Knowing your company has a competent, engaged CFO is a great feeling. But what if something unexpected were to happen and leave your finance department without a leader?
If you have a detailed, long-term CFO succession plan, you should be able to switch to new leadership with relatively little disruption. However, if you haven’t invested time and effort into succession planning, you might find yourself scrambling.
Fortunately, it’s never too early to start CFO succession planning. Here are some helpful guidelines for doing so.
You might have a particular employee picked out as your future CFO, but what if that employee leaves the company? While it’s natural to be more sure of some prospects than others, it’s unwise to pick a single successor and consider yourself done.
The best succession plans involve cultivating a strong base of committed, motivated employees.
Most boards of directors and CEOs see the succession process as a pipeline — they’ll want to see people who are nearly ready to step in as CFO if need be, but they also like to see new, promising employees undergoing the necessary development to become future executives.
Different businesses have very different ways of identifying and developing future leaders.
In some cases, executives talk amongst themselves and decide which employees have the most potential. The criteria for selection aren’t made known to the company as a whole. When succession planning involves secrecy, the workplace will likely develop a culture of mistrust that ultimately becomes counterproductive.
Many business leaders believe in a centered model of succession. This method involves making the criteria for promotion clear to the entire organization. Current CFOs work alongside their potential replacements, and career development is a collaborative process.
When you adopt this kind of transparency, you minimize your company’s risk of toxic competition and suspicion. Your current finance department can become a mutually supportive, growth-focused environment.
CFOs are made, not born. Once you’ve identified a talented finance employee who might be your new CFO, you can’t expect them to suddenly know how to lead a company.
Your business certainly has at least some leadership development or career development programs, but does it have any leadership development programs specific to finance?
Financial leadership is challenging and involves an array of both technical skills and soft skills. When you start developing potential candidates early, you’ll get a better feel for who might be the best fit for the role.
In order to track progress, you need to know your baseline. Before you start implementing development programs, take the critical step of conducting readiness assessments.
There’s no set way to conduct these assessments. In general, however, it’s a good idea to break down the key competencies of a CFO and look at how current employees measure up.
If you’ve identified a future CFO candidate (and that candidate is interested in advancing), you can use the assessment as a starting point in a personalized development program. When reviewing the skills a CFO needs to have, you and the employee can acknowledge their strengths while finding opportunities for growth.
Great CFOs are knowledgeable finance professionals, but they’re also skilled communicators, good motivators, and the kind of people who can assemble and lead teams with ease.
Don’t downplay the importance of soft skills when conducting readiness assessments and designing employee development programs. Even if a candidate doesn’t naturally have the soft skills an executive must possess, many of them can be cultivated over time.
For a CFO succession plan to work, you need a strong finance department without gaps in skills or leadership. If you already have a well-rounded department, you may be able to promote from within. However, many companies promote internal talent while hiring outside employees if needed.
More often than not, these outside employees are hired because they have specific skills the business needs.
For instance, while investor relations management falls under the scope of finance, it involves networking and communication skills the average finance professional doesn’t have (or at least doesn’t need). As a result, some businesses hire outside investor relations personnel.
There’s no shame in outside hiring — the deeper your talent bench, the easier CFO succession planning becomes.
To the same end, you can also deepen your talent bench by helping your current employees master new skills. When your whole finance department is made up of employees with diverse skill sets, you don’t have to worry about the potential fallout if the two people who typically handle auditing go on vacation at the same time.
All you need to do to make sure your team is well-rounded is rotate people through different roles. Do your best to give anyone who might be an eventual CFO exposure to corporate strategy and other skills they’ll one day need.
Your business is dynamic, and your succession plan should be too. Re-evaluate your succession plan at regular intervals to make sure it still serves the needs of your organization.
Take a look at readiness assessments and employee ambitions as well. A promising candidate may leave the company, or a previously lackadaisical employee might gradually develop a sharper focus and a desire to climb the corporate ladder.
Replacing a company executive is never a trivial change. But when it comes to your CFO, succession planning merits extra-special consideration. If you move hastily to replace your current CFO or expect one of your current finance employees to simply learn on the job, you’ll put your business’s finances in jeopardy.
It’s up to you to make sure that doesn’t happen. By taking the appropriate steps to create a strong CFO succession plan, you can ensure that your new CFO will be confident, prepared, and ready to step into the role when the time comes.
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