Corporates increasingly seek CFOs with proven track records

Corporates are increasingly seeking CFOs with proven track records at the divisional or regional level, despite the desire to create more diverse leaders.

According to the European CFO Route to the Top survey by search firm Spencer Stuart, a growing trend across the continent’s leading companies is to hire finance leaders that have previously been divisional or regional CFOs.

Chris Gaunt, who leads the firm’s Financial Officer Practice in the EMEA region, says the survey of 377 companies in 10 major indices shows “public companies are seeking proven, normally sitting group CFOs. By definition, they are actually narrowing the talent pool of the potential people they draw on.”

The survey found 42% of all CFOs and 70% of external hires had been a CFO before taking on their current role. In the sample, 54% of CFOs had been a divisional or regional CFO at some point in their career; 57% were appointed directly from a divisional or regional CFO role.

Gaunt says that that the trend is likely to be based on a number of factors including the need for well-defined leadership skills. “If you’ve been in a division or region, you and the CEO or MD are the two people who own the responsibility for the P&L, so it’s not just a box tick.

“You’ve probably got to have done it for at least three years, because you’ve got to be there long enough to see through the repercussions of the decisions you took, whether it’s a change in strategic direction or a restructuring of the distribution model,” he informs.

Another driver is the growing remit for CFOs, that along with finance, are also responsible for areas such as IT, facilities and supply chain, technology. “In many cases the CFO is expected to be at the vanguard of the organisation in terms of robotics and AI, which adds to the argument that you need someone who is a proven group CFO, who’s already done every piece of core finance and can then add those other strings to their bow,” he says.

The need to find finance leaders with a successful track record, has meant searches are more likely to result in hires from other countries. “I think it’s because people have recognised that it’s not beyond the realm of human capability to transition to a new governance model,” adds Gaunt.

But the findings (https://www.spencerstuart.com/research-and-insight/cfo-route-to-the-top) also reveal CFOs are more likely to be from the same industry, which Gaunt says is surprising because evidence shows some of the most effective CFOs have come from radically different industries. “More companies are going outside their own country but are choosing the safe option of a proven CFO, normally from the same sector and fewer first-time CFOs. This suggests they’re being less creative than last time around,” he says.

There are also suggestions that the pattern for conservatism may be driven paradoxically by the urge to develop more diverse leadership groups. “As long as the composition of company CEOs is predominantly male, increasingly Boards are saying the other Executive Director needs to be a woman to correct the gender imbalance.

“As there isn’t already a pre-existing pool of women who are proven group CFOs, especially in one’s own industry, we see 74% of female CFOs coming from a different industry. What’s in play is companies having to widen the talent pool, in order to address the diversity shortcomings they have in their own sector,” says Gaunt.

Gaunt says this there is increasing conservativism amongst members of companies’ nomination committees where hiring somebody who is already a known proven quantity to the investor community and the media is seemingly a safer appointment. “NomCo members increasingly view it as their role not to challenge the status quo, not to encourage the company to think in an innovative way, but to minimise the risk of the appointment,” he adds.

“What’s coming through loud and clear on some of the processes we’ve managed is apprehension around how shareholders will react to an such appointment, and often very little consultation or ongoing dialogue with them around the themes of the appointment.

“In many cases, especially when we’ve appointed a woman in a CFO process we’ve led, we’ve spent a lot of time with the Board and with the CEO, who are conscious of the fact that these women are first-time CFOs.

“They’re very concerned about how their shareholders will react, assuming it will be in the negative, whereas nine times out of ten what we’ve found is that the shareholder community is pretty savvy, and they’re able to look beyond the superficial question of whether has she been a Plc group CFO before to actually look at her track record of delivery, her reputation in the market. In many cases our clients have been pleasantly surprised that their shareholders and the media have embraced the appointment,” says Gaunt.

When it is a question of whether to prioritise the experience or potential of candidates for CFO roles, Gaunt says nomination committee members are focused on the former and suggests that may be the reason so many UK CFOs are qualified accountants. “Do qualified accountants make better CFOs? I’m not saying they don’t, but the data just isn’t there to say one way or the other. There’s a perception on the part of the NomCo that it’s a box that needs to be ticked, otherwise you’re taking some sort of risk,” he says.

The collapse of Enron and WorldCom drove demand for technical accountants, while the financial crisis saw treasurers becoming more in vogue as funding and liquidity became a priority, says Gaunt. “I think the pendulum has swung back to the traditional CFO profile, which is a bit of all of the above plus the role of business partner to the CEO, with the safety net of the accounting qualification,” he adds.

Another finding is that formal investor relations (IR) experience is considered to be less important in a CFO’s CV, with only 8% having previously held formal IR roles. “Smart CFOs can pick up IR, you don’t have to have pre-existing relationships with institutional shareholders to be able to transform a finance story into a compelling equity narrative. That’s a basic communication skill that they’ve been honing in their finance roles, whether it’s presenting to their business unit or translating all the numbers in their division into a strategic plan,” says Gaunt.

“It’s not just being able to communicate, it’s the EQ, knowing how and when to reach out, keeping your share register onside, and proactive share register management. That is something a lot of first time CFOs don’t think to do whereas a seasoned chairman, CEO or CFO would do it automatically,” he explains.

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