First, a disclaimer: If all CFOs were replaced by internal successors, I would be out of business. That said, a trend that’s played out over the last several years could be problematic for mid-career finance executives who aspire to the CFO’s chair.
The problem is this: The gaps between organizational levels have widened to the point where it’s difficult for many companies to promote finance professionals into the most senior positions because they have not been adequately prepared to take on the broader responsibilities.
The root of the problem can be found in the year following the financial meltdown — in late 2008, when companies came to realize that things were going to be bad for more than a short time. In response, they began to tighten their belts. At a mid-management level, that led to downsizing. At a senior level, while there perhaps weren’t as many positions eliminated, when a leader left a company, the decision to replace that role was given much more scrutiny. In many cases, those responsibilities were divided up among the remaining members of the senior finance team. For example, when a company’s tax leader left, the treasurer became vice president of tax and treasury.
On the face of it, that may not seem to be a problem as it relates to CFO succession. But when one examines how work got done after the belt-tightening, it becomes more explicit.
The result of downsizing mid-management is that the remaining managers are given more of the same work to do. On the other hand, when a company does not replace a senior executive, other executives end up expanding their spans of control — sometimes over several departments or functions. What develops is an organization where mid-managers are going deeper and senior managers are going broader.
That’s not a great recipe for a robust succession plan. The end result is a significant widening of the gaps in responsibility between levels within an organization. Mid-level managers are not getting the type of development and experience required to take on the most senior roles. Additionally, while some companies have replenished their ranks after earlier downsizings, others have not, turning a temporary problem into a more systemic one.
So, as CFOs and their direct reports retire or leave their companies for other positions, more and more frequently there is a need to look outside for replacements. Companies are beginning to fight for the attention of a diminishing pool of qualified candidates. If you’re already at that level, you’re in a great position in the near term. If not? Tough luck.
Let’s hope this is a short-term blip. To help replenish the stock of senior executives, sitting CFOs need to take a hard look at whether the current structure is adequate —to meet not only current operating needs but also longer-term talent needs. If the gap in responsibility has widened between them and their direct reports — or, more likely, between the direct reports to the CFO and their direct reports — then developmental investments should be made to that the company isn’t constantly going outside to replace their most senior financial talent. Given the impact that failing to promote from within has on employee morale, in addition to the iffy success rate of externally sourced CFOs, maintaining the status quo really is not an option.
Conversely, it is incumbent on middle managers to take on whatever developmental opportunities are available within your organization. Take a look at the logical next step in your career path, and ask yourself if you’re ready for that position or if your boss’ job has become so big that your current role isn’t adequately preparing you to take it on. If not, perhaps a strategic lateral move is in your best interest.
But if your company is consistently looking to the outside to fill the positions above you, then it’s probably in your best interest to look outside as well. Just make sure the companies you investigate put more emphasis on development than your current employer does.
John Touey is a principal at executive search firm Salveson Stetson Group with 20 years of experience providing executive search, human resources and management consulting services to organizations in the health-care, financial services, utilities, manufacturing and pharmaceutical industries. Follow him @JohnTouey.