Who’s Next?

Succession planning should be a critical exercise in finance. Too bad so many companies avoid it.

When Oren Shaffer retired from his post as CFO at Qwest Communications earlier this year, controller John Richardson became the new finance chief. Assistant controller Bill Johnston took Richardson’s old job, internal-audit head Pat Halbach became assistant controller, and director of financial reporting Mary Mowery moved into the internal-audit slot. No recruiters were called. No tasks languished while the new CFO scrambled to find replacements.

Following a process that is all too rarely practiced, each executive had been groomed for the next job as part of the telecom company’s rigorous succession plan.

The plan targets a group of high-potential employees in the finance department, rotating each through different units and functions, where they receive on-the-job experience in preparation for a job at the next level. If you are not doing this, warns Richardson, you are hurting employees and the company.

If Richardson is right, a lot of companies are hurting. According to a recent study by Robert Half Management Resources, some 83 percent of CFOs say they have not identified a successor. The primary reason? Most believe they’ll hold the position for some time. With CFO tenure hovering at three to five years on average, however, that may not be realistic. It is also shortsighted: according to Scott Simmons, vice president of recruiting firm Crist Associates, for the past two years approximately 55 percent of newly minted large-company CFOs were chosen from internal candidates.

Seamless transitions like the one at Qwest are clearly the exception, not the rule. Succession planning takes time, which is in short supply in the finance department. Singling out individuals to groom for the top job can create resentment among those not chosen, increasing the risk they will walk out the door. Moreover, shifting star players from one position to another for training can disrupt the flow of work in both the department the star left and the one he or she entered. One CFO estimated that a third of the up-and-comers he assigned to new posts didn’t do as well in them as he’d hoped. But, says Richardson, “the bigger risk is if you don’t do it at all.” And even if the company does ultimately hire a new CFO from outside, programs to nurture finance talent can only help develop that CFO’s team — a group of people who will be indispensable as the new finance chief gets up to speed.

Financial Planning

At the largest public companies, planning for CEO succession has long been a topic for board-level discussion — not to mention a blood sport. In the most famous example, when Jack Welch retired from General Electric, three of his top reports were widely known to be in the running for his job. Jeffrey Immelt got the nod; within days, the other two candidates quit.

While succession planning in the finance department takes a backseat to the CEO search, it has increased in importance in recent years, at least for the board. For CFOs themselves, not so much. “The person in the job is often not interested in talking about succession, because he or she wants to stay there,” says Sharon Allen, chairman of Deloitte & Touche USA. And because succession planning doesn’t affect the current quarter, it easily slips off the CFO’s immediate to-do list.

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