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How finance leaders can extend their shelf life 

How finance leaders can extend their shelf life 

By Nick Huber 
April 03 2013

You’ve reached the top, but how long can you stay there?

The path to chief financial officer and a seat on the board has been analysed in numerous reports. But with CFO turnover on the rise, due to a mixture of oustings and a more active jobs market, there has been little research or discussion about how finance heads can last longer in the job at a time of economic uncertainty, and increasing business complexity and regulation.

In the UK, finance heads at FTSE-100 companies that are externally appointed are in the job only for an average of 4.6 years, according to research by executive recruiter Curzon Partnership. That tenure period is falling, says Curzon partner James Colhoun.

The research, which looked at CFOs and finance directors in the FTSE 100 over the past five years, found that internally promoted finance chiefs lasted nearly 18 months longer than those appointed externally, due to having greater trust and familiarity with the board, a better knowledge of the business and a stronger “cultural fit”.

One reason CFO turnover is rising, says Colhoun, is that more CEOs are being replaced in an improving jobs market and companies often change both the CEO and CFO at the same time. The gradual recovery in the global economy is also providing more opportunities to CFOs who had held back plans to seek new challenges.

“The annual turnover rate now seems to be moving towards its traditional historic rate – to a shorter average tenure of about five years,” says Ajit Kambil, global research director of the CFO programme at Deloitte. “In some ways, during the financial crisis companies stuck with the safe pairs of hands they had – and tenure periods went up. Now, as the economy improves, the job mobility of CFOs is increasing.”

The secret to longevity

Robert Dyrbus knows better than most what it takes to survive in finance’s hot seat. With more than 25 years leading the finance department of Imperial Tobacco, the maker of Gauloises and Davidoff cigarettes, he is the longest-serving finance director (the equivalent role to CFO in the UK) in the FTSE 100.

The secret to Dyrbus’s lengthy tenure: “The ability to adapt to change, even when that change is difficult, or even impossible, to anticipate,” he says.

Dyrbus says it is important that finance chiefs contribute more than just numbers. “A finance chief’s knowledge of the business has to be as good as the CEO’s,” he says. “Today it is essential to be the co-pilot to the CEO and be able to talk to the outside world about all parts of the business.”

Investors have become more demanding over the past 20 years, and poor investor relations can prove costly to the career of a CFO. Today, finance leaders need to provide investors with increasing amounts of corporate information, especially when a company is struggling.

“Effective communication is key, and that’s why I’ve always been very focused on fostering good relationships with the investment community,” Dyrbus says. “The investment community really wants to get ‘under the bonnet’ of a business in a way it didn’t 20 years or so ago. That’s why transparency and trust is so important.”

Be a strategic partner

Playing a role in a company’s strategy is another way to extend your stay. Influencing strategic decisions can raise CFOs’ stock and make them harder to replace.

“The risks inherent in making a bad decision are so great that the CEO needs a sounding board,” says Mark Freebairn, who specialises in recruiting CFOs at executive recruiters Odgers Berndston. “They can get that from their CFO. It’s like a really good marriage. If you have a really good partner, then you don’t want another one.”

Couples in long marriages often talk about the importance of giving each other space. In the corporate world, the reverse is true. Ideally, the CFO and CEO should have neighbouring offices; wandering in and out of each other’s space daily, exchanging ideas and sharing worries, Freebairn says.

Small business survival

Finance heads at small and medium-size companies may have more job security than those at larger companies, according to Bob Eastoe, finance director at Hypnos, a UK bed manufacturer with an annual turnover of £20 million.
 
“In my experience as a finance director, tenure is likely to be longer in smaller companies, partly because finance leaders are more involved in the way the business operates and its strategy,” Eastoe says.

To survive at smaller businesses, CFOs need to be good all-rounders. This means checking the performance of suppliers and, in some cases, being responsible for IT.

“The pressures are different as a finance director of an SME compared with a FTSE 100 company,” says Eastoe, who has previously been the CFO of the UK subsidiary of a large European company. “At smaller SMEs, the pressures are making sure you can pay suppliers and employees on time at the end of the week or month. If one critical supplier fails to arrive on Monday with the right raw materials, you might not be able to fulfil orders. Whereas finance chiefs at big companies are under pressure about share price and investor views.”

How CFOs can extend their tenures

Do your research. Before you start a job, or in the first week of a job, ask your company’s human resources director to give you a candid view of the company’s main challenges, says Colhoun of Curzon Partnership. This talk can include a summary of the strengths and weaknesses of fellow executive directors and any corporate politics to be aware of. Doing this will enable you to begin work on the issues that really impact the business.

Build a solid relationship with your chief executive. The CEO-CFO relationship is fundamental to a successful CFO tenure. Therefore, a CFO should make sure he or she is indispensable to the CEO. Act as a confidant and a sounding board for ideas about company strategy and communicate on a daily basis.

Be an effective communicator. Keeping your company’s biggest investors happy is a must for CFOs, particularly those of listed companies. Meet them regularly to update them about company strategy and possible financial problems. Make sure you understand and adhere to statutory investor relations requirements. Click here for five tips on how to communicate effectively with investors.

Learn to deal effectively with the media. This is important for the CFOs of larger companies, and more so during a crisis. This will reduce pressure on your CEO and boost your profile, both inside and outside your company. Ernst & Young’s tips for dealing with the media include: prepare for unexpected questions; avoid jargon and technical terms; get to know journalists and their agendas; and have two or three clear messages you would like to get across.

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