Decade-high turnover among chief financial officers in the UK and elevated departure rates in the US and Europe have left large companies scrambling to fill the role, forcing many to expand their searches, rethink requirements and pay more to their top choices.
Twenty-nine FTSE 100 businesses, including Unilever and Schroders, changed their CFO in 2023 — the most since at least 2013, when data became available. Changes remained at the higher than normal level of 17 per cent across the big European markets and the S&P 500, according to research by Russell Reynolds, the leadership advisory firm. Alphabet, Tesla and Nestlé were among those appointing new CFOs last year.
The churn was particularly high in US consumer and financial services groups, where one in five members of the S&P 500 or Fortune 500 changed CFOs, according to headhunter CristKolder Associates’ most recent report.
The trend is proving complicated for boards that do not have a strong succession plan in place for this critically important position. Not only are they struggling to find experienced candidates who meet all of their requirements, but are having to pay more, make offers more quickly and accept flexible working arrangements.
“Folks are having to get a lot more competitive with sign on and retention bonuses,” says Shawn Cole, president of search firm Cowen Partners. “A couple of years ago everybody wanted stock options. Now it’s cash, please.”
Median pay, including cash and equity, for CFOs in the S&P 500 jumped 13 per cent to $4.7mn between 2021 and 2023, according to data from Esgauge and The Conference Board, and the five best paid US finance chiefs all make more than $25mn.
Some of last year’s turnover was due to rising enthusiasm for promoting CFOs to chief executive or to chief operating officer in preparation for potential elevation to CEO. More than 8 per cent of chief executives were promoted directly from the CFO position last year, up from about 6 per cent the year before, according to the CristKolder data.
“We are at an all-time high of CEOs who have sat in a CFO chair,” says Clem Johnson, CristKolder’s president. “These days it is the second most important [role]. Historically it had been more relegated to finance and being a steward of the company. [Now] IT, legal and functional roles will report in to the CFO and even operational issues such as supply chains are grafted on to the CFOs responsibilities.”
At the same time, some CFOs are being forced out by boards and investors unhappy with how companies have performed over the past two years amid high inflation, rising interest rates and rapid advances in artificial intelligence.
“Businesses and shareholders are very reluctant to change the CEO so the CFO becomes the person who takes much of the blame,” says Matt Tomley, who leads the CFO team at headhunters Drax.
Even when investors are willing to take the drastic step of changing the chief executive, that can still lead to CFO turnover, as the new chief often opts to bring in his or her own team, while CFOs who lose out to another candidate might depart. A big spate of UK CEO changes in 2022 helped drive CFO turnover to new heights in 2023, according to Russell Reynolds.
“When a CFO hits an age or a certain tenure and they don’t get the CEO role, they will often say I’m going to leave because I didn’t get it,” says Jim Lawson, a US leader in Russell Reynolds’ CFO practice. “And when we try to get them excited about another CFO role, they already have their mindset, maybe I’m going to be a CEO.”
Headhunters also report that some public company CFOs are being lured away by private equity-owned businesses as they prepare for initial public offerings, and by companies that are splitting in two. “There have been a lot of conglomerate break-ups [and] . . . that then leads, of course, to new executive and leadership team buildouts,” says Alyse Bodine, global head of the financial officers practice at recruiter Heidrick & Struggles.
Recent regulatory changes requiring companies to provide official reports on a wider range of subjects — depending on the jurisdiction, these involve climate change, diversity policies and cyber security — have also made CFO jobs less attractive to some people.
“It’s a dramatic expansion of the responsibilities of CFOs. It was already a challenging role . . . Now the responsibilities that are going to rest on CFOs are enormous,” says Paul Washington, executive director of The Conference Board’s ESG Center. “CFOs [do] want additional responsibilities, but they want a choice of which ones.”
Faced with a growing list of vacancies, executive search firms are having to persuade clients to broaden the range of candidates they are willing to consider.
Traditionally, large public companies prefer to recruit people who have already held a CFO job, usually in the same sector or at a company in a similar stage of growth.
But more than 65 per cent of the CFOs appointed last year by S&P 500 companies, and 57 per cent of new CFOs at large UK and European groups were serving in the role for the first time, the Russell Reynolds data shows.
Many of today’s CFOs are not interested in doing the job again. Some are nearing retirement age, part of a larger demographic shift, and may be tired of the quarterly earnings grind.
CFOs “are retiring at higher rates to go plural, to build a varied portfolio that might incorporate advising a fund, might include sitting on a charity board, might sit alongside a couple of other interesting listed companies,” says Ben Jones, a UK leader of Russell Reynolds’s CFO practice. “CFOs make very good chairs because of the role they’ve had to play advising the CEO. They tend not to want to be the smartest person in the room.”
Heidrick’s Bodine says she has been touting the merits of first-time CFO candidates who are “ready now”, combined with coaching and support that her firm can provide: “Maybe they’ve done a rotation through treasury, so they understand the balance sheet, [or] they’ve done a rotation in investor relations. They have a well-rounded background that has actually helped them to develop the toolkit that a public company CFO would be expected to have.”
The wider net is proving to be positive for efforts to diversify corporate leadership. The share of female CFOs at top US companies remains small at 18.8 per cent, but has risen from 10 per cent in 2013, and is double the share of female CEOs, according to CristKolder. The share of non-white CFOs has risen from 4 per cent to 12.1 per cent over the same decade.
High demand also means strong candidates have the upper hand when it comes to recruitment. Boards and CEOs have to act fast to reel in top prospects, by making offers quickly rather than subjecting jobseekers to multiple interviews.
Post-lockdown, companies are having to be flexible about where their CFO lives. “These days no one relocates except the New Yorkers, who insist on someone being in the office five days a week. Companies are acknowledging that we don’t need to uproot the family of the new CFO. They realise what a disadvantage that is” for recruitment, Johnson says.
Even so, the rising price tag is proving a challenge for some businesses.
“It is driving up salaries quite significantly. That’s another reason why clients are having to look a bit more broadly. Some of these organisations cannot afford the compensation being demanded by experienced individuals,” says Drax’s Tomley. “It is a very candidate-driven market.’
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