Workforce

Create a Succession Plan That Includes the CFO

Typically, a succession plan focuses on the CEO and operational management positions. It is rare, but important, to have a succession plan for the CFO as well.
By Martin C. McCarthy
September 20, 2018
Topics
Workforce

Although most contractors have a business plan that they continuously update and use to guide the company, few have a succession plan. Generally, a succession plan will secure the future of the business. It is a guide for the owner and executive team to conduct business and transition the company to the next generation of leaders.

Typically, a succession plan focuses on the CEO and operational management positions. It is rare, but important, to have a succession plan for the CFO. A survey conducted by Korn Ferry, an executive recruiting and consulting firm, found that only 34 percent of the more than 700 global CFOs surveyed reported that their companies had a succession plan in place. This is an alarming statistic since the companies that participated in the research were primarily large corporations. Furthermore, the study revealed that although 46 percent of the public companies surveyed had CFO succession plans, only 28 percent of the private companies did.

The first step in developing a succession plan is to take a hard look at the in-house talent. In an ideal situation, there will already be a person or people in the organization to transition leadership, especially the CEO and CFO roles. They may be family members or trusted team members.

When making this decision, it is important to match the temperament and skill set to the job. Avoid choosing a successor just because he or she is a relative. If that person is not qualified, they should not be considered for the job. It is important to do what is best for the company, not the family. Naming the next CEO, CFO and other leaders is a business decision, not a family decision.

In a family-owned business, a succession plan is particularly important. It could save family and business relationships, especially in a situation where the timing of the owner’s departure is unexpected. For example, if the owner dies without a succession plan in place, their spouse could have the right to take on a leadership role in the company. That person might not be suited for the job. In addition, it could cause disputes in the family if a spouse, child, sibling or other relatives work for the company. Any one of them could feel that they have the right to take on a key role in the business even though they might not have the ability or skill set to do so.

According to the Korn Ferry study, only 19 percent of the companies with CFO succession plans thought there was an internal candidate capable of stepping into the role. Highly specialized skills and training are required to be a CFO. The right candidate should have an in-depth knowledge of financial accounting and reporting systems, income taxes, business law, government regulations and numerous other subjects. Although the person supporting the current CFO or a bookkeeper may have a good working knowledge of the company’s finances, it is not enough to be successful in the CFO role. The person in this position must be able to interpret the meaning behind the numbers reported on the financial statement to add value to the organization.

It may be difficult to hire the right person to fill the CFO position, especially in today’s tight labor market. Preferably, the new CFO should be in place at least one year prior to the departure of the current one. This will give the person transitioning into the role the opportunity to shadow and learn from someone with the proper experience. Many contractors outsource the CFO function to their accountant until they find the perfect candidate to ensure a smooth transition.

As stated by Benjamin Franklin: “If you fail to plan, you are planning to fail!” This is particularly true for a construction contractor that does not have a succession plan. According to Paul Karofsky, executive director emeritus of the Northeastern University Center for Family Business, fewer than one in three businesses successfully transition to the second generation of the family and just one in 10 survive into the third generation.

Succession planning requires leadership to be proactive and have an open mind and the vision to see beyond what might be obvious. This is especially true for the CFO position. It is critical to have a person in place that thoroughly knows the financial side of the business. Contractors should consistently work on the future of their company to ensure that the company will sustain. This takes years of planning, training and mentoring to be done correctly.

by Martin C. McCarthy

Martin C. McCarthy, CPA, CCIFP, is with McCarthy & Co., a leader in construction accounting. CE included McCarthy & Company on its list of 2019 and 2020 Top 50 Construction Accounting Firms. He can be contacted at (610) 828-1900

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