Succession Planning for Tomorrow’s Financial Leaders

With the tenure of large public company CFOs now averaging less than five years and accounting firms struggling to recruit new talent from a dwindling pool of qualified candidates, talent management and succession planning for financial leadership positions should be a top priority for corporations and public accounting firms alike.  This is particularly true in times of economic turmoil, when strong leadership can mean the difference between organizations that fail and organizations that thrive.

“In this bearish landscape, talent management initiatives sometimes become viewed as overhead instead of a necessity.  But times like these are when outstanding senior executives can have the greatest impact.  When there’s insufficient industry growth to keep everyone well-fed, and gaining market share becomes critical for survival, strong leaders are sometimes the only competitive advantage driving an organization’s success.  Attracting, retaining and developing these game-changing leaders should remain a top priority,” writes Tom Scanlan, a member of Spencer Stuart Human Resources Practice, in The Four Myths of Talent Management in Challenging Times.

In the white paper, Scanlan notes that a downturn is when organizations need to take a more strategic approach to talent management for short- and long-term benefit of the company.  To illustrate this, he dispels four common myths related to talent in a downturn:

1. Finding talent is easy in a tight job market:  Most top talent in the executive ranks remains employed regardless of the economy.  Further, the increase in job seekers often results in a slower, more complex recruitment process. 
2. Employees have nowhere else to go so retention is less of a priority:  Top leaders will always have opportunities.  If they are not treated well during difficult times, they will leave regardless of the overall economic landscape. 
3. The current leadership team will get a company through the difficult economic times:  It is easy to overlook marginal performance when times are good and profit margins are high.  However, even leadership teams that excel at growing a company in good times may not be capable of navigating it through a downturn.
4. There is no time to worry about the future when in survival mode:  Succession planning must remain a priority even during short-term difficulties to ensure the right people are in place to successfully execute long-term plans.

Writes Scanlan:  “The goal of talent management doesn’t change when the economy struggles.  It’s still about building an organization that’s engineered for long-term growth and success.  Tight budgets don’t make effective talent management impossible:  they just emphasize the need for a keener focus on the topic, from the CEO on down, to ensure that companies make the most strategic use of their greatest asset — their talent.”

CFO Succession Planning

Most corporations have recognized the need for succession planning at the CEO level.  Unfortunately, the same cannot be said of the CFO position.  Recent surveys have found that more than 80 percent of CFOs have not identified successors for their positions, despite their shrinking tenure.

The reasons cited by CFOs vary, from a belief that they won’t be vacating their position in the near future to a lack of time for planning and no qualified replacements.  The problem is that today’s CFO plays a much more significant role in the corporate structure than ever before; any mis-step in filling the role can spell disaster for the company.

“Skill expectations for the CFO role have increased dramatically across the last five years – CFOs are expected to have technical experience, strong relationships with their Board and investors, operational expertise within their industry, and leadership experience in driving strategic change,” writes Christina Hertzler in Are You Neglecting Your Talent Bench During the Downturn? Recommendations for Refining Your Finance Succession Pipeline. 

In the article, Hertzler recommends improving finance succession planning by:

1. Building rotational development programs that provide future finance leaders with operational exposure to key regions and business areas.
2. Developing non-technical leadership skills in mid-level finance staff.
3. Building a diversity hiring plan based on the finance talent bench you will need in future markets.
4. Starting robust succession planning early.
5. Notifying top CFO succession candidates that they are part of the succession pipeline and plan to compete for their loyalty.
6. Leveraging the current recession as an opportunity for promising succession candidates to cut their leadership teeth.
7. Paying a performance premium to your high-potential finance talent, rewarding them for their leadership skills and ability to drive business value.
8. Giving CFO succession candidates exposure to roles that build their relationships with key stakeholders.
9. Identifying the right mix of technical and leadership responsibilities across direct reports.                                                      
10. Being wary of an ongoing talent shortage to ensure top performers remain engaged.

CFO succession planning is particularly important in the current economic climate, which “places additional skill demands on finance leaders, including capital market expertise, risk management skills, and turnaround experience—all attributes in short supply on executive teams who led through the boom of the past five years,” writes Herzler.  “Further, as companies look for growth prospects outside the US and Europe, they need to grow talent ahead of demand by increasing talent sourcing in emerging markets.”

CPA Firm Succession Planning

Accounting firms are not immune to the dangers that come with a failure to plan for new leadership.  Yet as with CFO planning, many firms fail to do so.

According to the 2008 Succession Survey by the Private Companies Practice Section (PCPS) of the American Institute of Certified Public Accountants (AICPA), just 35 percent of multi-owner firms and 9 percent of sole proprietors had a written succession plan in place.  That is despite the fact that 67 percent of multi-owner firms and more than half of sole proprietors expressed a belief that succession planning would be a significant issue in the near future.

The survey also found that, in multi-owner firms, 27 percent of respondents were not actively grooming or formally training anyone for a leadership role.  Among sole proprietors, 29 percent had no one to develop because they were either a sole practitioner with no additional talent or didn’t feel the people working for them were leadership material.

“Change is a constant.  It isn’t something that will happen when certain partners retire; it’s something that occurs in firms now, every day.  Although the retirement of founding or current partners at some point in the future seems like a milestone event, it will be only one detail in the life of the firm.  Succession planning is about sustaining the firm throughout constant change.  It should be a regular and ongoing practice,” wrote the authors.

To that end, Joseph A. Tarasco, CPA, founder of the Accountants Advisory Group, LLC (www.accountantsadvisory.com), a consulting firm that incorporates practice management, marketing and human capital strategies to assist CPA firms in achieving long-term success and profitability, recommends that accounting firms utilize career development as a succession plan in order to compete for top talent – and to position themselves to achieve long-term strategic goals and future succession plans. 

“In the next 10 years, thousands of baby boomer partners will be at or near retirement age.  To make matters worse, most firms have not funded baby-boomer partner pensions.  Therefore, developing the next generation of partners and firm leaders is critical to the future of most firms and their ability to remain independent,” he said. 

Tarasco recommends that accounting firms utilize a customized competency model to establish a foundation for key behaviors required for outstanding performance and successful career development.  These models empower professional staff members and partners to attain personal success and achieve the firm’s strategic vision through the following core competencies:

• Exceptional technical accounting and taxation knowledge
• Managerial and supervisory abilities
• Leadership capabilities
• Practice development and marketing skills
• Client service and retention skills
• Attention to firm management and profitability
• Professionalism and business acumen
• Partner and staff relations and team work

“There is no template for a career development program that effectively works across all firms of all sizes.  However, failure to retain and develop future partners and key personnel will be very costly to all firms,” said Tarasco.  “Making the investment in a career development program will be far less costly and will enable firms to have more control over their destinies.”
 

Also in this month's issue:

AICPA Revamps CITP Credentials to Align with the Times

Corrine Simpson - Kforce Consultant of the Quarter