Becoming a CFO is the largest leap a financial professional will take in their career, so many might need coaching to prepare for the role.
Becoming a CFO is the largest leap a financial professional will take in their career, so many might need coaching to prepare for the role.
According to the CFO Executive Board, almost 17% of CFOs at large companies churned between 1995 and 2003. What’s more, the board found that almost three-quarters of CFOs at Fortune 500 companies have led their office for less than 5 years. What’s more, the responsibilities shouldered by CFOs have been increasing every year, expanding the number of things modern CFOs need to learn.
As a result, CFO coaching has become more needed than ever before to help CFOs keep up with modern demands. The question shouldn’t be is coaching necessary, but, rather, when is it necessary?
Any CFO, regardless of how far they are in their career, always has room to grow. They will always have gaps in their knowledge and something new to learn, which is why a growth mindset is always crucial for any CFO.
For instance, one CFO might have spent most of their career working on M&A deals, so they aren’t necessarily comfortable with tax optimization strategies. Or, perhaps a CFO has spent so much time working in the manufacturing sector that they aren’t fully aware of the different regulations and activities curtailing the pharmaceutical space.
Moreover, in today’s ever-changing world, if a CFO isn’t up to speed on the latest regulations and methods, they might find playing catch-up overwhelming.
Now, the CFO may choose to fill those gaps by learning on the job, in a trial-by-fire fashion. Or they could benefit from the experience of someone who’s been there and done that, shortening the time taken to learn what they need to learn and lowering the chances that they make a mistake along the way.
Additionally, while an established CFO can use some coaching, those new to the position will benefit even more from the coaching experience.
To understand why, we need to better understand the paths most financial leaders take to the office of the CFO.
Most CFO candidates will come from one of two backgrounds: They will either come from an accounting background, which means that they likely have a CPA, or come from a finance background.
More accurately, most CFOs have the primary part of their background based in accounting roles. CFOs with an accounting background either started with a major public accounting firm or started directly in a corporate setting in a staff accounting role. From there, they typically climb the accounting ranks until they reach the role of controller or some director title over the accounting function.
Alternatively, CFOs from a finance background usually start their career either as an analyst in investment banking or corporate finance. At some point in their careers, they may spend time working for a private equity firm or on a corporate development team. It is also common for CFOs with this background to spend time in a consulting role for either the Big 4 accounting firms or the Big Three management consulting firms. At some point, if they weren’t there already, they typically make a jump into a senior-level role in a corporate finance function before taking on the role of the CFO. Most often, they first attain the title of VP of FP&A, VP of Corporate Development, VP of Finance, or another before they are promoted to CFO.
Now, regardless of the path that leads to the seat of the CFO, a financial executive needs to have a well-rounded experience first to be better qualified for the office. In other words, a CFO is much better off having exposure to major departments such as marketing and operations as opposed to being siloed off in the finance department for the entirety of their career.
According to Darrell Borne, a seasoned coach and a CFO with more than 2 decades of experience leading finance teams:
“When it comes to multi-billion dollar companies, I mean, what they would do at a company like Mobil when I used to work there, they would have a handful of people go through the chairs. For instance, they would have a candidate CFO running operations, learning about the production side of things.
Why?
Because it's part of the training to go up. Everything just keeps getting more and more broad brush as you go up in an organization as the bigger the organization goes.”
Depending on their history and background, a CFO candidate may need help in different areas of the job.
When asked, Darrell Borne had this to say:
“When starting a coaching engagement, especially with someone being considered for the role of CFO, you have to look at their background and experience. This is because in the CFO role, you have two functions to oversee. One is the accounting end of things, and there's a lot to it, but then there's the finance side of things, and people typically gravitate to one or the other based on their comfort level and kind of where their makeup is.
And the mindsets are one where in the case of accounting, it is looking backward. So they are always thinking about what's the best way to account for the past based on the FASBs and all the different things that they have to take into consideration to make sure that the audited financial statements, if they are audited, are appropriate in a book correctly and whatnot.
So, it's a historical perspective on everything from an accounting perspective.
On the finance side, it's all forward looking. They are looking at budgets. They're looking at cash flow forecasts. They're looking at forecast period for the company. They're looking at strategic planning. Their natural bend is to look forward, to look out, look beyond the current.
You need them both because you have to make sure that your accounting is done appropriately. Things are booked according to what the regulations require, and from a reporting perspective, that's important as well.
But you also need the finance side of things, which does the reporting of information, additional forecasting, and looking forward to say what was the company doing? Are they on track to meet their goals? If not, what's the issue? Can we make some adjustments to get back into what we need to do?”
Regardless of their background, every financial leader has the potential to become a great CFO. Nevertheless, their background will give them some advantages on the one hand and disadvantages on the other.
For instance, CFOs from an accounting background have an incredible eye for detail. They are very comfortable getting into the weeds, diving into the books, and ensuring that every i is dotted and t is crossed.
However, they are trained to look backward and to try to be as accurate as possible. As a result, their training hasn’t included plenty of fuzzy thinking, which is needed when thinking strategically, looking into the future, and dealing with probabilistic scenarios and projections.
Consequently, training a finance professional with accounting experience involves, to a large degree, training them to adopt that forward-looking lens.
Conversely, professionals from a finance background are trained to be strategic thinkers. They are always trying to see the bigger picture.
But some of them might need help appreciating the accounting side of things. And while most CFOs will have accountants and controllers to help close the books and ensure everything is in order, they still should be comfortable diving headfirst and grappling with the numbers should the need arise.
Aside from the path that led to the office of the CFO, there are a few other factors to consider when looking at a candidate’s potential to lead the office of the CFO:
When a financial leader spends most of their career in a certain industry, they become experts in it, learning its regulations, complexities, and financial processes.
For instance, if a CFO candidate has plenty of experience within the pharmaceutical vertical, they will understand a lot of the nuances associated with the space. So, they will be familiar with how pharmaceutical companies sell to wholesalers who then sell to a CVS. Accordingly, they will be familiar with the accounting concepts that have been adapted for this supply chain.
However, that very same CFO candidate may not be entirely familiar with the accounting concepts common within the manufacturing sector. For example, it might take them a while to get comfortable with cost accounting and absorption costing.
Accordingly, if a CFO candidate has spent most of their career in a niche or vertical different from the one they are currently in, they might need some help rising to the C-suite.
Another factor that could impact a CFO candidate’s capacity to do their job is how big or small their previous employers were.
For instance, if their careers have been mostly spent at small companies with a total headcount of 10-50 employees, then that same candidate will struggle to lead a large conglomerate with 500 or more employees.
Part of the difficulty is that the skill set required to lead a small company's finance function is entirely different from the skills needed for a larger company.
In a smaller company, a CFO might have to wear many hats, and they will most likely have to do some of the legwork themselves because they won’t have an entire team to delegate everything to.
Alternatively, in a larger company, there are a lot of details to keep track of and a much larger team to lead. Moreover, larger companies tend to have several product lines, operate out of different geographic regions, and face different risks, such as currency and international concerns.
As a result, depending on the candidate’s experience as well as what they are being asked to lead, their coaching experience might be very different.
When someone starts their finance career, they usually begin as an individual contributor. They report to a manager, do the tasks that are asked of them, and don’t have to worry beyond their immediate scope.
And if they do a good enough job, they get promoted and lead others as a manager. In this scenario, the finance professional will perform two roles: lead other team members and do some of the actual work themselves.
After being a manager, a finance professional will then reach the role of director. At this point, they are no longer operating as an individual contributor, and almost all of their responsibilities are managerial. They solely delegate and strategize.
The shift from manager to director can be hard for many, especially perfectionists who struggle with delegating and prefer doing everything themselves.
After that, the shift to CFO can be an even larger leap, representing the largest step any finance professional will take in their careers. After all:
As a result of all of this, the jump to the role of CFO requires adapting to a host of new responsibilities that may seem overwhelming for many. When a finance professional takes on the role of CFO for the first time, they need to adopt a much more holistic way of looking at things, which is different than anything else they might have experienced before.
To deal with the magnitude of this leap, different finance professionals might need different types of coaching, which will depend on where their gaps exist as well as their background.
Broadly speaking, there are three different types of CFO coaching:
Let’s look at each one individually.
This focuses on the technical gaps that might be missing from the CFO. For instance, if the CFO has had little exposure to tax optimization strategies, they might need coaching in that department. One framework covering all the CFO’s technical components is “The Ten Pillars of Finance.”
That being said, not every technical deficiency needs to be addressed. In some cases, the coach might find it wiser to surround the CFO with team members who can shore up those weaknesses.
A big part of whether a technical skill needs to be coached or can be delegated hinges on how critical said skill is to the CFO’s strategic role.
This goes over the soft skills needed to lead the office of the CFO, such as leadership, time management, and much more. This type becomes even more critical if the candidate hasn’t had much experience acting as a finance director or something similar.
For instance, if the CFO isn’t a good leader, they won’t be able to engage their team or motivate them to go the extra mile. Consequently, a CFO needs to learn to lead by example and get everybody involved.
Another part of soft skills coaching involves helping the CFO deal better with the C-Suite. While seasoned CFOs might be comfortable dealing with company executives and company boards, new CFOs or candidates might feel intimidated. Consequently, a coach can help a new CFO learn how to integrate themselves better with top leadership.
Moreover, coaches can help the new CFO deal better with burnout. After all, taking on the role of CFO can be daunting for new candidates, especially when you consider the size of the responsibility placed on them. Accordingly, to perform as needed, CFOs should learn to harness the power of deep work.
This coaching goes over a specific circumstance or issue the CFO might be facing. For instance, if a hospital is undergoing an audit, and its CFO has a purely manufacturing background, then coaching might add value here.
In this type of coaching, the coach’s experience, be it which niche they have worked in or the size of the companies they have served at, can play a pivotal role.
Usually, the coach will bring to the picture a blend of technical knowledge and necessary soft skills that are relevant to the situation at hand.
Again, Darrell Borne, the CFO coach mentioned earlier, had this to say:
“So the training that you would need is kind of like going from like a bachelor's degree to a master's degree or a master's to a PhD. You just go deeper into different subjects.
You're getting more technical; you're getting more expertise at a higher level versus just the broad brush.”
At McCracken, anytime we are brought in for a coaching engagement, we do the following:
According to these three exercises, we are better able to home in on the type of coaching that is best suited for the circumstance at hand.
Before anything, we try to better understand the CFO or candidate’s work history, background, and areas of comfort or discomfort. As mentioned, we can infer a lot about the type of coaching that might be needed just from learning about their background.
We also learn about the company’s unique situation, which might dictate what elements of the coaching process need to be prioritized. For instance, if the company is in the middle of a large project, then situation-specific coaching might be most appropriate.
When going over the technical assessment, we look at KPIs for the office of the CFO. These KPIs cover the role’s different technical components, which we call the ten pillars of finance.
Usually, we have the CFO or CFO candidate fill out the survey to gauge their self-assessment and better understand their perceived weaknesses or strengths.
We also have the CEO or COO fill that survey, giving us a much better idea of the CFO’s actual capabilities. More importantly, the difference between the self-assessment and the assessment by other executives lets us know the possible trouble areas where the CFO’s self-perception might be off.
Based on all of this, we are able to discern whether technical coaching is needed and which technical gaps to start with.
The behavioral assessment looks at a few things:
These different factors give us a better idea of their overall behavioral strengths and weaknesses.
Accordingly, we have a better idea of which soft skills are most in need.
To help a CFO, a coach needs to start with understanding the gaps they need to help the coachee cover.
In some cases, the gap is manageable. For instance, if it’s just a matter of the CFO not being exposed to a certain problem or situation, such as treasury management, then it can be easily remedied.
However, in other cases, the gap can be a bit more insurmountable. For example, if the candidate CFO has only worked at small companies, their first time as CFO can’t be at a major corporation as they are likely to get overwhelmed with everything thrown at them. They might struggle to manage multiple departments when all of their experience has been limited to one or two teams.
One of the first things a prospective coach should do is decide whether coaching is enough to help your CFO perform well in their role.
Even though a big part of coaching is about filling a needed gap by the company, the CFO or the CFO candidate should also have a say in what they get coached on.
After all, every CFO will be responsible for their personal brand, and a big part of that brand hinges on which area of the finance world they choose to specialize in.
A big part of helping the CFO with this exercise is asking them to imagine where they want to be 5 years from now. They need to determine how they wish to market and position themselves in the job market.
Having the CFO or candidate think this way can be a win-win for the company and the CFO. The company gets a CFO who is better suited to serve it. And the CFO is better positioned for the long term.
To measure the ROI of CFO coaching, you want to start by being clear on what gaps the coach was trying to fill as well as what type of coaching was required to fill it.
The simplest way to gauge the ROI of technical CFO coaching is to look at the results.
For instance, if your CFO needed help with controllership, then you want to look at things such as:
Alternatively, if the coaching focused more on financial planning and analysis, then you would probably want to gauge both quantitative and qualitative measures:
The bottom line is that you need to establish a mix of metrics that are related to the type of technical coaching offered.
To gauge the effectiveness of behavioral coaching, you can perform a 360 review of your CFO before the coaching process and then every three months after.
The idea is that you want to see how more impactful of a leader they are becoming to the finance team and how much more of a collaborative partner they are becoming to the rest of the C-suite.
And it is worth bearing in mind that behavioral coaching usually takes longer to be impactful compared to technical coaching.
The ROI needs to be measured against the situation itself.
As an example, let’s say that a company is acquiring another one, but the seated CFO has little experience with mergers and acquisitions.
In this scenario, you can measure the impact of the coaching process through the following:
At the end of the day, you will have to tailor the assessment to your unique circumstances.
Remember, at the end of the day, the most important thing a CFO can do is to help your company create value. They do so by helping you focus on the four constituents that matter the most to your business:
To truly grow, your business needs to invest in all constituents simultaneously. Ignoring one or two of them could spell disaster.
That said, to have your CFO act as a strategic partner who can help you maximize the value of your business, you need to invest in them and help them optimize their performance in their role.
And this is where coaching can come into play.
That being said, if you think your CFO might need coaching or you have a candidate who could use an experienced hand to help guide them in their new role, do not hesitate to reach out. We would love to help you see whether coaching makes sense for your CFO and, if so, which type of coaching would be most beneficial for them.
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