While it is important to choose the right candidate for all positions, it is doubly important to make the right choice for the Chief Financial Officer who works with sensitive, complex and confidential information.
A good CFO helps make sound decisions, anticipate contingencies, assess risks and ensure liquidity. Equally, choosing the wrong CFO carries significant business and reputational risks.
When the selection of a CFO is considered, doubts about the most appropriate profile are common. In order to come up with a coherent and well-defined profile, it is essential to include clear and relevant information, such as: company strategy, size, organizational complexity, typology of customers, financial strategy, growth strategy, international presence, corporate structure, business sector, capital structure, funding and working capital sources/needs, and practices of internal control and external audit.
Reasons Why a Candidate is Rejected
There are many reasons why a company may decide not to proceed with a candidate who seems to have the right profile. The most common are:
- Lack of exposure to negotiating and monitoring debt contracts.
- Does not understand the typology of customers. This is critical for businesses with working capital pressure.
- From a very different sector. It is not easy to understand the key specifics of the business if the candidate’s experience is in a very different sector.
- Too young, with too little experience. The job of a CFO requires experience and well-developed skills.
- Insufficient international profile or proficiency in English. This aspect is increasingly important because of the globalization of businesses and internationalization of companies. For a CFO, it is even more important since much of the funding is found in English-speaking environments where fluency and accent are important.
- Does not fit the company culture.
- Lack of negotiation skills.
- Is not hands-on (the role of the CFO has changed in recent years; a CFO is now more of a business partner willing to understand the variables of the business).
Good Understanding of the Company’s Context and Strategy
The strategy and the context of the company are critical when choosing the right candidate, with the most important aspects being:
- Size of the company, its organizational structure and corporate structure.
- International presence .
- Growth strategy: organic, acquisitions, geographies, new products and the market in which it competes.
- Production and commercial processes.
- Financial strategy, capital management, ways of funding and taxation.
- Management of the income statement: projections, cost analysis and margins.
- Balance sheet management: investments, assets and goodwill.
- Risks Associated with a Bad Choice of CFO
- The risks of selecting the wrong CFO are higher than for any other position of the Steering Committee. These risks include:
Loss of confidentiality; The CFO works with sensitive and confidential company information.
Replacement; Manages complex legal, numerical and processes issues, making the CFO difficult to replace.
High impact on results: risk of fiscal negligence, excessive indebtedness, poor capital structure, poor treasury management, poorly negotiated agreements, etc.
High impact on reputation; The CFO represents the company before banks, auditors, public entities and suppliers.
Keys to Choosing the Right CFO
In order to choose the right CFO, both professional and personal aspects must be considered.
The professional aspects must be defined in a profile that is aligned with the challenges, situation and strategy of the company. Personal aspects must ensure that the chosen candidate’s personality fulfils certain core values, such as: honesty, hard work, integrity, loyalty, patience, critical sense, respect, self-control, self-confidence, teamwork, and self-motivation.
Considering the globalization phenomenon, today a CFO should have a high cultural intelligence quotient (CQ). Related to the skills needed in order to be successful in unfamiliar cultural settings, the CQ can be measured and enhanced. A CFO with a high CQ can be more efficient in cross-border negotiations, understanding new markets, or working with multicultural teams.