What has caused the high CFO turnover in Europe in 2023?

The year 2023 has seen an unprecedented surge in CFO turnover across Europe, reaching a four-year high. This trend, driven by a combination of macroeconomic factors, executive retirements, and a push for gender diversity, has significant implications for the financial leadership landscape.

According to a recent analysis conducted by Russell Reynolds Associates, the CFO turnover rate has been steadily increasing, with a notable peak in the FTSE 350, DAX, and the Euronext 100. As per the Global CFO Turnover Index, 57% of CFOs in European organisations have moved roles since 2020.

This trend is partly attributed to the tumultuous macroeconomic trends and the increasing retirements of CFOs. In fact, CFO retirements have hit a four-year high, jumping 15 percentage points since 2022. This has led to a scarcity of experienced financial leaders, posing a significant risk to organizations looking to retain their CFOs in an increasingly competitive market.

“Executive retirement rates reached a four-year high, increasing from 46% in 2022 to 61% of CFO departures in 2023,” says Romain Clio, EMEA CFO leader at Russell Reynolds Associates. “On average, CFOs are retiring at age 56, often leveraging their finance expertise in various board roles.”

Interestingly, the majority of newly appointed CFOs (61%) are in the role for the first time. This is likely due to the record levels of CFOs retiring and CFO succession plans coming to fruition. However, organisations that look externally for their next CFO are opting for proven talent, likely wanting the stability of someone who has held the top job as we continue navigating economic uncertainty.

Sentiment takes a hit: European CFOs’ outlook

Europe’s CFOs have become less positive about their current financial situation, as indicated by a decline in business sentiment. The net balance of sentiment has decreased, with 34% of CFOs surveyed by Deloitte expressing less optimism compared to the previous period. Notably, CFOs from medium-sized and large companies exhibit lower optimism levels than their counterparts in smaller enterprises.

The automotive industry has experienced a significant shift in sentiment, with CFOs now being the most pessimistic. This change can be attributed to surging energy and labour costs, as well as geopolitical tensions affecting exports adversely. In contrast, CFOs in the tourism and travel industry have seen an increase in optimism, reflecting the ongoing post-pandemic recovery in the sector.

Expectations for future revenues have also faded among CFOs.

While CFOs remain optimistic on balance, the percentage of CFOs expecting revenue increases in the next 12 months has decreased. Germany, Italy, and Portugal have revised down their revenue expectations significantly, while the automotive industry expects decreasing revenues. On the other hand, CFOs in business and professional services, tourism and travel, and life sciences anticipate strong revenue growth.

Long-term trends in global CFO turnover

Beyond Europe, the COVID-19 pandemic has had a transformative impact on CFO turnover globally. In 2021, CFO departures fell each quarter as many delayed their retirements due to the pandemic’s uncertainties. However, as the business landscape shifted and the IPO market surged, creating more CFO opportunities, turnover increased once again.

The global CFO turnover rate reached a four-year high of 15% in 2021, up from 14.4% in 2020. CFOs are increasingly being considered as succession candidates for the CEO role, leading to higher turnover rates. In the first three quarters of 2023, global CFO turnover remains high, with 200 CFOs leaving their positions so far this year.

Gender diversity in the CFO role

While the turnover trend continues, there has been a significant increase in the appointment of women CFOs. Women now hold 19% of CFO roles in the European indices analysed. However, the majority of these women CFOs are coming from outside the organisation, as internal talent is scarce.

In 2023, 50% of appointed women CFO appointments were sitting CFOs prior, versus 22% of male CFOs. This indicates that while the internal financial officers’ pipelines are improving at lower levels, they still lack gender diversity at the top.

Impact on operating margins and investment

In the current high-cost environment, the outlook for operating margins has worsened. CFOs across Europe expect a decrease in operating margins over the next 12 months, particularly in the automotive and transport and logistics sectors. High energy and labour costs in these industries are major contributing factors.

As a result of the uncertain economic outlook, CFOs are becoming more cautious about capital expenditure and recruitment plans. The net balance for investment and employment has turned negative, indicating small decreases in both areas over the next 12 months. The gloomier mood is particularly evident in the automotive sector, where CFOs have revised down their views on capital expenditure and employment.

Generative AI: A potential solution for cost reduction

In the face of economic challenges, CFOs are exploring innovative technologies to achieve cost reductions. Generative AI has emerged as a promising solution, with many CFOs seeing it as a way to improve business performance and reduce expenses. A majority of corporates in Europe consider generative AI relevant for their strategy, with almost half of CFOs stating its importance.

The adoption of generative AI varies across countries and industries. Companies in Austria, Germany, and Finland are leading the way in Europe, while US companies appear to be one step ahead of their European counterparts. Technology, media, and telecommunications sectors have embraced generative AI, recognising its potential to enhance forecasting accuracy, modelling, scenario planning, and overall business performance.

However, the adoption of generative AI is not without challenges. Sixty-four percent of CFOs report that talent, resources, and capabilities are the main barriers to adopting and deploying generative AI. Finding professionals with the right skills and ensuring data privacy and security are significant concerns.

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