The Market for CFOs is Changing Fast
We’re all aware of the demand for leadership talent, but some powerful trends are raising the stakes and importance to develop and retain your bench.
If you’re a CEO or Board Member of a public company and have hired a CFO over the last five years, I’ll bet one of the most important requirements on your check list was “previous public company CFO experience”. This has been the number one criteria for years, and it’s kept experienced CFOs and baby-boomers in high demand.
While the emphasis on previous CFO experience and experience in a public company environment is rational, searching for a “sitting public company CFO” severely limits the pool and sends a strong signal to the top talent on the bench. If you’re a number two in a public company, you’ve likely heard this message and concluded you may need to move on to become a CFO.
But this trend is changing and the number of internal promotions to the CFO chair is on the rise. In fact, over 60% of Fortune 500 CFOs are now first-time CFOs. Given the average tenure for CFOs is slightly under five years, that means an increasingly greater number of public companies have figured it out; it’s a lot less risky to promote from within than to go outside.
Another important factor influencing the CFO talent pool is the increasingly greater influence of private equity investors in the market. When you consider the number of PE-backed businesses has more than doubled over the last decade to 8,000 while the number of public companies have decreased by 46% over the last two decades, you realize there simply aren’t enough experienced CFOs to meet the demand.
So, public companies and private equity investors are in an all-out war for CFOs. As baby-boomers increasingly retire and the demand for CFOs becomes even more intense, you have to double-down on developing your bench and projecting top talent to the next level. For public companies, this places a premium on your ability to develop and retain your high-po’s. And for PE investors, it’s critically important to consider first time CFOs and make a bet on the next generation of leaders.
Next time you think about passing over the internal option, think again and seriously include them in the mix. And when you draft the next CFO specification make sure to emphasize “demonstrated ability to lead and impact the business” over “previous public company CFO experience”. You’ll be glad you did.