CFO churn – how can companies reduce it?

The average tenure of a finance chief is getting shorter, putting pressure on boards and posing difficult questions about the increasingly demanding and stressful nature of the role

Manager Welcoming A New Coworker

As is the case with any member of the C-suite, finance chiefs come and finance chiefs go. But recently they’ve been going a lot more often – and these increasingly frequent departures should give all employers pause for thought.

Recently, the CFOs of blue-chip companies including British American Tobacco, Disney, FedEx, InterContinental Hotels, Nestlé, Prudential and Unilever have handed in their notice. According to research by leadership advisory firm Russell Reynolds, the churn rate in this job has been increasing across the board, reaching a four-year high in the FTSE 350 and the Euronext 100. Well over half (57%) of CFO roles have changed occupants since 2020, the study has found.

Meanwhile, an FTI Consulting survey covering North America, Asia Pacific and EMEA found that the average tenure of a CFO was less than five years in 64% of the responding firms. The churn rate was highest in EMEA, where 73% of companies reported that their finance chiefs typically stayed in post for no more than five years.

Russell Reynolds also found that 61% of the newly appointed CFOs it polled were first-timers in that role. While some might find it pleasing to see an influx of fresh talent at this level, the figure also raises questions about the amount of experience the current crop of CFOs has clocked up – an important consideration in a period of particular economic stress. 

Finance chiefs are expected to take the lead on new regulation

What factors are behind the high CFO churn rate? For one thing, finance chiefs are coming under increasing external pressure. Westminster’s plan to stiffen the financial reporting regime and make board members more individually responsible for figures provided to auditors – known as UK Sox because it’s based on the US Sarbanes-Oxley Act of 2002 – may have been delayed, but the greater scrutiny it proposes is a good indicator of the direction of travel. The growing number of vociferous activist shareholders is also putting finance chiefs under stress. 

A lot of CFOs are exhausted from working through the pandemic and they’re seeking a change

Moreover, as well as producing the accounts, CFOs are increasingly expected to play more of a part in forecasting and business development. They’re taking on more responsibility for tackling and disclosing ESG issues – a task that’s only going to become more burdensome. 

Advanced digital tech such as artificial intelligence will, in the medium to long run, relieve finance teams of some laborious tasks and provide them with more accurate, timely information. But, as these technologies develop at dizzying speeds, implementing them promises to be a challenge in itself in the shorter term.

“The pressures on CFOs have intensified in recent years as their role in the critical decision-making of the C-suite has grown,” notes Ralph Geertsema, senior MD at FTI Consulting and co-leader of the EMEA office of its CFO practice. “In addition, there are external factors such as the increased demand for CFO talent – in private equity, for instance – and the growth of other opportunities, including interim roles.”

For many, the traditional CFO role is looking less attractive

Mark Freebairn is a partner at headhunting firm Odgers Berndtson and head of its board and financial management practices. He believes that the appeal of the traditional CFO role is diminishing, prompting talented professionals in the field to rethink their options, especially those feeling burnt out by the stresses of steering their businesses through the Covid crisis

Capable finance chiefs have the scope to start portfolio careers while they’re in their late 40s “and still have very attractive and engaging jobs. They’re working three or four days a week with long holidays and still earning £250,000 a year,” Freebairn reports. “A lot of CFOs are exhausted from working through the pandemic and they’re seeking a change. Many of them are financially secure, so they don’t want another executive role.”

The pressures on CFOs have intensified in recent years as their role in the critical decision-making of the C-suite has grown

Dr Randall Peterson, professor of organisational behaviour and academic director of the Leadership Institute at the London Business School, points to another reason for the shortening tenure of CFOs. He suggests that many employers are failing to develop their existing financial managers adequately, meaning that there’s a dearth of suitable internal candidates to replace a departing finance chief. 

The high CFO churn rate “speaks volumes about how poorly most organisations have managed their talent pipelines. Recruiting externally for a finance chief ought to be a rare event, because outsiders always pose a greater risk by not understanding the local culture and processes initially,” Peterson explains. “Even when they bring in valuable outside perspectives, they must still find a way to get things implemented, which hinges on their ability to work with their new company’s culture.”

Employers can ease the burden on finance chiefs

Firms wishing to avoid the cost and inconvenience of hiring and onboarding a new CFO every few years will have to work harder and smarter on retention, then. And that process needs to start at the very top, as Geertsema explains.

Apart from factors such as “competitive compensation, professional growth opportunities and work/life balance, the unique dynamic between the CFO and the CEO is crucial to retaining the former”, he says. “The relationship is built on transparency, trust, respect and a shared commitment to the success of the company. If this breaks down, the CFO will often question their place at the top table.”

Effective support from the rest of the leadership team is also key. The burden of ensuring regulatory compliance may be heavy and growing, for instance, but it needn’t rest solely on the CFO’s shoulders, according to Fairbairn. 

Pointing out that “you can employ people who can support CFOs or do it for them”, he advises engaging with regulators and other stakeholders in the longer term to “discuss the growing dissatisfaction with the role and try to find a more balanced approach to regulation”.

Similarly, investing in labour-saving finance tech and ensuring that all board members pull their weight in areas such as ESG reporting can make it more likely that the CFO will stay put – and do a great job – for longer.