What causes a CFO’s tenure to be short?

CFO turnover is at its highest in history. The average CFO tenure right now is 3 ½ years. That is the average with several CFO’s staying longer and many leaving within 12 - 18 months of their arrival. 

The goal behind this blog is to simply inform potential areas that the CFO candidate must dig in to understand their opportunity. Most things can go right and a few things can go wrong. So it is best to understand the pitfalls that can lead to a less than fulfilling career experience. 

As you look through some of these reasons it will be clear that some of the reasons for a CFO's short tenure are execution / hiring errors and some others where the CFO had little if any control over the outcome as overpowering market forces took over.

So lets look at them one by one:

1. Poor Fit - Often the number one reason. Can impact both first time or established CFO’s. 

For example - A storied executive from a large established mid-western industrial company joined a hyper growth tech company as its first CFO. The tenure was 12 months in total. Clearly this was too much change for everyone involved, especially the CFO. A risky move that did not pan out. 

We have also seen cases where the CFO was a ‘step up’ candidate operating as VP of Finance at another company and found it difficult to execute at the CFO level in a new environment. 

In both cases it looks like there was an error on the company’s side to choose the right candidate and on the candidate’s side to have chosen the right fit. 

Whatever the reasons, such successful companies usually tend to backfill the CFO role in short order either via an internal hire or a new external hire. 

2. CEO Chemistry  - This is more applicable to startups where some CEOs are excellent builders, great technologists and very savvy with the media but have a poor track record of being able to manage senior leaders in their team. They tend to build a  history of attrition at the top. Many “executives” have come and gone within the year. If a CFO gets hired here, it is a risky move. We advise CFO candidates to do their own due diligence on the personality fit with their CEO prior to taking the job. Put out tough questions before starting the job and not walk into it with rose colored glasses. 

3. Leadership Change  -  In rare cases, a CFO gets hired by a CEO who gets fired or leaves in a few months. The new CEO comes in with a mandate to change everything and among the changes he makes is to bring in a new CFO. The CFO candidate is well advised to explore this angle albeit subtly during their interview process. 

4. An evaporating business  - More applicable to startups often with a fragile product market fit. What if the CFO comes in with all the chops and says and does all the right things but is sitting on top of a very fragile business which was ‘oversold’ during the interview process. This happens more commonly than we think. 

For example - A company raises a big round by riding a hype cycle. Investors come in due to FOMO. Then a new CFO is hired to take the company to the next level. Very soon after the CFO’s arrival, the hype cycle ends, the economy melts, the capital markets are no longer friendly and this sets up the company for failure. In this case, the CFO is in a pickle. They see limited prospects especially if the company is embarking on a fire sale. This causes the CFO to move on or get ‘fired’ for no cause. The CFO often walks with some severance but then has a ‘blip’ on their resume in the form of a short stint. 

Alternatively the company is / was not ready for a new CFO. Still too early in its evolution. The company jumped the gun and hired a senior leader only to realize there is not exactly much to justify the senior leader's salary and the job should / could be done by a junior resource because growth that looked like happening was just a mirage. 

5. A “Deal” - A well heeled CFO joins an exciting company. Gets off to a brilliant start. They have been around for a few months and everyone loves them. But then they get pulled into a room one morning and are told that the company has been approached by a bigger suitor with an offer to buy the company for 40% premium over current valuation. The CFO is in a dilemma. On one hand he/she is aware that their contract calls for a healthy payout in terms of severance and vesting but they had truly taken the job to build the company and take it to the next level. Now they have facilitated this transaction and eventually leave as part of the transition.

6. Act of God - We know a handful of CFO’s who signed up for roles with companies that got decimated during the Covid-19 pandemic. This was just pure bad luck. Recall how tourism, hospitality, concert companies got killed during Covid-19. Some had just begun their next phase of growth and had a recent fundraise before running into an unprecedented storm. Typically these companies folded or operated as a sliver of themselves and had to rewrite their plans and stories in which recently hired executives did not fit in. 

The bottom line - several things could go right but a few things could go wrong and it is on the CFO as a candidate to uncover all these risks that might lead to a short and less fulfilling career experience. CFO’s need to ask the right questions, perform the best due diligence and pick the right organization that will offer them the stability and support they need to help take the company to new heights over time.