Tearing Money: Options to deal with CFO Turnover

tearing money

Tearing Money photo credit: Tax Credits / Foter / CC BY

Even though the economy is making a recovery, a significant number of companies remain under-performers. Consequently, the CFO is often the one who pays the price to appease investors and investment banking analysts. However, who is going to replace the departed CFO? And how did we get here? It may be worth a quick rewind to review the path to the present.

During the meltdown in the financial markets in 2008 and 2009 at the very bottom of the Great Recession, companies relied heavily on CFOs who were skilled in reporting performance and presenting that information to concerned stakeholders. “CFOs were also relied on to manage overhead and to contain costs,” says Roy Cohen, career coach and author of The Wall Street Professional’s Survival Guide. “The buck literally and metaphorically stopped with them. In large part, they were responsible for identifying cost savings, overseeing headcount reduction and managing organization restructuring.”

Restructuring the CFO role
In one case, the role of CFO itself became restructured. At Royce Leather, a maker of wallets and luggage, the last CFO was repositioned into the role of controller, and the CFO responsibility is now in the hands of someone outside the company. “The job of CFO has become obsolete with the opportunity to outsource financial work to other agencies that can do the job for much less,” says Andrew Royce Bauer, CEO, Royce Leather.

With the money Royce Leather saves outsourcing its CFO function, it is able to invest the capital into the quality of its products, according to Bauer. “I pay part-time for audit preparation, key metric benchmarking, accounting software implementation, financial improvement plans and cash flow projections,” Bauer says. “I do this because as leader of the company, I need to look for the most effective way to protect our financial assets.”

The virtual CFO
Other outsources for the CFO function include virtual financial leader solutions. For example, at inDinero, the virtual CFO has become a reality. It is a software with services solutions. “Maybe it sounds unbelievable, but we created a hybrid solution for business to outsource the CFO function,” says Jessica Mah, CEO, inDinero. “It’s an incredibly intuitive automated accounting, payroll and tax function software for a company and a call center chock full of the brightest CFO level accounting minds.” For a flat fee and no limit on customer support, companies can outsource their CFO function to inDinero and devote themselves to the business of running their businesses.

“The key is to get a strong part-time CFO service until the company is truly large enough to justify a CFO hire,” Mah says. “Customers like Zapier and Blue Smart are great at what they do and they just want to leave the accounting department to someone like us.”

Accounting out; marketing, sales and operations in
For companies who still search for a traditional CFO, 21st century thinking is en vogue. Those businesses need next-generation business leaders who can take marketing and sales strategies into account—skill sets that lean toward MBA as well as CPA training, according to Julie Kampf, CEO, JBK Associates International, an executive talent solutions firm. “CFOs must also be highly IT oriented as many now must interact with IT experts using new enterprise software and be adept at dealing with big data and data extraction.”

This change in emphasis of where CFOs can contribute the most value is not something that just occurred overnight. And it’s not confined to marketing and sales. Over the last five years, there has been a shift away from the CFO-as-accountant mindset toward operations, according to Terry Gallagher, president, Battalia Winston, an executive recruiting firm. “Now most companies want a 50-50 split: half accountant, half operations,” Gallagher says.

As companies increasingly need CEOs that understand the actual business, products and services the company is selling, they want a CFO that can make informed decisions. “Not just about saving money but also where to invest—in which lines of products based on market intelligence,” Gallagher says.

And as partnership with the CEO is becoming more important, most CEOs want a CFO that can push back on them and help make informed business decisions. “In fact, more and more often I’m seeing the CFO as a potential successor to the CEO,” Gallagher says. “This was rarely the case a decade ago. They want the CFO to be able to participate in major business decisions, not just figure how to pay for them.”

And if businesses maintain a traditional CFO structure, they stand to benefit greatly by hiring a CFO who understands the industry in which the business is operating. In the opinions of some experts, CFOs have to take on greater responsibility in the strategic planning process. To do that, industry expertise is a necessity. “Due to these new responsibilities, the talent pool has shrunk for viable candidates,” says Jeff Haydock, president and CEO, ecoCFO LLC, provider of outsourced CFO services. “Demand has risen for a smaller supply of desirable candidates, leading to greater turnover due to available opportunities for those with industry expertise.”

The temporary CFO
While some companies seek permanent CFOs or to outsource the CFO entirely as a permanent solution, very often companies will only seek temporary help with their financial planning. These enterprises could turn to an interim CFO as a stopgap measure until a long term candidate comes along. At Cerius Executives, an interim executive firm, they have placed more than 2000 interim CFOs and other C-level execs. So chances are they have seen just about every kind of leadership gap and helped provide specialized skills and knowledge on a temporary basis. Then it would be understating things to say they have an informed opinion on the state of CFOs in today’s businesses.

“The role of the CFO is being tasked with more than it traditionally has been in the past,” says Kristen McAllister, president and COO, Cerius. “Rather than just being ‘the numbers guy’ CFOs are playing more of a leadership and strategic role in the company. As a result, we are seeing CFOs have higher accountability for the organization’s performance and higher turnover when everything doesn’t go as expected.” Hence, the need for the temporary replacements. With that as the foundation, the concept and task of replacing the CFO is even more challenging, according to McAllister.

Shorter timespan
Now that the CFO role is not only about numbers in black and white but also increasingly strategically gray issues, CFOs now have a shorter half-life than in slower paced times. “Strategic issues sometimes need fresh eyes and new ideas, which means turnover,” Haydock says. “On the flipside, this participation in strategic activities is also one of the forces leading CFOs to become CEOs, as it’s a natural progression for some.”

Derek Handova

Derek Handova is a freelance journalist, blogger and content marketer in the high-tech industry with an emphasis on social media and related channels. He received his masters in business administration (MBA) and bachelors in journalism from California State University, Long Beach (CSULB). The opinions expressed in this article are purely his and do not reflect the views of any of his past or present employers.