Mark Freebairn, partner and head of the CFO and board practices at Odgers Berndtson, explains why CFO turnover is so high and what can be done about it
CFO turnover in UK PLCs is exceptionally high. Departure rates are at record levels, with twenty-nine FTSE 100 businesses changing their CFO in 2023. Across EMEA, the story is the same, with 73% of companies in 2023 reporting their finance chiefs stayed for no more than five years.
In the UK, the problem is particularly acute. A combination of past and present financial stressors, mounting regulation and more attractive roles in portfolio businesses has created a perfect storm for CFO departures.
Why is CFO turnover so high?
The regulatory environment now borders on the untenable. PLC CFOs spend inordinate amounts of their time on stricter remuneration and auditing requirements, while the ‘day job’ only becomes more demanding.
Compounded by three years in crisis mode with no sign of the disruption and uncertainty slowing down, the traditional CFO role is diminishing in its appeal. Many are rethinking their options – with some opting for early retirement, while many others are lured by portfolio businesses. There, a CFO still relatively early in their career, can earn £250K a year, working three to four days a week – an attractive prospect, particularly as people increasingly prioritise work-life balance.
As a result, UK PLCs are competing for CFO talent in a highly challenging market. To do so effectively they need to focus on the leadership environment, engage with regulators and stakeholders, and ensure they have a succession plan in place.
Foster trust between the CEO and CFO
The CEO and CFO are a unique paring, and the success of this dynamic is crucial to retaining the CFO. To work, the relationship must be built on transparency, trust, respect, and a shared commitment to the success of the company. So important is this relationship, that it is the top priority in CFO job satisfaction, above company culture, remuneration, and values alignment. If this breaks down, the CFO is likely to question why they are there.
The board should monitor and safeguard this relationship to ensure it works for the benefit of the business. Beyond this, leadership team coaching can enhance the professional relationship between the CEO and CFO, addressing unhelpful behaviours, increasing communication, and fostering trust.
Build a unified leadership team
The burden of ensuring regulatory compliance is heavy, growing, and unavoidable, but it needn’t rest solely on the CFO’s shoulders. Other members of the leadership team should support the CFO, particularly in non-financial reporting areas, such as ESG and DEI.
In addition to ensuring workload is spread fairly among the leadership team, boards can provide CFOs with adequate resources within the finance function. This includes hiring and developing finance function team members to support the CFO. With 92% of UK CFOs facing significant talent shortages, the lack of support within the finance function is becoming the primary cause of CFO burnout.
Engage with regulators and stakeholders
Boards and CEOs can actively engage with regulators and stakeholders to discuss the growing dissatisfaction and subsequent CFO departures to find a more balanced approach to regulation.
While unlikely to bring about immediate changes, it will help to address the broader ecosystem challenges CFOs face and alleviate pressure long-term. It will also demonstrate to the company’s CFO that the board is ‘on their side’ and trying to help them – making them more inclined to stay.
Broaden recruitment parameters
For companies facing a CFO departure or actively looking for their next CFO, broadening the role criteria and recruitment parameters are often the most effective methods in expanding the talent pool.
Rather than hire based on experience alone, boards can look for candidates with potential. Likewise, rather than limiting the criteria to a specific industry, boards should consider adjacent industries to hire from. This increases the number of candidates to choose from, leading to a higher likelihood of appointing a strong CFO.
Focus on succession planning
Succession planning is the long-term solution to CFO talent management. It mitigates disruption when a CFO does depart, avoids a costly external search process, and helps retain internal talent.
Building an effective internal talent pipeline means creating an ideal CFO profile, identifying and assessing internal finance candidates, and benchmarking against the external market. Part of this involves internal skills development. Beyond the necessary financial credentials, companies should develop skills like commercial acumen, communication, problem-solving, negotiating and influencing among their finance talent. This creates a more effective finance function to support the CFO and means companies possess the necessary CFO skills internally, when the role does need filling.
