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The New You: Grooming a Replacement

Many CFOs are comfortable with identifying a potential replacement, but few see the need to name that person in advance.

1Apr

Most CFOs know that their job, like life itself, is somewhat tenuous. They could get a great job offer from another company, be hit with a dire family emergency, or find themselves tapped as CEO tomorrow — all eventualities that focus attention on the need for succession planning today. While most finance chiefs would say that identifying a replacement is a priority, though, not all practice what they preach.


When Robert Half Management Resources asked 1,400 CFOs last July if they had a process in place for grooming their successor, for example, 38 percent said they did, but 58 percent said they did not. Yet whether a company's approach to succession is formal, informal, or nonexistent, one question CFOs often ask is whether someone would be available to step into the job effectively — if only on an interim basis — were disaster to strike. "I may not know the exact order of succession if I get run over by a truck tomorrow," says Linda Dimopoulos, appointed in December as CFO of Darden Restaurants Inc., but she says she's "very comfortable" knowing that she'd be replaced quickly and competently at the Orlando-based operator of Red Lobster, Olive Garden, and other chains.


Other CFOs are equally comfortable with identifying a potential replacement, but few see the need to name that person in advance. In fact, CFOs generally prefer to leave the field at least a little open-ended. "Every position has a number of potential replacement candidates," says Michael Gersie, CFO of Principal Financial Group, based in Des Moines. In fact, he estimates that each position — CFO included — has at least three to five potential successors. "It has nothing to do with competition," he says. "It's just that who knows what the future will hold?"


Succession plans, however, are all about shaping that future. And some hallmarks of highly developed company practices, including Darden's and Principal's, such as job rotation, operations exposure, and training to improve such soft skills as negotiating, if necessary. Further, succession-minded finance chiefs agree that at a certain level, some of the best grooming involves including candidates in strategy sessions and allowing them to serve as "temporary CFOs" when the opportunity arises. And to make it work, the sitting CFO has to be willing to entertain multiple "what-if" scenarios.



A CFO Charts His Promotion

In Vicky Lynch's case, her predecessor paved the way for her promotion to CFO at Giga Information Group, giving her, step by step, the necessary autonomy and responsibility. He "expected people to take the initiative," and to identify areas in which they needed development, she explains. Then, once mutual confidence was established, he began to delegate. While she was still corporate controller, "he first offloaded budgeting, then financial analysis, then order-administration and order-processing" on her. Next, he included her in management-level initiatives. The result: when the CFO slot opened up at the Cambridge, Massachusetts-based global IT advisory firm, says Lynch, her predecessor was "pretty confident in my day-to-day capabilities and I was a known entity to the board members, CEO, and management team."


Succession planning that relies mostly on one-on-one elements may work well within smaller finance departments, but larger companies tend to welcome the objectivity of measurement-based planning. At Darden, for example, the 200 finance employees are reviewed each year using a "development assessment" form, allowing Dimopoulos to rate potential successors based "not so much on pleasing the boss, but on how effective a person is in improving outcomes." And at Principal, finance executives are reviewed annually on how their core competencies and performance goals mesh with CFO Gersie's own.


Formal measurement systems, in fact, can serve dual purposes: determining readiness and managing expectations of potential candidates. At St. Louis-based Esco Technologies Inc., for example, CFO Gary Muenster says that all salaried employees, including finance executives, have one-, three-, and five-year development plans, managed according to a grid that includes a performance evaluation and which also measures potential and readiness for promotion. The system is so accurate, he says, that he knew two years ago that he was on track for the CFO role. Indeed, the grid accurately charted his promotion to CFO to within a "six-month window."



"The Power of Seven"

Even the most formal process benefits from hands-on attention from the sitting CFO, though. At Esco Technologies, Muenster makes it a point to include his three potential successors in the decision-making process, often asking them to participate in calling the shots. "It gives you a live test to see how that person processes information and forms opinions," he explains. And at Darden, what's known as "the power of seven" lets Dimopoulos take responsibility for developing two direct reports, who in turn are responsible for grooming two others each.


No succession plan can fully prepare a candidate for all the CFO's duties, of course. The biggest challenge for any potential successor at Principal, says Gersie, would be stepping into the role of "public spokesperson on financial matters," whether with the board or with analysts and investors. The 33-year company veteran can offer some guidance and insight, but "it is a little like learning to swim when you've been thrown in the pool."


Moreover, not every contingency can be foreseen. In Lynch's case, Giga was recently purchased by Forrester Research Inc. for more than $50 million, a deal that closed in late February. But despite Lynch being a member of the transition team, her succession has been all but nullified. She says she's "not anticipating being part of the Forrester team."



How to Succeed


CFOs and other executives agree that succession planning is valuable, but differ on the ways to implement it.



*How valuable is it for a manager to identify and groom a successor for his or her position?





Very valuable 80%
Somewhat valuable 20%



*Are you currently grooming your successor?



Yes 72%
No 27%
No answer 1%



**Do you currently have a process in place to groom your successor?



Yes 38%
No 58%
Don't know 4%


*Asked of 1,000 executives
**Asked of 1,400 CFOs
Source: Robert Half Management Resources, April and July 2002

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