What Canadian Owner-Managers Need to Know About Recruiting a CFO
Any finance executive who’s had experience with large corporations and who’s also worked for an owner-managed company will tell you that they are two very different things. The scale is smaller, management styles are different, support systems often much more ad-hoc – the list goes on.
These differences are important to acknowledge because recognizing these differences will have a significant impact on how an owner-manager should approach recruiting a CFO.
Almost every owner-manager I’ve ever met has come out of sales, operations, engineering or they grew up in the business. Almost no owner-managers that I’ve met have a background in accounting and finance. Which makes recruiting a CFO a somewhat more daunting proposition than recruiting a VP of Sales or Operations.
There are typically four reasons I get a call from an owner-manager contemplating hiring someone to head up their finance function:
- They’re hiring their first ever finance/accounting professional or executive.
- They’ve outgrown their current Controller or Director of Finance and need to hire a VP Finance who can handle the increased complexity of the business and help them grow.
- They made a bad VP Finance hire a year or two ago.
- They’re replacing a well-regarded CFO who’s resigned or is retiring.
If someone has a well-regarded CFO in place who’s leaving, they’re usually pretty savvy about hiring the replacement CFO.
It’s the owner-managers who call me for reasons one, two or three who usually need coaching on how to make the best possible decision when hiring a new Director or VP of Finance.
Pointing Out the Potholes on The DIY Road
One of the biggest reasons owner-managers get less than stellar results when hiring a Director or VP of Finance is that they go the DIY route.
It’s certainly possible to make a great hire through referrals or job boards but for a number of reasons, it’s not probable.
Let’s start with job boards. I see ads from various job boards like Zip Recruiter or Indeed that claim that users will start interviewing qualified candidates on day one. That may be true if you were looking for a low level, plug and play kind of person but it isn’t true if you’re looking for an executive.
LinkedIn’s job board is a somewhat better option for those seeking a CFO but it doesn’t produce nearly as many qualified candidates as you might expect.
Part of the issue is that the Directors and VPs of Finance who respond to job boards represent the active candidate pool. That pool comprises about 15% of all the candidates you could be considering. In my experience, about one in six finance executives are passively interested in looking at the market. They’re not actively unhappy; they just know that they’ll be wanting to make a move sometime in the next year or two. So, they’re not responding to job postings, but they will respond to someone who reaches out to them with an interesting opportunity.
Now let’s talk about your referral network.
Assuming that you don’t want to hire just any CFO with a pulse, you’re going to have a pretty long list of must-have and would-be-nice search criteria. Issues like industry knowledge, facility with IT systems and ERPs, experience with foreign exchange, etc. will undoubtedly be on your wish list.
And besides all of the above, years of experience, the ability to grow with your company and the all-important personality and cultural fit will be big factors as well.
That means that it’ll be pretty poor odds that the unemployed VP Finance your banker referred to you is going to be a good fit.
Placement Agencies vs. Executive Search Firms
Deciding to hire a recruiter doesn’t necessarily mean that you’re going to hire a great CFO either.
There are basically two flavours of recruiters: placement agencies and executive search firms.
The litmus test to determine which type of recruiter they happen to be is whether they work on a contingency fee basis or a retained fee basis.
The business model of contingency fee-based placement agencies is to have a lot of technically qualified candidates in their database (placement agencies almost always specialize in one or more technical areas like accounting, IT or sales) and they spend most of their efforts in looking for positions to place these people in. That being said, some placement agencies will do some recruiting on their client’s behalf but since they’re not guaranteed to get paid, there’s a very definite limit to how much effort they’ll be willing to invest in any one search.
An executive search firm’s model is basically: “you commit to paying us, we’ll commit to finding what you’re looking for”. Although almost all executive search firms are generalists (they do searches for anyone in the C-Suite), they usually have one or two people that specialize in an industry or technical area. So, if you decide to engage an executive search firm to find a CFO, you should make sure that the person leading your search is a subject matter expert on finance executives.
Not All CFOs Are Created Equal
Regardless of how you decide to go about recruiting for a CFO, one of the keys to any successful search is defining exactly what you should be looking for. There are two components that you should be considering.
First and foremost is how much horsepower you’re going to need. This is going to be a function of your company’s size, complexity, growth plans and in some cases, exit strategies. If you run a company that makes widgets with revenues around $50mm and you expect an annual growth rate of around 5%, you’re going to need one iteration of VP Finance. If your company currently has revenues of around $50mm where you were at $20mm five years ago and you anticipate that you’ll be at $100mm in revenue five years from now and will probably be looking for a private equity partner, you’ll need to recruit an entirely different iteration of CFO.
The second component is putting together the framework that will ensure that your new VP Finance is going to be happy and successful when they join your firm.
Obviously, you’re going to have to have the right compensation package in place before you start the search, and you may need to think about other incentives especially if you’re experiencing exceptional growth and if you are contemplating a liquidity event sometime in the foreseeable future.
Besides the basic competencies you should expect from any VP of Finance, the job description you put together should also address what you need the CFO to accomplish in the first twelve to twenty-four months on the job and what you anticipate you’ll want them to accomplish over the next five to ten years. Not only will this exercise give prospective candidates a clear idea of what they need to accomplish, it will focus you on what iteration of finance executive you need to hire to help you take your company to the next level.
Separating the Wheat from the Chaff
Last but not least, you should have a process that will allow you to assess and triage the candidates you meet in the course of your search. There are two main tools you can employ to help you with this exercise. Since you’ve spent a lot of time thinking about the key search criteria you need addressed by your new CFO, it’s a good idea to write down all the must-have and would-be-nice criteria and either ask prospective candidates to address these criteria before you meet with them or make sure they address these specific items in the interview.
Besides getting a handle on what a prospective CFO knows about the issues important to you, you also need to get a handle on how they think about the CFO function in general and what skills and tools they bring to bear on the challenges that will inevitably arise in the job.
I don’t necessarily like the call and response form of an interview; I prefer more of a general discussion that touches on the challenges that the interviewer has faced in the past and anticipates in the future. But within that context, it’s useful to have some scenarios and questions on hand that will draw out what exactly the candidate has to offer.
A Final Note of Caution
Finding an okay or average CFO is actually pretty easy. Finding a great CFO – not so much. But as long as you’re not looking for a unicorn, you can always get there from here, so my advice is to stick to your guns and not compromise.
The single biggest mistake I see owner-managers make is assuming that the not-so-great candidates they’re meeting represent the best of what’s out there in the CFO/VP Finance candidate market at that time.
Go into your search with a well-prepared strategy and a rigorous process and understand that it’s not going to happen right away. Whatever you do, don’t fit your job to the less-than-ideal candidate. Keep your powder dry until you finally meet the CFO who fits your job.
If you think you may be in the market for top financial talent in the next few months, call me direct or email me, for a no obligation consultation.
