Only 52% of the finance leaders have identified a successor for their position, according to a survey of 1,100 CFOs by Robert Half Management Resources.
The major reason for that is that they aren’t planning to leave the company in the near future (64%).
Other reasons included:
- a lack of qualified candidates within their current organization (17%),
- focus on other priorities (14%), and
- a lack of concern as the executives would no longer be with the company (4%)
While the survey results are about the situation in the US, CFOs in Asia Pacific need to think about proper succession to avoid disruption to their companies.
"Succession plans are critical but often overlooked as executives focus on other pressing issues," said Tim Hird, executive director of Robert Half Management Resources. "Yet for a business to weather change and continue to run smoothly, it's imperative to identify and train potential successors, not just for C-level positions, but roles throughout the organization.
Is succession planning only about continuity?
According to Hird, succession planning is not just about continuity.
"In addition to preparing the company for inevitable change, it creates a culture of professional development, enhances knowledge-sharing between existing leadership, and helps identify and retain future leaders.”
Five major pitfalls when there’s no succession plan
With a succession plan, organizations would face five major pitfalls, said Robert Half Management Resources.
Business disruption: Productivity and operational efficiency are at risk without a contingency plan. An orderly succession ensures that a leadership departure remains a manageable event rather than an organizational crisis.
Legacy loss: A company that doesn't engage in executive mentoring and knowledge-sharing can struggle with retention and potentially lose institutional expertise.
Strategy standstill: High-level executive absences and departures can put strategic decision making on hold and impact long-term projects and initiatives.
Succession ambiguity: The lack of a defined advancement protocol can hinder internal promotions and undermine organizational confidence, impacting everyone from the CFO aspiring to a CEO role to executives and staff throughout a company.
Protracted leadership void: Companies faced with an unplanned departure frequently appoint an interim leader to fill the gap while a search is conducted, but it's prudent for executives to anticipate such circumstances to ensure a smooth transition and graceful exit from the role.
If you as the CFO haven't any succession plan yet or need to reassess the effectiveness of your existing plan, there are seven practices that might help you build or enhance one.
According to Sandy Cockrell III, national managing partner of the U.S. CFO Program at Deloitte LLP, and Charles Holley, retired CFO of Walmart, independent senior advisor to Deloitte as CFO-in-Residence, the following practices can help finance leaders build and sustain a succession plan.
Involve the CEO
CFOs need to ensure that the CEO and directors—the audit committee in particular—are updated regularly about succession planning and talent decisions.
These senior executives also need to see high-performers in action. With all these done, a CFO can assure senior management that the future CFO is in good hands while high performers gain important development exposure.
Identify potential successors’ ambitions and qualifications
A CFO needs to make sure that senior executives in the finance team—the usual potential successors—understand what’s expected of them and provide them with robust development opportunities.
In addition, a CFO needs to have these people develop their own realistic succession plans. While not all potential candidates are interested or are ready for the CFO role, they can help identify other candidates.
Early planning and assessment
CFOs can incorporate succession planning when recruiting and provide development programs appropriate to experience and seniority.
A CFO can start identify potential candidates and provide development opportunities at the manager level. Such development opportunities should become more robust as these high performers advance on their career paths.
Rotation programs can help high performers gain new knowledge and skills while assignments can include those within finance and in other functions.
Corporate strategy, industry experience, and IR were named by more than 60% of CFOs participating in Deloitte’s Q2 2018 CFO Signals survey as the top three qualifications for their successors, besides technical financial experience.
CFOs can also consider technologies relevant to the finance function when it comes to new skills and knowledge their successors need.
Developing soft skills
To make the leap to the CFO role, a successor needs to have the abilities to build and lead teams, and to influence, collaborate, and communicate effectively with stakeholders.
While these capabilities are seldom assessed or developed until executives reach a certain level of seniority, CFOs can start relevant training for those reaching manager level.
Stay in touch with recruitment agencies
Staying in touch with an external executive recruitment firm is important because sometimes even a successful development program might fail to fulfill all finance leadership needs.
The external recruiter hired needs to keep you informed of available top talent and what the market and your competitors are looking for in a new CFO.
In case a CFO can’t identify potential successors from within the organization, he or she needs to search outside while managing the expectations of internal talent.
Re-assess succession plan throughout the year
Re-assessment is needed because of swift changes in today's business environment. As a result, skillsets and experience of potential successors have to be updated to meet the needs of the organization.