By Jeff Kuhn
An essential responsibility of C-suite officers and corporate board members is to anticipate and plan for a CFO, CEO or even a board member’s departure and succession well before it happens. CFOs, as a critical member of the C-suite, play an important role in this process.
As a CFO, contemplating and planning your own professional mortality is understandably an uncomfortable exercise; I know this first-hand. But when the only constancy is change, particularly in these times, it’s a very rare person who is irreplaceable. And in all times, orderly transitions are far preferable to sudden ones. As a Chief Financial Officer, you have a fiduciary responsibility to plan and execute your succession both professionally and with forethought. Truly great leaders always know who their “Number Two” is and proactively ensure that that person is fully prepared to take on the expanded responsibilities of the C-suite.
CEO Tips for CFO and C-Suite Succession Planning
Current economic times are turbulent, and companies are scouring their operating expenses in search of discretionary spending that can be curtailed, reexamining their market and customer demand opportunities, optimizing their business models, and looking for every and any competitive edge. In times of stress, true leadership and competency stands apart from the herd.
As the CEO, now is also a prime time to critically reexamine your C-suite team to make sure you have the right level and type of talent you need going forward in this new environment. As always, even in a climate of furloughs and layoffs, competition for A-level talent remains strong. CEOs will benefit from four tips when shoring up the C-suite and planning thoughtful team member transitions:
- Weak performers should be immediately replaced, especially if a poor view about a C-suite player is widely held within the company. Failing to act in these situations has obvious negative effects on team performance and morale.
- Your competitors likely know who your strong performers are, so take a fresh look at your executive team and make sure that each of them has a credible successor in case of their sudden departure.
- In the case of your CFO, don’t assume that your Controller, or even your VP of Finance, can step into your CFO’s shoes. Being a CFO is a very different job from that of a Controller. Most CFO transitions are sudden and unforeseen, so it’s very important to have a candid conversation with your CFO about his or her successor candidates. If there aren’t any viable internal candidates, make it a priority of your CFO to recruit their Number Two.
- Work with your board’s Audit Committee to get their views on CFO succession, and make it a point to have this conversation at least semiannually in board meetings.
When it comes to the CEO role, both you and your Nominating and Governance Committee should be reviewing your succession plan no less than semiannually. You should be clear about timing (if you know it), and possible successor candidates. Can you identify someone presently at the company? Or is he or she on the board? There should be a pre-thought out succession plan ready to execute in the event of your temporary or permanent absence – for whatever reason. Your interim successor should be identified and informed of your plan in order to make the CEO transition as seamless as these things can be.
Succession Planning for the CFO Role by CFOs
While all C-suite roles are important, CFOs hold a critical office within the management team and across the enterprise. All CFOs must therefore ensure that they identify, recruit, coach, and mentor their eventual successor. This isn’t about working yourself out of a job; it’s about elevating the skill level of your successor so that you can delegate more responsibilities to them, enabling you to assume even higher levels of general management responsibility within (or outside) the company. The criteria for your choice of Number Two, whether that be the Controller or another up-and-coming executive leader, should include deep consideration about whether that individual has the essential skills (technical, leadership, and strategic) and C-suite presence to assume your CFO job in the future, whether due to a temporary absence or permanently.
Involving the Board in Succession Planning
It’s well understood that among the board’s primary responsibilities is making sure that the CEO and the CFO are the right leaders for the specific times and circumstances at the company. However, it’s also their responsibility to make sure that the CEO is hiring and cultivating a strong bench of potential successors for himself or herself, the CFO, and other C-suite officers.
In particular, the CEO’s and CFO’s succession and potential transition should be an agenda item for serious board discussion no less than semi-annually. And these conversations should be much more than the too-often casual nod to check that governance box in the corporate minutes. These discussions should follow a well-considered thought process asking “What would the board do if the CEO got hit by the proverbial bus, or sidelined by a medical emergency? Who is ready to step up, at least on an interim basis? What necessary skillsets need to be supplemented in that event?” The results of these discussions should be shared with both the CEO and CFO, as well as any stand-by interim leaders (some of whom might be currently on the board).
A less comfortable conversation around the board table is the evaluation of and planned departure of the directors themselves. It’s widely accepted that the optimum management team skill mix evolves as the company matures and grows, and directors are no different. These days there are new regulatory, statutory, and best practice initiatives around diversity, ESG (environmental, social, and governance), cybersecurity and other issues that were nowhere to be found on a board’s best practice radar screen a decade ago.
Recently, I was attending a seminar of pubic company corporate directors where the panel topic was on best practices in the board room. Ironically, one of the panelists was a senior statesman who had been on the board of a large public company for over 40 years which, frankly, is extremely out of line with current good governance practices. It’s critical that with new realities facing them, corporate boards plan for succession and self-evolution, too.
Finally, the idiom of familiarity breeding contempt is certainly apt here. Directors need periodic rotation off the board so the board can maintain fresh eyes, perspective, skillsets, ideas, and impartiality, as well as necessary diversity, in the boardroom. The board chair should provide key leadership here, of course. Annual 360 reviews are often useful, but that’s not the only tool. Often an outside facilitator is an important component of the board’s annual offsite, and can be very helpful when on- and off-boarding directors as the need arises.
If your board or C-suite team needs guidance around succession planning in these turbulent times, do reach out to me or another partner at FLG. We have an active advisory practice in this area and are happy to review with you our capabilities to add-value as you strategize and execute your key-hire roadmap with your board and C-suite.