The modern day Chief Financial Officer (CFO) role encompasses more responsibilities than ever before, leading to higher rates of turnover – 44% of CFOs are being approached more often for new positions – than we’ve historically seen for this crucial role.
A CFO exit affects strategic continuity, team morale, and organizational stability, making understanding why CFO turnover rates are growing crucial for companies looking to safeguard their organizations’ futures.
In this article, we’ll discuss this issue in greater detail, covering everything from why CFO turnover matters to mitigating issues that arise with C-suite seat changes.
Why is CFO Turnover So High?
The role of the CFO has grown increasingly complex and demanding, making it more challenging and less sustainable without adequate support. A staggering 82% of CFOs surveyed in The Super CFO study noted that their responsibilities have expanded to include crucial areas like environmental, social, and governance (ESG) initiatives, mergers and acquisitions (M&A), and corporate strategy.
Today's CFOs are navigating an environment where traditional finance responsibilities intersect dramatically with strategic operations. This hybrid role not only intensifies the demands on them but also broadens their impact on company performance. Recognizing the strategic importance of the CFO position and actively supporting their development is crucial in not just retaining talent but also in stabilizing financial leadership for future challenges.
Lex McGraw, Egon Zehnder Consultant and Former Vice President of Finance and Director of Business Development for Home Depot.
The four key reasons contributing to the high turnover among CFOs include:
- Changing economic conditions: Economic downturns often require CFOs to focus on cost management and financial restructuring, while growth phases shift their focus towards expansion and M&A activities. These changing priorities can lead companies to seek different profiles in their CFOs, contributing to higher turnover.
- Leadership changes during crises: In times of crisis, stakeholders often demand changes in leadership. Changing a CEO involves a significant strategic shift, making it less common than changing CFOs, who are typically second in command and viewed as easier to replace.
- Retirement: The Baby Boomer generation is retiring at a rapid rate, with over 10,000 Baby Boomers retiring each day. This demographic shift is creating vacancies in the CFO role across various industries.
- Career advancement opportunities: A significant number of CFOs are seizing opportunities to step up into CEO roles, driven by the broadened scope of their current roles. The Super CFO study reveals that 60% of CFOs express a desire to become CEOs, and 70% of those people feel ready to take on such a position now.
The simple answer: the job has become increasingly complex and demanding.The growing demands on CFOs to take on roles traditionally held by COOs have added to the pressure, making the role more challenging and less sustainable without adequate support.
High CFO turnover can disrupt financial operations and strategic planning, affecting the entire organization. It can undermine team morale, as each new CFO brings their priorities and management style. Moreover, frequent changes can shake investor and market confidence, leading to negative perceptions and potential financial repercussions.
3 Strategies to Mitigate CFO Turnover
As the role of the CFO transitions from traditional financial stewardship to a more strategic partnership with the CEO and other C-suite leaders, the significance of CFO turnover becomes increasingly profound. “With CFOs now pivotal in steering company growth and investor relations, their stability within an organization is crucial to continue strategic momentum while also upholding investor confidence,” said Amy Sullivan, Egon Zehnder Consultant and former Finance Director at PepsiCo. “To retain high performing CFOs, there has to be special attention paid to their job description and the future of their role so they don’t seek new opportunities outside of their company."
In an effort to improve internal morale and decrease CFO turnover, there are several key tactics companies can deploy, including:
1. Ensure Company Leaders Prioritize Retaining CFOs
To retain top CFO talent, organizational leadership should ensure that CFOs are not just part of financial discussions but also integral to strategic decision-making across the organization, including involving them in setting the direction of the company and reinforcing their value as a core component of the leadership team.
Leadership should avoid treating CFOs as merely functional finance heads confined to the back office. Instead, they should be recognized as pivotal partners who can drive business strategy and execution. This includes giving CFOs ownership over significant segments of the business, such as profit and loss (P&L) responsibilities, which enhances their influence and satisfaction with their role.
Why is this?
By giving responsibilities that expand on their core reasons for being hired, CFOs will feel that their future ambitions are being considered.
2. Engage External Partners in Reducing CFO Turnover
Similarly, external partners, such as executive search firms and leadership consultants, can play a vital role in stabilizing CFO tenure by ensuring a good match between the CFO’s capabilities and the company’s needs. They also provide leadership development that prepares CFOs for their expanding roles, making them less likely to leave due to a lack of support or growth opportunities.
3. Implement a Succession Plan Strategy So You’re Never Taken Off Guard
Having a well-designed CFO succession plan will help reduce any organizational risk when a CFO ultimately leaves the organization. Here are a few key components of your planning process to consider:
Identify potential successors: Begin by identifying and assessing potential internal candidates who demonstrate the requisite skills and potential for the CFO role. This process should be part of an ongoing talent management strategy that includes leadership development programs, mentoring, and rotational assignments across the organization to broaden candidates' experiences and exposure.
Develop core competencies in these individuals: Focus on developing financial acumen, strategic thinking, and leadership qualities in potential successors. This can be achieved through targeted training programs, participation in critical projects, and involvement in strategic decision-making processes. Ensure that these candidates are given opportunities to present in front of the board, engage with external constituents and participate in high-level discussions, which will prepare them for the visibility and responsibilities of the CFO role.
Create a transition plan: Develop a detailed transition plan that includes timelines and training for successors to ensure they are fully prepared to take over the role when the time comes.
Regularly revisit the plan: Succession planning is not a one-time event, but an ongoing process that needs to reflect the dynamic nature of the business and its leadership needs. Regular reviews and updates of the succession plan are critical to ensure its relevance and effectiveness.
Examples of Successful CFO Retention
With competition for top CFO talent on the rise (43% of CFOs report being approached for new opportunities more often), retaining your CFO is crucial. One example of how to do this successfully comes from a leading beverage company. The company understood that providing their CFO with opportunities for growth and broader business exposure were key to maintaining the motivation and engagement of its senior leaders.
As such, the corporation adopted a multi-faceted approach to CFO retention, including offering:
- Additional P&L responsibility: The CFO was given profit and loss responsibilities for one of the company’s fastest-growing international divisions. This opportunity allowed the CFO to engage directly with the business operations, going beyond the traditional finance roles and participating actively in strategic decision-making.
- External board service: The CFO was encouraged to take a seat on an external board. This was not only seen as a development opportunity that could provide a broader perspective on industry and corporate governance but also as a potential stepping stone to further career opportunities, potentially even outside of the finance realm.
- Leadership development: The organization worked closely with the CFO to prepare them for a future CEO role, should they choose to pursue this path. This preparation involved intensive mentorship programs, leadership training, and direct involvement in strategic projects that were critical to the company’s future.
These strategies led to a significant increase in job satisfaction for the CFO, who appreciated the trust and confidence placed in them by the company. The added responsibilities and external board role provided a fresh perspective and new challenges that kept the CFO engaged and committed to the company. Additionally, the opportunity for potential advancement to a CEO role underscored the company’s commitment to career development, further enhancing the CFO’s loyalty and alignment with the company’s long-term goals.
It’s Time to Take a Proactive Approach to Mitigate CFO Turnover
As you consider a healthy mix of proactive CFO retention strategies, succession planning, and internal leadership development, it’s important to have a partner that can see things from an objective perspective.
Egon Zehnder remains committed to supporting organizations in developing strong leadership capabilities. With many of our consultants being former finance leaders themselves, we understand the pivotal role CFOs play in the financial and strategic management of a company and are dedicated to helping organizations attract, develop, and retain top talent in this area.
For more insights and support in strengthening your leadership team, check out Egon Zehnder’s comprehensive range of services designed to enhance organizational success.
If you have any questions, please feel free to contact us for more information.
