I do not know of any finance department that does not routinely back up its important data files. Whilst performing regular backups has become normal behaviour, there is ample evidence that many companies ignore ‘backing up’ equally important intellectual assets; their key staff.
Although many heads of finance, from SMEs to large corporates, will talk about the need for succession planning in their departments, it is generally those from large organisations that are more likely to do something about it. They have a much larger pool of talent from which to draw upon and a greater need to ensure relevant management talent is in place.
Even then, whilst succession plans may well be developed, they are not always kept relevant and up-to-date, and the development plans of key staff may not be followed through to conclusion.
The key reasons are principally economy-driven. Where the development of future financial leaders is normally aligned with business objectives and strategies, in recessionary times corporate priorities can change massively. Additionally, some of the key people on the management succession plan may have been let go due to staff retrenchment, whilst others are not being given sufficient exposure to gain the required expertise required to shift up the ladder.
All the more reason for organisations today to ensure they have a diverse pool of capable individuals in place to carry on the activities and responsibilities of those who have left or are poised to leave the company.
New demands, coupled with the looming prospect of significant numbers of senior managers taking retirement as the global economic recovery starts to gain momentum, necessitate re-addressing the talent pipeline of people who can seamlessly take over critical executive roles.
As we stand many UK businesses remain vulnerable to the potential of sudden changes within their top tier of executives. Whilst it may not be practical to have, say, a surrogate CFO waiting in the wings, it is vital that a realistic continuity plan is in place that allows the company to maintain stability and to continue operating as demands require until a successor is found. And where one person fills that vacancy, there must be someone who is able to step up and take over that person’s responsibilities, and so on down the line.
Whilst the loss of experienced talent and corporate knowledge creates a challenge for the companies, it also presents an opportunity to take a proactive approach to developing talent and equipping future executives with the skills they will need.
This starts with the retention of talented people, even during very difficult fiscal periods. This may seem an obvious point, but it’s one thing to attract good people, it’s quite another to hang on to them. To exacerbate that challenge, there is an acknowledged shortage of high-level financial leadership in the UK and in many other markets. This is already leading to global competition for experienced executives.
The development of a management succession plan for the finance department should start with the creation of a competency framework that highlights the key elements of each leadership role. The framework addresses two principal issues: it allows senior management the opportunity to consider each role and how it should evolve as corporate objectives and strategies evolve, and it provides an outline of what is required to develop and prepare internal candidates for new roles. It is also valuable when the search for the right candidate has to be widened to external sources. By providing greater clarity of the role, the recruitment consultant is better positioned to find an individual who will meet not only current requirements but those of the future.
The following elements should be contained in a competency framework:
- Culture and management style
- Existing work requirements
- Future direction
- Expertise required
- Relationship abilities
As the succession plan is being formulated and suitable management potentials identified, it is generally not wise to over-emphasise to selected candidates that they are the ‘chosen ones’ for future senior management positions. Certainly, they should be advised that they are to receive ongoing training for possible future roles in the company, but views regarding potential successors may change over time as ongoing evidence of suitability is collected. Furthermore, the role itself may change requiring a different set of competencies that the candidate lacks.
When a key executive within the organisation departs, for whatever reason, there can be a knee-jerk reaction to replace that person with someone who can replicate the predecessor in terms of background, management style and behaviour. One of the reasons for this approach is to avoid any potential conflict brought about by a style change in the immediate aftermath.
However, it is a flawed approach because it is not practical for anyone to ghost or mimic their predecessor, and neither should they be expected to do so. The competency framework significantly reduces this risk by highlighting the key elements of the position and the behaviours to be expected of the successful candidate, rather than concentrating on an individual’s management style and behaviour.
At the CFO level there has been, and continues to be, a move away from technical financial accounting skills to a more strategic, collaborative approach that places greater emphasis on the CFO contributing more to the overall business. Indeed, many at a senior level see the CFO effectively as an agent of change, an operational position that includes corporate strategic planning, risk management and corporate governance, working across all divisions within the company. As a group, finance directors today are subject to greater scrutiny and even greater expectations. Stakeholders, investors and finance regulators hold CFOs as accountable as they do the CEO.
It can be very difficult to find someone who has all these skills but, in any event, succession readiness is vital to the success of both the financial function and the company as a whole.