Bratton Fennell, CPA, CGMA, knows how valuable succession planning can be.
As the CFO of Burroughs & Chapin Co., a South Carolina real estate investment trust, Fennell submits a plan to his board each year about how to replace him, as do all other executives in his company.
Fennell's plan was unexpectedly deployed last year when he went to a doctor to ask about painful headaches and found out he needed immediate surgery to remove a large brain tumour. While he fought for his life, the company turned to Tanya Greenlee, CPA, the senior vice-president of finance, whom Fennell had recruited with the intention that one day she would succeed him. She took over in his absence, and the transition was smooth largely because the two had been working to expose her to the demands of the CFO role.
"If I hadn't made those changes and those adjustments, we really would have been under the gun," he said.
Fennell returned to work after six months of recovery. He's still planning on handing the reins over to Greenlee, but he hopes it will be years from now, when he retires on his own terms. The experience drove home the importance of having a plan. "Life has its crazy moments," he said.
Preparing for change
In talking with fellow CFOs at conferences, Fennell has found that few of his cohorts have taken time to make concrete plans to prepare successors.
His anecdotal observations were backed by a recent survey by executive recruiting and consulting firm Korn Ferry, which found that only 34% of the 700-plus global CFOs reported their companies had a succession plan in place.
Companies need to have those succession plans, even if informal, to be prepared for unexpected CFO departures and to build strong financial teams, said Chuck Eldridge, CPA, a senior client partner in Korn Ferry's Atlanta office.
"It should be a mandate," he said about succession planning for executives.
Plenty of companies have made CFO succession planning a priority, with larger, public companies leading the way in establishing formal succession plans. Half of companies with revenues topping $1.5 billion have CFO succession plans, and public companies are also keener to prepare for CFO departures. The Korn Ferry survey found that 46% of listed companies surveyed had plans, while that number dropped to 28% for private companies.
The survey also found that of those with succession plans, only 19% thought there was an internal candidate capable of stepping into the CFO role. That number was a bit surprising to the survey's authors, given that internal hires tend to make up about half of CFO promotions, Eldridge said.
The survey results may indicate that companies are depending on informal plans, Eldridge said. But making formal succession plans has its advantages, he said, with more attention spent analysing what type of exposure individuals have had to different segments of a company's operations. Korn Ferry and other recruitment firms are increasingly called in to analyse companies' talent pools and give feedback about how they can best develop promising talent.
More focus on CFO role
Succession planning, for the most part, has focused on filling the CEO role over the last two decades, said Scott Simmons, the managing director at executive search firm Crist | Kolder Associates. But companies are doing themselves a disservice by not viewing the CFO role similarly, Simmons said.
"It's wrong that the CFO role does not get the same attention as the CEO role," he said.
Having a plan in place doesn't guarantee an internal candidate will be next in line, Simmons said, pointing out that his firm is frequently called upon to bring in numerous candidates for boards and CEOs to consider. Sometimes the person who is next in line doesn't have all the skills needed at the moment to push the company forward, he said.
In one of his current searches, Simmons said, the company board and other leaders have looked at the internal candidate but are concerned they're going to get someone with the same skillsets as the departing CFO. That individual has deep financial and accounting experience but not as much of a background in business strategy.
"The concern is that they're going to get more of the same [just] from a younger person," he said.
Looking at the pipeline
Succession planning isn't just about identifying a replacement but about developing dependable talent and leadership, as former Walmart CFO Charles Holley pointed out in a 2017 essay for Deloitte LLP, which he serves as an independent adviser.
"Having a great bench of talent prepared to step into any leadership gap is worth its weight in gold to the entire enterprise, not only the finance organisation," Holley wrote.
Companies big and small should be looking at the exposure their financial leaders are getting, Simmons said. Often, companies keep top financial talent in positions where they oversee the company's finances, and top executives can sleep at night knowing regulators are happy and things are in order. But that strategy doesn't give financial officers a chance to get out in the field, lead a division, and get the strategic business exposure that could turn them into a great future CFO, Simmons said.
"From a talent management perspective, it's the worst thing you can do," he said. "That person should be pulled out of their comfort zone."
Exposure beyond finance is critical for a budding CFO, said Michael Bian, FCMA, CGMA, the finance director at Bunzl Asia in Shanghai. Bunzl plc is an international distributor headquartered in London.
Communication is a key skill for rising finance talent, Bian said. "You have the technical skills, but you have to craft communication skills and craft a compelling story to owners [of target companies], and to your board."
Bian gained exposure in previous roles, developing presentations for M&A activity. He has, in turn, exposed his finance team to similar activities, including acquisition due diligence and post-merger integration. "You have to have a strategy in place for how you want to develop internal talent, how you want them involved, how they can shadow the CFO," he said.
Bian said a formal plan to develop talent is better than ad hoc training of finance team members. "You have a higher probability to get the right person if you have a plan in place," he said.
Bian agreed with Simmons that board members should push management to develop succession plans across the C-suite, including CFO roles. A CFO a few years into a role, for instance, will not be too focused on his or her successor, Bian said.
Collaboration is key
Having a succession plan in place works for Fennell because of his intentionally collaborative working style. Fennell views himself as less of a soloist and more of an orchestra conductor when it comes to managing his finance team. He's doing his best when his staff are empowered, educated, and trained enough to make day-to-day business decisions without having to call on him.
"It does take some level of confidence [to train a successor]," he said. "My goal is to be as nonvital as possible."
Sarah Ovaska-Few is a freelance writer based in the US. To comment on this article or to suggest an idea for another article, contact Neil Amato, an FM magazine senior editor, at Neil.Amato@aicpa-cima.com.