Managing the risk of a CFO transition: while much board attention is focused on the issue of CEO succession, there is another key role that directors should consider as part of risk management--the CFO.

• Author: Hissam, Dick

In the past ten years, the CFO's role has continued to grow in breadth and complexity with the advent of SOX and other regulatory requirements, and turnover has reached historical levels. Most CFOs are now making do with increasingly slim staffs, setting the stage for additional turnover.

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What makes CFO turnover especially problematic is that companies, especially those in the middle market, typically lack someone on the finance team with the technical knowledge, political savvy and strategic perspective to step into the role, even for the short term. CFOs must navigate complex market conditions, meet stringent regulations, mentor staff, support business lines, satisfy investors and provide day-to-day financial leadership. These tax the most talented financial officers, and with today's "lean" organizations, a CFO exit strains the finance team, the organization and the board.

If your company is experiencing a CFO transition, either planned or unplanned, there are predictable areas of risk. But there are steps you can take to mitigate those risks.

Understand the Impact of a CFO Transition

The CFO serves as a company's financial steward and watchdog, providing business strategy support, horizon watching, insight and analysis into financial and operational performance. During a CFO transition, the Controller will most likely be able to maintain daily operations. However, financial leadership, strategy and direction may suffer, which can impact potential mergers and acquisitions, financing negotiations and the ability to respond to board requests and CEO priorities.

A CFO transition can also impact the organization's credibility with outside stakeholders, such as investors, lenders and private equity owners. During a CFO vacancy, companies must assure stakeholders that risks will be mitigated.

Think Again Before You Terminate

If your company is considering a change in CFO leadership, make sure you thoroughly understand the facts and reasoning behind this decision. Are you in need of a CFO transition, or are you just "shooting the messenger?"

During the economic downturn, most companies cut budgets and reduced staff sizes, adversely impacting the depth of financial talent on which the CFO could rely. However, the organization's needs have not lessened. In fact, CFOs are under pressure to accomplish more than before due to increased financial risk. Most have more objectives, priorities and initiatives than they can...