CEOs, particularly within SMEs often face the challenge of sourcing a new Finance Director to lead their organisation’s finance function. Quite often, the CEO will have limited prior experience of hiring such individuals which can result in a less calculated approach and in some cases, the wrong appointment.

To avoid potential issues, there are three key areas which CEOs would do well to carefully consider prior to launching a campaign to bring on board a new CFO. These areas address factors that need to be determined before writing any kind of job description or executing a search process.

We can split these factors into three important questions the CEO must ask themselves and gain answers to before beginning the recruitment of a new Finance Director.

They are as follows:

  • What kind of CEO am I?
  • What are the important financial management objectives of the business?
  • What type of expertise does the CFO need to bring?

The first question is possibly the most critical and requires the CEO to be self-aware and realistic before setting the hiring agenda. If we examine the SME sector, the CEO is usually either an entrepreneur or a highly sales-driven leader whose success has been partly driven by a highly autonomous and decisive approach. These types of CEO have to evaluate their own preferred working style and firstly ask whether they really desire and are truly able to work with a CFO as a strategic business partner.

The CEO needs to be honest in their self-appraisal to determine whether they have the flexibility of approach to accommodate working in partnership with someone, even as a right-hand person or do they best work with a finance director in the background. This is fundamental to determining the profile of Finance leader that will best fit with the Board – either someone who is content to run the finance function at a distance or alternatively, a finance leader who is used to working closely with a CEO, helping formulate, implement and drive the strategic direction of the business. A common mistake which unfortunately occurs is where a CEO believes that the right idea is to recruit a real partner but frustrates the new CFO by not converting that idea into reality.

The second question is crucial as the appointment of a CFO should be considered within the context of a realistic understanding of the key aspects of financial management which the CFO will need to support across the business. This requires an understanding of where the finance function is today and what the key projects and milestones are for both business and financial management across the organisation tomorrow.

There are various business and financial issues that could impact the profile of Finance Director a business requires. For example, does the organisation have strong accounting, process and controls allowing for effective reporting and governance or is this a key challenge for the incoming CFO to optimise and fix? Perhaps the business has a trade-sale or IPO-led exit in mind so there might be a requirement for a CFO who can prepare the business for due diligence or a listing. In private equity, a principal task for the CFO is to manage the debt structure and provide detailed, consistent information to the PE stakeholders so does prior private equity expertise then become a priority? A company could also be looking to acquire or divest and again, the CFO profile may need to reflect this expertise. It is therefore critical that before conducting an exercise to source new finance leaders, these wider considerations are carefully assessed and a comprehensive understanding of potential challenges and projects that face an incoming CFO is formed.

The last question of the three is a natural progression from the second point as once business objectives (both current, mid and long-term) are recognised, the type of CFO the business really needs can be identified more precisely. Organisations who approach the market with a generic requirement for a CFO will invariably attract less suitable options than those who have determined the key business objectives and matched those with the requisite skills required by the incoming CFO in order to help achieve their targets.

This is an important caveat as organisations can sometimes fail to differentiate between different types of CFO profiles and must recognise that whilst CFOs generally have broad skills they usually demonstrate real strengths in key areas rather than across every possible sub-set of finance. For example, whilst the business may have some clear strategic ambitions e.g. M&A and therefore look to appoint a Finance Director with that expertise, if they have failed to recognise that the financial systems and processes need an urgent and wholesale transformation, they could conceivably hire a strategic CFO who does not have experience or doesn’t really wish to be involved in back-office projects, thereby limiting the success of the hire.

Of course, there are many additional things to consider as part of any hiring process including personality profile/cultural fit and sector expertise but these three questions form an effective starting point to ensure the right approach is taken for business-critical finance leadership appointments.