In 2020, several leading companies, including Cisco Systems, General Motors and Macy’s, reported turnover at the CFO level. Many more businesses are poised to experience a shake-up in their top financial ranks in the near future, if they haven’t already.
There are a number of reasons companies will see senior executives depart in the months ahead. Some leaders who’ve performed exceedingly well during the pandemic will be poached, of course, and others will be pushed out because they weren’t successful at helping their business withstand the challenges of the pandemic. Some executives will retire after holding off on that plan during the worst of the crisis. Still others have been rethinking their priorities and weighing opportunities amid the turmoil of the past year and will leave to pursue new career avenues.
It’s likely that many companies won’t be prepared to fill these executive chairs quickly or choose the best replacements. Why? Primarily because they lack a formal succession plan.
A 2020 study on succession planning by the Institute for Corporate Productivity (i4cp) found that 44% of companies currently approach the process in an adhoc fashion. Also, only about 29% of respondents said their organizations are effective at filling critical roles from external sources, and roughly 28% said the same about their company’s efforts to identify high-potential employees within their existing workforce.
Succession Challenges Seen As A Top Risk—But They Don’t Have To Be
Many business leaders already recognize that succession planning is a problem for their organization—and also anticipate it will be an issue for years to come. Respondents to a global survey of senior executives and board members from Protiviti, a Robert Half subsidiary, and NC State University Poole College of Management’s Enterprise Risk Management Initiative, cited succession challenges among their top 10 risks for 2021. Looking ahead to 2030, that risk is listed among the top five.
But succession challenges don’t have to be a top risk for businesses. Yes, hiring, retaining and developing top talent is always difficult—even for leading firms and not just in the C-suite or other layers of upper management. But these risks could be lessened if succession planning weren’t the reactionary process that so many firms rely on now.
Many CFOs already collaborate with human resources (HR) leadership on strategic workforce planning, including creating hiring forecasts and budgets and deciding what work to outsource. So, why not make succession planning part of the discussion, too? As SHRM underscores in its workforce planning toolkit, “While many see workforce planning as purely a staffing tool for anticipating employment needs, it can also be a critical tool for staff training and development and succession planning.”
By working closely with HR, CFOs have the opportunity to create a succession plan for their own position and other critical roles in their department, fashioning a model that could benefit the whole company. Following are five ways that finance leaders can act now to help their organization ensure business continuity from a people perspective:
1. Assess The Potential Impact Of Staff Departures
Given the job opportunities emerging right now for financial talent, there’s a strong chance you’ll receive little or no warning when a critical employee leaves. So, you need to look at every key position in your organization and answer the following questions: “What is the real impact of this role on our organization?” and “If this role were suddenly vacant, how would that affect our operations?”
This may sound like an obvious exercise, but it’s surprising how few companies regularly consider the potential loss of a vital team member. It bites them later when they suddenly face a major staffing gap. Consider it an essential starting point.
2. Think About The Layers Of Succession
When a CEO leaves, many companies are turning to their CFO to step into the role. If you’re a CFO who is preparing to assume the CEO seat at your firm one day, don’t just think about who could replace you. Go deeper to identify and develop candidates to succeed in the SVP, Financial Planning and Analysis, the controller, and other core roles in your organization. You’ll need strong teams in place to support you.
3. Align Succession Planning With DEI Goals
Succession planning is also a chance for companies to build a more diverse and inclusive leadership team and organizational culture. When selecting succession candidates, don’t overlook high-performing members of underrepresented groups who historically may not have been considered for such an opportunity. Consider offering unconscious bias training for your management team to lessen the likelihood that they will automatically select only people like themselves or those currently occupying leadership roles.
As it turns out, the finance department is an appropriate organization to help drive this change in companies, given its track record. Financial Management magazine reports that ethnic and racial diversity of CFOs has nearly tripled over the past decade, and the diversity of CFOs across all industries has increased 150% since 2013.
4. Understand What Your Employees Want
Make no assumptions when approaching the issue of succession. Sometimes, professionals end up as part of a succession plan because of where they sit in the organizational chart—the “next person in line.” However, that doesn’t mean they want to become a future CFO or another leader. The pressure to meet that expectation can result in a valued employee taking on a critical position they’re not passionate about, doing a poor job and leaving as a result.
Take the time to understand the ambitions of your employees, and whether they have the interest and ability to become a leader one day. If this path doesn’t appeal to them, you’ll learn what does, and you can help them reach their goals. They can also alert you to others in the organization who could be strong contenders for leadership roles whom you hadn’t considered before.
5. Ensure Top Leadership Keeps Succession Planning In Focus
The CEO and board of directors rely on the CFO to keep them up to date on succession planning activities in the finance department. They want to be aware of who might be steering the financial ship in the future and why you have selected those individuals for development. And it’s becoming even more of a business imperative that they stay up to speed with succession plans for all critical leadership positions as more investors expect companies to disclose this information.
However, according to recent research from shareholder advisory firm SquareWell, companies are falling short: Only one-fifth provide comprehensive disclosure of their succession plans, and 85% fail to provide “adequate disclosure” about their process for selecting a new lead executive.
There’s also a good chance that your board hasn’t been focusing much attention on succession planning lately: According to the Harvard Law School Forum on Corporate Governance, more than 60% of directors in a recent study said their board hadn’t reviewed or updated the succession plan for the CEO and other key executives in the context of the Covid-19 health crisis.
So, consider having a proactive discussion now, or soon, with your CEO and board about succession planning—just to make sure they’re informed and staying focused on the issue.
6. Confirm Your Plan Can Work In The Real World
There has perhaps never been a better time for businesses to verify that their succession plan is solid. The pandemic, which is still creating disruption and uncertainty, has required many professionals to step out of their comfort zone to take on new responsibilities and challenges. People gain valuable experience from helping a business manage through adversity and prepare for what the new landscape could look like.
Has your thinking changed on the people you have long considered as candidates for assuming leadership roles? Who have been your star players most recently? Were they people you already had in mind? If not, what would it take to develop them? And what about the team members you’re already grooming? Have they risen to meet the challenges of the pandemic? And if not, why not?
The opportunity is great for CFOs to help their company develop a better approach to succession planning and build a strong team for recovery and beyond. Badly managed CEO and C-suite transitions eradicate $1 trillion a year in market value in the S&P 1500, according to research by the authors of a recent Harvard Business Review article. They also estimate that better succession planning could lead to company valuations and investor returns that are 20% to 25% higher.
As you keep evolving your management playbook for the new normal, be sure to add succession planning. The potential ROI of improving this critical business process is hard to ignore.