitigate the risk of early CFO departure by implementing specific strategies involving managing expectations, setting clear targets, and establishing a support system for guidance and development.

Beau Lambert, senior client partner at executive search firm Korn Ferry, spoke with The CFO to discuss the challenges CFOs face that lead to their early departure and the impact it has on the organisations. He also laid out potential strategies to mitigate the risk of early departures.

Turnover by the numbers

According to Russel Reynolds Associates, CFO turnover of S&P 500 organisations reached 17% in 2022, down 1% from the previous year but still higher than the preceding two years.

CFOs’ departures are mostly linked to delayed retirement due to the pandemic, taking on top-level roles or non-finance positions to prepare themselves for the eventual jump, or simply moving laterally to greener pastures.

Another report from Altrata and BoardEx put the CFO turnover of Fortune 1000 companies in the US to 15.9% in 2022, a slight increase from 15.5% the previous year.

Similar to the S&P 500 CFOs, age and move to the other C-suite roles contributed to the turnover.

Additionally, survey of 303 global senior finance executives by FTI Consulting also found that 64.2% of CFOs held the belief that the average tenure of a CFO in a single company was less than five years. 59.2% of North American CFOs agreed with the statement. The report infers the figure to be an indication of a potentially higher CFO turnover.

Altrata and BoardEx’s report puts the 2018 to 2022 median tenure for the CFOs of Fortune 1000 companies to 3.4 years for men and three years for women.

In line with continuing trend, CFO departures have persisted into 2023, with notable firms like Uber, Wise, WeWork, Booking Holdings, and Revolut parting ways or set to part ways with their senior executives.

Added responsibility and accountability

It is no secret that CFOs’ role has evolved beyond just financial reporting and budgeting to include risk management, operational involvement, and strategic delivery, among other things.

A study from Hackett Group found that finance professionals expect their workloads to increase by about 8% in 2023.

While the added responsibilities equip the CFOs with much needed skills to take on the CEO role, it also adds pressure for them to perform, leading to stress and burn out and decision to leave.

A recent survey from Workforce Institute at UKG revealed that 40% of C-level leaders in the US say they will likely quit in 2023 due to stress from work, with 33% stating that they do not want to work anymore.

Lambert notes that CFOs are burdened with increasing responsibility and accountability to deliver margin profiles amid economic turbulence.

“With a scarcity of options to grow the topline, boards and CEOs are putting relentless pressure on CFOs to cut costs across the enterprise to increase the bottom line,” he says.

In addition to delivering the targets, CFOs are tasked with keeping the organisations operational, taking on extra responsibilities without extended authority.

Lambert explains, “as many companies are flattening organisations—and in instances creating smaller C-suite teams—the CFO is often the one to pick up those additional responsibilities.”

“Yet, their level of authority and perception as a strategic business partner is not commensurate with the newly augmented purview.”

Instead, with added responsibilities comes more accountability.

“Often, when a company’s financial performance suffers, the CFO is the first to be blamed, yet they are usually the last to receive praise when the company is outperforming,” Lambert adds.

CEO and CFO: a necessary match

Despite the inflated responsibility, Lambert believes that most CFOs leave their positions prematurely as they do not feel they are being set up for success.

“If there are no clearly defined goals and responsibilities, or the CFO does not feel like they have a meaningful seat at the table, this can have damaging consequences. CFOs want to be empowered to get involved across the enterprise,” he says.

To avoid such pitfalls, the relationship between the CFO and the CEO is crucial. After all, it is the CEO who communicates and establishes the strategy and objectives for the CFO to work on.

According to Lambert, the relationship with the CEO influences the early tenure CFO’s decision to leave or stay.

He likens the partnership to a marriage, stating that if there is a change of a CEO in the first six months of a CFO’s tenure, then the latter is almost always likely to exit as well.

More responsibility but no resources

Although organisations have offloaded more responsibility and accountability to CFOs, they often do not receive additional resources or support to perform their tasks. Instead, organisations expect them to deliver their existing and new targets with fewer or equal resources.

The aforementioned Hacket Group study found that finance operations are facing an average of 1% decline in staffing and 2% in budgets.

A recent EY survey of 1,000 CFOs and senior finance leaders worldwide found that 50% of respondents are diverting funding away from long-term priorities to meet short-term targets.

Due to high inflation and interest rates, organisations are left with shrinking budgets. In turn, CFOs are bearing the brunt of the shrinkage, leading to exits in as early as six months due to misalignment with their expectations about the role.

Lambert says, “The ability to invest in people and processes is not always there—with today’s headwinds, Selling, General & Administrative (SG&A) budgets are shrinking, and CFOs are being asked to do increasingly more with fewer or equal resources.”

First-time CFO at a disadvantage

While an existing CFO may be equipped with the organisational knowledge to overlook the deficiencies, newly appointed CFOs will have a harder time adjusting to the situation.

With first-time CFOs reaching a record high of 75%, as per Russell Reynolds Associates, organisations have more reasons to tackle the issue.

After all, the lack of resources hinders the CFO’s day-to-day operation, impacting their ability to execute their objectives.

“One of the first tasks a newly minted CFO is often charged with is increasing accountability across an organisation or creating a more performance-driven workforce,” Lambert says.

“However, many find they are not granted the autonomy to grow or change their team to help achieve those outcomes.”

For example, Lambert notes in situations where CFOs are already trying to “get up to speed” on a business and show results in the first three months, it can be “incredibly difficult” to drive initiatives when they lack the talent to execute efficiently.

Such an environment encourages newly appointed CFOs to quit at the beginning stages of their tenure.

Transparency mitigates early CFO departure

For Lambert, honesty during the recruitment process is one of the keys to avoiding many of the scenarios leading to potential early departure.

“Many of these scenarios can be avoided through a radically honest recruitment process, evaluating both technical skills and cultural fit,” he says.

“Candour about the inevitably difficult situations they will face will exponentially increase buy-in and arm them with the tools they need to be successful.”

When CFOs realise that the reality of their role is far from what was revealed during the recruitment process, Lambert explains that CFOs cite “irreconcilable differences and depart swiftly for the next opportunity.”

By being honest about the potential challenges, companies prepare their new CFOs to encounter their role with a realistic understanding of the situation and the position.

Lambert suggests adopting an enterprise-wide onboarding program for the new CFO.

“It should have guidance and authority from the board level and ensure there are clear expectations for the first 90, 120, and 365 days,” he adds.

Additionally, he also advises organisations to provide a tenured mentor to a first-time CFO to serve as a “confidential sounding board.”

He adds, “CFOs should also be encouraged to get involved with executive leadership communities and events, like a local CFO roundtable or industry conferences.

“Being the CFO is often a lonely existence. Having a trusted network of peers to give a third-party perspective when challenges arise could be the necessary outlet to ensure longer-term retention.”

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