We may be at the point where we no longer say that the turnover rate of CFOs is high at large companies. The pace, formerly considered brisk, has become the new normal.
For the past two full years and, generally, the quarters within them, the amount of churn at Fortune 1000 companies has stayed remarkably constant, according to a new analysis from recruiter Heidrick & Struggles. In both 2007 and 2008, the turnover rate — defined as the number of positions that were open during the year as a percentage of 1,000 — was approximately 24 percent, which means the average CFO has a four-year tenure.
Still, the economic crisis that bloomed last September seems to be having an impact on who gets the jobs. Last year, when it was an external hire — the case 49 percent of the time — companies showed a much stronger preference for sitting CFOs in the final four months of the year (64 percent of those hired) than they had from January through August (48 percent). The trend continued in the first two months of 2009, although the data sample was small, with 29 people assuming CFO positions.
“In the challenging times we’re in right now, companies don’t have time to wait for someone to go through a learning curve,” said Michele Heid, co-managing partner of the finance practice at Heidrick & Struggles. That’s particularly true, she added, for those that are struggling with restructuring or cost issues, as so many are.
Being already “in the chair” was a more important attribute than experience in the hiring company’s industry, which applied to only 49 percent of external hires in 2008 — a notable drop from 64 percent the year before. “We’re hearing a lot of companies saying they want the ‘best athlete available,’ regardless of what industry sector they’re coming from,” said Heid.
Meanwhile, Fortune 500 companies promoted from within more often last year (59 percent of the time) than did the next 500 largest (48 percent), though that spread was narrower than the 56-41 gap in 2007. “The size and complexity of divisions within the Fortune 500 are much greater,” said Heid. “People there often have had a combination of corporate, operational, even general manager roles. At the next 500, it’s harder to get that breadth of experiences.”
Turnover rates also varied by sector, with energy/utilities, technology, and telecommunications companies replacing their CFOs roughly twice as often last year as life-sciences and business/professional services firms. But Heid chalked that up partly to cyclicality, noting that sectors experiencing higher churn levels for a couple of years often see a slowdown in the following period, and vice versa.
Other interesting nuggets from the Heidrick data:
- Thirty-nine percent of the Fortune 1000 companies have had at least one CFO change since January 2007.
- For departing CFOs, the following reasons were cited in press releases: 42 percent left the company, 28 percent took a new role within the company, 26 percent retired, and 4 percent left for other reasons such as medical leave or a restructuring was completed.
- The average time elapsed from a vacancy announcement date to the starting date of the new CFO was approximately five months for both 2007 and 2008.
- The average age of new CFOs was 48 last year; the youngest was 33, the oldest 66.
- Sixty-two percent of last year’s new finance chiefs held at least one advanced educational degree and 59 percent had at least one professional designation.
- Only about one-third of internal promotions to CFO in 2008 went to companies’ controllers or top accounting officers, though that was the single biggest category.