Economic uncertainty and onerous recruiting costs are increasingly driving companies to look to their own rank-and-file to fill chief financial officer positions, new research shows.
Mid-year data on CFO turnover from Chicago-based executive search firm Heidrick & Struggles show that 68% of the CFO appointments thus far in 2011 were internal promotions, compared to 62% in the same period in 2010 and 58% in 2009.
Heidrick & Struggles compiled the data by using publicly-available biographies as well as its own database of resumes of CFOs.
Companies are choosing to promote from within due to economic uncertainty, according to Jeremy Hanson, Managing Partner of the North American Financial Officers Practice and a senior member of the firm's CEO & Board Practice.
"Companies are still conducting external searches, but as they get more exposure to and get comfortable with the inside candidate, they're more likely to promote them," he said.
Retention grants, which can take the form of stock or cash given to an employee to guarantee they stay at the company for a certain amount of time, are also a factor. Many CFOs received these grants during the downturn, meaning that the companies who court them would need to extend buyout packages that could total millions. It's often cheaper for the company to promote from within than hire outside talent.
How Do You Become a CFO?
There are three different ways, according to Hanson:
1. Work in accounting as a controller, which is considered an internal-facing position that demands technical prowess.
2. Work in the treasury, finance or investor relations departments, which are external-facing positions as they require you to work with banks and Wall Street analysts, for example.
3. Work as a senior vice president of finance inside of a specific business unit, which puts you in a position to interact with customers and oversee employees.
The Heidrick & Struggles report points to companies' willingness to elevate those with operational and managerial experience. More than one-third of CFOs who were promoted had occupied a general management or non-corporate finance role.
Companies want to promote individuals who possess the technical skills of the CFOs but also have the operational skills of a CEO. Hanson's firm has been hired to fill three or four Fortune 500 CFO spots with individuals who are capable of assuming the CEO role within the next 24 months.
Write to Julie Steinberg at Julie.Seinberg@dowjones.com