The unexpected departure of a high-level executive in any company will usually warrant some degree of organizational restructuring. Sometimes the higher-ups are easily replaceable; other times, their exits can lead to big problems.
In 2015, the turnover rate of CFO’s in S&P 100 companies was about 25%. This is a surprisingly high number that affects many people besides the employees and executives of the businesses that the CFOs are parting ways with.
So what accounts for the increase in CFOs leaving their companies after only one or two years of service? There are several reasons:
- Clash between the CFO and company culture. Sometimes the personality traits or management style of a CFO conflict with the culture or mission of the company they work for. This is more likely to happen when someone from outside of the organization is brought in to solve a problem, as opposed to someone already in the company working their way up to the CFO role.
- Lack of growth opportunity. If a recently-hired CFO discovers that there’s less opportunity to grow the company or achieve their goals than expected upon taking the job, they may lose their incentive to stick around.
- Unexpected responsibility. The role of a CFO can vary a great deal depending on the company or industry they’re in. If their expectations about what the job entails are different from what the company expects or needs, some dissonance is inevitable.
- Lack of chemistry with the CEO. When two leaders of a company can’t see eye to eye, something has to give.
- Opportunity elsewhere. An open position at another company that is in a more desirable industry or comes with a bigger paycheck may be enough to make a CFO jump ship.
While some of the reasons a CFO would choose to leave their company may seem obvious, the ramifications for doing so are not. CFO’s that depart after an usually short stint are not only leaving behind a gap to fill, but they are also raising a red flag to shareholders about the growth prospects of that company.
It can take a long time for a business to replace their CFO and get the new hire up to speed. That transition period creates a big window for things to go wrong and for opportunities to be missed. Executives may find themselves having to make a serious strategic decision without informed financial consultation, or be forced to wave at the chance for an advantageous merger or acquisition as sails right by.
Additionally, shareholders who notice that a business had one or more CFOs leave after a relatively short time are going to become concerned. What messages does the departure send to investors? Perhaps the company is becoming stagnant and has little potential for growth. There could be a lack of opportunity within the industry that is hindering progress. Maybe there are deep internal problems within the organization that made the CFO feel the need to get out before it implodes. Whatever the reason is, shareholders know that CFOs don’t leave when everything is sunshine and daisies, and they are bound to lose faith in their investment if the signs are there.
Combine all of the above with the staggering compensation costs businesses have been known to pay out and it is clear that for any company to suddenly lose their CFO is a big blow. However, CFOs who have short runs in multiple different businesses are also putting their own reputation on the line. An inconsistent track record may suggest to future employers that a CFO doesn’t have what it takes to build longevity with a company, is difficult to work with, or is simply inept.
Is there a lesson in all of this? It seems that company’s hiring CFOs that are going to be there for awhile is in the best interest of the company, employees, shareholders, and CFO alike. Unfortunately, this is not realistic in the long run, but hiring CFOs that will stick around is definitely something that businesses should keep in mind.