As their jobs become increasingly complex, highly qualified CFOs are in demand and the desire to seek greener pastures becomes more pressing.
CFOs around the world are migrating between firms, holding positions for shorter periods of time and changing jobs at an unprecedented rate. The reasons vary, but collectively they reflect the challenges of a role that is increasingly complex, strategic and often requires higher remuneration. Technology is a change maker, fueling the emergence of fractional CFOs who split their time among multiple companies.
This role also becomes increasingly stressful, especially when the company undergoes a corporate restructuring or the CFO’s perspective does not align with that of other executives.
High interest rates and debt dependency have added to stress in recent years.
“A major reason for fewer bankruptcies or distressed situations is the fact that much of the debt of private equity-owned companies was provided by non-bank lenders, who are more willing than traditional banks to modify, extend or refinance debt. with other forms of capital, such as preferred shares,” says Joseph Estevez, head of private equity at advisory firm SGS Maine Pointe. “This type of ‘throw the can down the road’ financial activity increases the level of financial burden and complexity for finance staff.”
Then there’s the stress and uncertainty of making deals, like when Elon Musk took Twitter private and remade it under X. “The last six months have strained every mental muscle I’ve developed over 48 years,” Ned Segal The company’s chief financial officer was then Twitter, commented on the platform after Musk took the company private and promptly fired him along with several other executives.
But success can also be a factor in pushing a CFO into a new role, be it a more visible one, at a larger company, or for increased compensation. A recent example is energy company BP’s promotion of Murray Auchincloss from chief financial officer to chief executive in mid-January.
The common denominator in these scenarios is the increasing complexity of the CFO’s job, a trend that has been observed for several years. “When I started many years ago, if you were a CFO, you were primarily focused on accounting and debt structure,” says Gina Gutzeit, senior managing director in FTI Consulting’s CFO Solutions practice office. “CFOs now play a broader and more visible role in the C-suite, with significantly more responsibilities.”
Europe, Middle East and Africa leads the trend
In its 2024 Global CFO Report, released in January, FTI found that 61% of CFOs agreed that the average CFO tenure at a single company is less than five years; this is down from 66% a year earlier. Company size plays a significant role in influencing CFO tenure, FTI finds, as the complexity of the CFO role becomes more pronounced as a company grows. Among respondents from companies with more than $1 billion in revenue, 68% say the CFO tenure is less than five years, while only 44% of respondents from companies with revenue under $100 million agree.
FTI survey, which collected a total of 377 responses from North America; Europe, Middle East and Africa (EMEA); Asia Pacific (APAC); and Australia—found much the same trend around the world. In EMEA, three quarters of CFOs agreed that the tenure of a CFO at a single employer is less than five years. This view is shared by 63% of CFOs in Asia Pacific and 60% in North America, a clear majority across all regions.
Proximity to power also matters. Randall Peterson, professor of organizational behavior at London Business School, notes that the CFO and CEO are often the only two executives on a company’s board of directors. This facilitates a quick transfer of power to the CFO in the event of a CEO departure, a trend that is particularly noticeable in EMEA, he said.
“I did research into how the composition of FTSE 350 boards has changed over the last 20 years,” says Peterson. “The UK has changed its rules to favor more non-executive voting and give boards more independence. Of course, they still need a CFO and obviously a CEO. And this principle has gradually been adopted by other countries, so that the CFO is the most prominent leader on the board of directors, besides the CEO.”
According to a 2023 study by software firm Datarails, CFOs have the shortest average tenure among C-suite executives, at about 3.5 years. By comparison, the average tenure of a CEO is about 3.9 years, a Chief Technology Officer (CTO) is 4.6 years, a Chief Marketing Officer is 4.6 years, and a General Counsel is 4.5 years. Despite their shorter tenure, CFOs are well paid: the average total compensation in the Datarails sample is $3.5 million, second only to CEO ($10.4 million) and CTO ($3.8 million) in 2021, which the study lists as the worst year. reduction in the number of financial directors for the analyzed period from 2016 to 2021.
“We engage in transformation projects with senior executives, and approximately 80% of our projects involve a CFO transition, either with a new CFO, an interim CFO, or a change in CFO,” Estevez says. “We are witnessing this evolution firsthand, noting frequent changes in the responsibilities and dynamics of the CFO role.”
Foresight
Because their role allows them to see problems on the horizon early, CFOs are often the first to jump ship when a company faces problems, such as when a debt burden becomes unmanageable. “CFOs have a comprehensive understanding of the debt structure, capital structure and overall financial health of the companies they oversee,” says Estevez. “They personally understand the impact of these factors on the financial condition of the company. Until the debt structure is corrected, it is difficult for them to predict a favorable outlook. These people, known for their savvy, decide to leave.”
Estevez also sees the increasing demands of the position creating new skills shortages. “The CFO position has evolved into a strategic value creation tool with changing responsibilities,” says Estevez, adding that there is a “noticeable skills gap in this regard in the current industry environment.”
In an environment where competition for the best candidates is fierce, the best may receive a bonus. “CFOs are in a good position right now, and have been for several years,” says Alan Numsuwan, executive vice president of FTI’s CFO Solutions practice. “And when you’re in high demand, you can usually leverage that demand to find something that meets your criteria.”
Companies should have a plan for when the CFO leaves: “If the turnover rate is less than five years, then the board or company should think about what their succession plan is,” advises Gutzeit. “What talent surrounds the CFO? What does an organization that reports to a CFO look like? There needs to be more awareness and preparedness.”
These plans should cover the entire CFO team, not just the CFO specifically, says Numsuwan: “The company should ensure that plans are in place within the finance function so that if there is a departure, there is a plan in place, in which case it needs to look at one or two lower level.”
Fractional CFOs
“For small or start-up companies, a part-time CFO can be a great solution,” says Sunny Khosla, founder of business development firm Coin Masters, who serves as a solo CFO for three different companies. After all, he argues, CFOs “support the company, and our expense line is one of the first things to look at.”
Technological shifts in recent years have made access to talent easier, making the part-time CFO proposition more feasible, he notes. “It gave access to a lot more talent and AI. [artificial intelligence] and automation tools made this possible. I have seen many cases of outsourcing local accountants and implementing artificial intelligence to automate accounting.”