Advice for future CFOs: One communication skill that sets you apart

Scott Simmons is co-managing partner at the firm Crist Kolder Associates. In more than two decades handling executive searches for clients, he’s seen the qualifications for the CFO role change dramatically. The pressure on CFOs to deliver value has also grown. While some skills remain constant, of course, so do the paths to landing a CFO role.

In this JofA podcast episode, Simmons takes listeners through some of the recent statistics in the firm’s annual Volatility Report, discussing the importance of escaping one’s comfort zone and developing new skills to be in line for a job as finance chief.

What you’ll learn from this episode:

• The number of CFOs at larger companies who have Big Four accounting backgrounds.
• The companies and C-suite positions Crist Kolder tracks in its annual Volatility Report
• How candidates can develop CFO skills without first becoming a CFO.
• Why an investor relations rotation should be something aspiring CFOs “jump” to accept.
• The major college athletics conference that has produced the most CFOs in companies tracked in by Volatility Report.

Play the episode below or read the edited transcript:

— To comment on this episode or to suggest an idea for another episode, contact Neil Amato at Neil.Amato@aicpa-cima.com.

Transcript

Neil Amato: Hello, listeners. Welcome back to the Journal of Accountancy podcast. This is Neil Amato with the JofA. Today’s focus is on the CFO role, specifically the trends in hiring finance leaders, and our guest is someone who has followed the landscape for CFO hires closely. His name is Scott Simmons, co-managing partner at the firm Crist Kolder Associates. Scott, you’re a repeat guest, so welcome back to the JofA podcast.

Scott Simmons: I am delighted to be here, Neil. Thanks for having me.

Amato: Great. Feeling is mutual. For our accounting and finance audience, we’re going to focus more, as I said, on the CFO numbers than the CEO numbers that you also follow pretty closely. First, I’ll ask this. How many current CFOs in the companies you survey have an accounting background in the Big Four?

Simmons: Well, I’ll answer this by telling you it’s a hot topic. It really goes into where do CFOs come from? For your audience, I think your audience can rest assured that the accounting background is here to stay. Today, if you look at all the sittings CFOs from the Fortune 500 and S&P 500, the combined list of companies, 40% spent time in the big accounting firms.

Now, it’s a higher percentage that actually have accounting degrees, but maybe they went off into something else. But 40% of the current sitting CFOs spend time in the big accounting firms. That varies by industry, but it’s still a healthy number of the current CFOs who came up the public accounting route.

Amato: Now, I didn’t say this at the start, but this is part of an annual report that you do in your firm, and this report includes some of the numbers on the companies in that combined list, Fortune 500 and S&P 500. It’s about 670 to 680 companies. You put it out annually, you update it, you even have a midyear update, I guess. How many years first have you been doing this report, which I guess is called the Volatility Report?

Simmons: Neil, we started this in 2003 when we launched the firm. It’s been 21 years now of putting out this data. We needed to pick a group of companies that we felt represented our client universe. So we decided on combining this list every year. We do that when the Fortune 500 is issued. We put it together, it turns out to be 670, as you mentioned, plus companies. We look at the C-level movement, CEO, CFO, COO within those companies, and then a bunch of other tangents that we find interesting for us as students of our game, but also interesting for our target audience, which is our candidates and clients.

Amato: What do you make of this stat? Forty-four percent of CFO hires from that group of companies were external.

Simmons: Well, in part I’m thankful [laughter]. It gives us a reason for being as an executive search firm. But putting that aside, the CFO role is a difficult position. Having done this for 26 years myself, recruiting CFOs, I’ve seen just an increase in pressure on the role, a broadening of responsibility for the position. It’s not just the bean counter anymore. It’s not just tell us how we did in the rear view. It’s, hey CFO, Mr. or Ms. CFO, see into the future, tell us how we’re going to do. The pressure on the role has increased. The tenure has remained relatively the same. It’s just under five years. But when you think about a CFO change today versus 20 years ago, 20 years ago, if we received a phone call from a CEO or a board of directors or head of HR to say, hey, we have a need to find a new CFO, it was because there were no internal candidates. It was, we need to go outside. We’ve decided we need to go outside.

Nowadays, most of our engagements include an internal candidate or two or three. But the mentality of the board view of the CFO role has changed in that the board is thinking we need to do well on behalf of our shareholders. We need to be exhaustive. We may have a terrific internal candidate, but we owe it to our constituency to run a process.

There’s a dearth of folks who have the right experience and have done the right rotations to be in line to be CFO. Whether that’s inside or outside, it’s not a big number. So, that doesn’t surprise me [that] 44% have come from outside. I can’t predict whether that number goes up or down over time. But there’s always going to be a need for a company these days to say, let’s look inside, let’s look outside, and let’s make the best decision for the company.

Amato: One more thing on that 44% stat. Is that 44% of the CFO hires in just the past nine months or a year?

Simmons: Correct. That’s for CFOs named up until Aug. 1 of this year, that’s CFOs named in that time frame, 44% of those CFOs came from another company.

Amato: Got it. Thank you for that. Now help me sort out how the difference is in the numbers with this. Seventy-five percent of sitting CFOs came from what is phrased in the report as a No. 2 position. Does that mean people are being groomed internally or what?

Simmons: Well, it means that 25% of sitting CFOs came from another sitting CFO position and obviously outside the company, which I think is an even more compelling data point. There’s a theory out there that’s somewhat misguided, that to become a CFO, you have to find your way into a CFO role. Meaning, I’m not going to get a call about a CFO role unless I’ve done it before. While I can’t argue the point that many of our clients call us and start with the, “Let’s find candidates who have done this before,” the fact of the matter is it’s a finite universe.

Twenty-five percent of current sitting CFOs came from another sitting CFO position, 75% came from a No. 2, and I would say to anyone listening who aspires to be a CFO, it’s all about career path. It’s all about everybody starts with an expertise, and for your constituency that may be accounting. Started in accounting, went through public accounting, became a corporate controller. It’s really important to get outside the comfort zone over your career.

It’s really important to move into operational finance experiences or treasury and [investor relations] if that’s a possibility. FP&A is the soup du jour for our clients. Everybody wants strong FP&A.

So, it’s really all about career paths. Then you find yourself in, maybe it’s a corporate controller role. If you look at our data, the position where most internal promotions the CFO comes out of is corporate controller. But I would bet in most of those instances that person has done things outside of their strength and roots. Again, a lot of ways to look at that datapoint, but the fact that only 25% of sitting CFOs come from another sitting CFO position, I think that’s pretty good for folks who aspire to the position.

Amato: I think that’s a good point. Just because you have, “I was a controller at this job” on your résumé, you need to think about investor relations as you mentioned, operations. It’s also funny that you use that comfort zone quote because a recent CFO I had on the podcast said she has a saying up on her wall that says “your comfort zone will kill you.” Your comfort zone for getting that CFO role – yeah, you’ve got to find ways to escape it, I guess.

Simmons: I would add to that, Neil, really sophisticated talent management functions within companies take the best talent and do rotate them out of their comfort zone. They tap them on the shoulder and they say, you’ve done this for the last three to five years – because I believe careers go in three- to five-year clips – three to five years doing this, it’s time to do something else. We’re going to stretch you. You look at companies that do that well. Career paths do duck and weave in and out of different functions. Including at a certain point, maybe running a P&L as a general manager. Getting out of the commercial side. That breadth of experience is really critical for a good CFO’s training

Amato: Let’s talk some about the ethnic and racial diversity of CFOs. What’s been the trend in the past decade for those hires?

Simmons: Well, the trend is positive, with a long way to go. We’re not starting as a country in a really good spot. You can say in one sense, ethnic and racial diversity has increased and the CFO function nearly three times. But it’s gone from just over 5% of sitting CFOs to just under 14%. Again, that’s more than tripled. That’s great. It’s moving in the right direction. But again, the caveat is that there’s plenty of room to continue to grow.

Amato: Then also the population of CFOs who are women: How has it changed over that span, the past 10 years?

Simmons: That’s nearly doubled over the past decade, but again, with room to grow, and now that’s gone from just under 11% to just under 18% over the last decade. I will say, this is somewhat anecdotal, but when you think about our client base, the request for a broad-based set of candidates is inherent in every engagement. We put it in our confirming letters that they will see good talent from all walks of life. There is a concerted effort, which is why I think we’re seeing this increase. I think there will continue to be a concerted effort. I would expect that trajectory to continue to rise.

Amato: You mentioned the average tenure of CFOs not changing too much, but what about average age? It has also remained fairly constant. I don’t know if there’s anything to read into that, but what do you think?

Simmons: I was giving this question some real thought to suggest that there’s an obvious reason to point to this other than early 50s is the heart of many careers. That’s 30 years after undergraduate degrees. That’s 30 years of training and rotation and building up to some pinnacle of a career. In the case of this conversation, that’s the CFO role.

Now that average is 52.5 years old for the named CFO. There’s variables to that, there’s anomalies to that on both sides of the spectrum, but that doesn’t surprise me. When I talk to folks who say I aspire to be a CFO, I say, well, you’re going to spend 20 to 30 years being groomed for that position. You have much control over what that training looks like. Not total control, but much control.

That’s based on the decisions you make and where you spend your time, how you invest your human capital. But in that late 40s to mid-50s range is when, if you haven’t reached that pinnacle, you should feel some real sense of urgency to get there. I’m not surprised that that’s the age, Neil. It’s, again, 30 years after walking out of undergraduate. What do you do with that time? And if your goal is to be CFO, you’ve got to have a plan in place.

Amato: For someone who’s listening to this, who is a controller or divisional CFO or a VP of finance looking to make that next step, what advice do you give them to put themselves in the position to be a CFO?

Simmons: Very importantly, Neil, I would say, experience in speaking to external constituents: investors, Wall Street analysts. That will set a candidate apart. It is a demand of our clients when they’re considering number twos, which again, most of our clients will. If it’s a large-cap client, they’ve got plenty of room to play with sitting CFOs who aspire to move upmarket to a bigger platform.

But the vast majority of our searches not only allow strong number twos, they want to see strong number twos, but the external communication experience is difficult to pick up. Which is why I tell folks all the time: If given the opportunity to do a rotation through investor relations, you jump at it. Now, it’s sometimes met with a bit of a groan because really good finance people want to be in the business and that’s viewed as outside the business. But it is experience that will go a long way to strengthening a candidacy for CFO.

Amato: Now I’m going to go back to stats because I love looking at stats for any of our listeners who can’t tell that. But this one’s fun to me. Nearly 70 CFOs from the companies in your survey graduated from schools in the Big Ten Conference. That’s way more than the SEC, by the way, if you’re into comparing those conferences. Is there one Big Ten school that leads the way in producing CFOs?

Simmons: I will tell you this, this part of the report gets a lot of action inside our firm for folks who’ve been graduates of the Big Ten. It’s interesting. I pulled the data up right before we’ve gone on the podcast here. Penn State, Happy Valley, should be cheering themselves on as the Big Ten school with the most produced CFOs. They just beat out Michigan and Wisconsin were tied for number two. I will say even in our intern program, we hire interns every year to actually do a lot of this number crunching for this Volatility Report. We have great results when it comes to Big Ten business schools. The conference is doing something right.

Amato: That’s great. Scott is speaking from Big Ten country, by the way, suburban Chicago. I guess we could rename Penn State CFO U., but obviously, there’s a lot of great competitors out there and not just from the Big Ten.

Simmons: That’s great.

Amato: Scott, thank you. Anything else you’d like to add in closing?

Simmons: I’m glad you find that data interesting. I hope your listeners do, hope your readers do. We enjoyed putting this information together. We think it’s really important honestly for our craft to know the market in a different way, a more scientific way. The trends that are interesting.

A lot of folks do think about what we do as transactional, but there’s a bigger picture to this work. When it comes to just the evolution of the CFO role and everything that goes into that – career paths, ethnicity, diversity, stats – the CFO role has changed so dramatically over my 25, 26 years of doing this that I’m glad you find it interesting. Always enjoy our conversations.

Amato: Scott Simmons. Thank you very much.

Simmons: Thanks, Neil.