Up or out: How to succeed – or fail – as a CFO

Reimagining the role of a CFO

Despite high-level qualifications and decades of professional experience, CFO churn is increasing globally.

Although studies are rare, all indicate a moderate increase in churn or a lower tenure for CFOs in recent times. Korn Ferry, for example, indicated at the beginning of 2020 that the tenure of CFOs within the top 1,000 US companies has declined by nearly 10%, or 0.4 years on average. Country views confirm that. Taking Germany as a proxy, CFO new hires and leavers are increasing over time.

Who are these CFOs?

We have reviewed the CFO cohort at German DAX, MDAX and SDAX companies. In total 160 companies, all stock listed and nearly most of them employing a CFO. The analysis was conducted during Q2 2020, referring to these CFOs and is based on publicly available data.

• Only 13% of CFOs are female (while first-year female students in economics amount to ~50% in 2018 and pretty much the same 20 years ago, when today’s CFOs went to university).
• 88% of the CFOs worked in finance departments, gaining first-hand knowhow, seen as an essential qualification to become CFO.
• 81% obtained a university degree in business or economics. Ranking behind by a clear margin are science degrees.
• 66% of CFOs are 50 years or older. The average age amounts to 52 years. Just 2% are 40 or younger.
• 58% of the CFOs were hired externally.
• 47% previously gained working experience abroad.
• 34% have previously worked at a consulting firm, while 16% have previously worked at banks.

The CFO’s involvement in visionary or strategic initiatives has been limited in the past, seen as a role conventionally filled by the CEO. But the CFO agenda has changed - and the job description accordingly.

The mantra of shareholder value and the strategic role of mergers and acquisitions are some of the key drivers behind why the CFO has become more integral to an organisation overall. In addition, as financial investors gain importance and supervisory boards become more cautious and active, the CFO’s remit has broadened. Today, financial reporting is oriented towards value, margin increase and rigorous implementation, pivoting the CFO to become the guard of increasingly complex stakeholder needs and shareholder expectations.

With Private Equity investors gaining importance as owners of the German industry – investments increased over the last 10 years by more than 200% and reached EUR 14.3bn in 2019 – the challenge for their portfolio companies has become even more significant. Timely delivery and a defined ambition level regarding value creation require the highest performance from a CFO. Here, transparency is the means, not the end.

What do the CFOs we meet think about their evolving role? 

More than three-quarters of our projects in Germany in the last 24 months were classed by CFOs to be focused on their “three core topics”. These topics related less to transparency around numbers, focusing more on changes in the business model, digitalization and adjustments to cost structures. The only more internal finance-related topic to make the agenda was Finance Transformation – the pursuit of a leaner, lower-cost and more efficient financial operations team.

The CFOs we meet are expected to be absolutely central to their organization ­- a senior manager communicating with internal and external stakeholders to ensure value creation. The centric challenger, the “spider in the web”.

In our analysis of the role of a CFO in 2021, we will assess in a series of upcoming posts what will really move the needle of success under the enduring, challenging circumstances of global disruption and shifting professional expectations. The four key goals that we will expand on as critical to success are:

• The creation and implementation of a culture of transparency and empathy
• Establishing a CFO playbook of value creation and change
• Developing your role as a corporate co-pilot
• Heightened awareness of shareholder needs – particularly in Private Equity