BENCH STRENGTH & SUCCESSION PLANNING IN TODAY’S FINANCE ... · BENCH STRENGTH & SUCCESSION...

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BENCH STRENGTH & SUCCESSION PLANNING IN TODAY’S FINANCE FUNCTION Written by: ZAK MARAR Head of Practice – CFO and Corporate Governance T: +971 4 279 6300 | M: +971 52 790 1502 [email protected]

Transcript of BENCH STRENGTH & SUCCESSION PLANNING IN TODAY’S FINANCE ... · BENCH STRENGTH & SUCCESSION...

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BENCH STRENGTH & SUCCESSION PLANNING IN TODAY’S FINANCE FUNCTION

Written by: ZAK MARAR Head of Practice – CFO and Corporate Governance T: +971 4 279 6300 | M: +971 52 790 1502 [email protected]

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INTRODUCTION

Middle East financial leaders are preparing to navigate uncertain regional conditions over the course of the next few years. Amidst low oil prices, corresponding declines in government spend and unforeseen tightening of liquidity across sectors, many institutions with regional presence are relying on their internal finance functions to develop agile solutions that will help ensure organizational success through these challenges and evolving market conditions.

Throughout the region, boards and organizations are progressively more dependent on the foresight, technical efficacy and strategic abilities of their finance executives. Non-optimal internal finance structures are proving costly, and many leading entities are revisiting questions around the caliber, depth, adaptability and sustainability of their risk, internal audit, cash management and broader finance functions.

Having successfully completed 1,200 executive hiring mandates over the last nine years to become the most successful and trusted retained search firm in the GCC, the Moorland Gray Executive Search team has – as partners and advisors – had front row seats to many such difficult, but necessary, board and C-Level discussions, particularly in recent months. We have been privy to many such meetings as clients look to restructure or fortify their finance and corporate governance functions by building well-balanced, commercially astute and sustainably robust teams.

The executive search solutions that these strategies rely upon must always be customized to unique functional, structural and top-down human capital needs. However, there is striking commonality in the risks organizations assume when C-Suite succession planning and bench strength assessments of the executive and mid-to-senior level teams, particularly in finance, remain underdeveloped.

ABOUT THE STUDY

The continued expansion of the responsibilities of CFOs means that the need clearly exists for businesses to mitigate the potential risks of a “superhero” management culture, where overdependence on an individual can pose a threat to the sustainable growth and development of an organization.

While it is evident that organizations aspire to have effective succession plans, for a wide variety of reasons these plans are often lacking in robustness and completeness and indeed, more often than not, seem to fall away when vacancies or gaps arise in organizations.

These continuing themes and market trends inspired a more detailed study and this subsequent Moorland Gray whitepaper on bench strength and succession planning in the finance function.

“The future belongs to those who prepare for it today.” - Malcolm X

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Informed by structured interviews with a panel of 25 CFOs from leading organizations in the Middle East (and spanning industries including Financial Services, Healthcare, Energy, Tourism & Hospitality, Retail, FMCG, Holding Companies, and Telecommunications), this whitepaper focuses on the need for greater emphasis and forethought in relation to executive succession planning and bench strength in the finance function.

FINDINGS

Given the importance placed on risk-mitigation strategies and best practice corporate governance, succession planning has often been highlighted as a high-priority task for businesses. In the context of our research, 84% of CFOs interviewed rated the topic of succession planning as being “Important” or “Very Important” to the continued success of the organization.

However, in stark contrast to the belief in the importance of succession planning, 72% of respondents reported that their organization does not currently have an official policy on succession planning.

Encouragingly, it seems that this trend has not gone unnoticed. Of the respondents that reported having no succession plan in place, 50% also confirmed that a succession planning policy for the organization was either “In Process” or “Under Review.” While the outlook for succession planning in the wider business looks underdeveloped, the situation seems to be more positive in the world of the CFO. This is unlikely to be a complete surprise, due to the “risk mitigation” nature of the CFOs remit, training and mindset. When questioned more specifically about succession planning in the finance function, 72% of CFOs stated that they had personally built a succession planning framework for their team, although within this, only 40% of these were “officially” recognized by the organization, with the remainder being “unofficial” plans.

This of course is good news for businesses and would indicate that if they are not already, any committee or department tasked with planning and building succession planning policies would do well to leverage the inherent skillsets of their CFOs to ensure they are able to add value to the overall effort.

OFFICIAL SUCCESSION PLAN

THE IMPORTANCE OF SUCCESSION PLANNING

VERY IMPORTANT 32%IMPORTANT 52%MEDIUM IMPORTANCE 16%LOW IMPORTANCE 0%NOT IMPORTANT 0%

NO OFFICIAL SUCCESSION PLAN

28%

72%

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Despite the good progress made by the CFO, there remains work to be done. When asked how an interested shareholder or an internal committee (REMCO or ARC etc.) might rate the CFOs’ succession planning framework, only 16% rated their plans as “Robust” and the remainder as “High-Level” or “Emerging.”

Perhaps this lack of progress in organizations is down to a lack of clarity of exactly who is responsible for this agenda. Is it a single individual? A function such as Human Resources? Or is it within the remit of a committee or panel of individuals from different areas of the business and therefore able to leverage a wider set of expertise and insights? While there is clearly no “one size fits all” methodology, what is apparent from our survey is that without buy-in from the top and empowerment to implement, the succession planning agenda will never truly be effective.

Going hand in hand with effective succession planning is the topic of “bench strength.” By this, we are referring to the number of capable and ready potential successors in a team or business. These are individuals who are able to move into key leadership or business critical positions in the event of a sudden departure or role change.

Moorland Gray is well-positioned to advise organizations on this topic of increasing importance. We are regularly retained to assess and benchmark our clients’ teams against both internal standards and externally against regional and sectoral competitors, giving clients the full confidence that their team has the right people in place today, as well as the right leaders for the future.

When asked about current bench strength in their departments, the CFO responses again made for some interesting reading. While it is no doubt encouraging that 52% of CFOs rated their department as “Above Average Strength” and 12% rated it as “Strong,” it is also worth noting that nearly a third (32%) of respondents rated their bench strength as only “Average.”

52% of CFOs surveyed rated their succession planning as EMERGENT.

32% described their SP asHIGH LEVEL.

16% ranked their team as having a ROBUST plan in place.

BENCH STRENGTH IN THE FINANCE FUNCTION

Weak 1/5

Below average strength

2/5

Average strength

3/5

Aboveaverage strength

4/5

Perfect score – strong

5/5

32%4%0% 52% 12%

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While this no doubt means that today’s bench strength is adequate, the longevity of this is questionable, especially if there is no clear talent management/leadership development program in place for future leaders and high potential employees, thereby leaving them more susceptible to poaching by competitors.

This is perhaps evidenced by 56% of CFOs believing that they do not currently have the right blend of technical and soft skills to support the future growth of the company; despite the fact that in direct contrast, 56% of the companies surveyed already had an official talent management and leadership development program in place. This apparent contradiction raises questions about program effectiveness and whether the right talent is being selected for development in the first place.

Of further concern for organizations would be how CFOs rate the bench strength of the wider business, with 52% of respondents rating the business as “Average” and only 4% as “Strong.”

CONTRADICTION BETWEEN CAPABILITY & TRAINING

56% of CFOs interviewed believe that they do not currently have the right blend of technical and soft skills in their team.

56%

%

Despite 56% of organizations having an o�cial talent management & leadership development program in place.

56%

44%

BENCH STRENGTH IN THE WIDER BUSINESS

Weak 1/5

Below average strength

2/5

Aboveaverage strength

4/5

Perfect score – strong

5/5

Average strength

3/5

52%0%0% 44% 4%

The good news is that this could be indicative of a number of nuances and not just a lack of planning. Smaller businesses have much leaner teams by necessity, meaning the bench is naturally weaker. In larger firms, the ability to build a talent pipeline is often a luxury in tougher economic times. While the long-term cost to the business of losing talent or not having adequate bench strength is substantial, the argument is hard to make when cost control is the number one item on the CEO’s agenda.

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As an effective solution to cost and resource constraint, Moorland Gray has been able to add significant value to clients by being retained to build and update external talent pipelines of both national and expatriate candidates.

By identifying the top ten external replacements for each business critical role ahead of time, clients are proactively managing an external talent pool at negligible cost. These “passive” talent pools then allow clients to make any business critical appointment within weeks, rather than months. This also ensures a closer adherence to the various GCC-wide nationalization agendas, as well as avoiding costly “knee-jerk” responses to hiring national talent. The rationale for the provision of this service to clients is evidenced by 88% of CFOs suggesting they would need to look externally to fill any current or future gaps in their team, while also citing a lack of depth to the available talent pool and competition as being the main hurdles to identifying and attracting candidates to their businesses.

SUMMARY

It is clear that succession planning and ensuring adequate bench strength in the organization remains high on the agenda for our board and C-Level stakeholders across the region. However, based on our findings, it would appear that progress in implementing a well-planned, stress-tested framework is slow and that these future critical programs are rarely index-linked to the economic agenda of the business.

Naturally, as the region is known for the transient nature of the workforce an obvious concern for companies is how robust any succession plan can be. This should not deter companies from building a strategy in the first place. From our conversations and experience, having a framework in place that requires updating and stress-testing is far better than having no contingency plan and being reactive as a result of a key team member suddenly leaving.

That means for a plan to be truly robust, there needs to be a number of external components rather than a purely internal focus. One of our suggestions would be to consider the below model that utilizes a number of “pillars” which, combined, provide any plan with a far greater level of robustness.

IDENTIFIED & ASSESSED INTERNAL TALENT POOL

IDENTIFIED EXTERNAL REGIONAL INTERNATIONAL TALENT

IDENTIFIED EXTERNAL NATIONAL TALENT

SUCCESSION PLAN

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This approach also enables smaller, leaner businesses that by necessity do not have deep talent pools to also have a robust and cost-effective framework that can cover succession planning across all key positions and be executed far more quickly and efficiently.

Broadly speaking, business leaders understand the importance of these topics to the future success of their company, however they are generally more reactive to an acknowledged risk. The same can probably be said for many nationalization programs as well as the external “talent pipelines” we previously highlighted in the document.

Additionally, there are a number of common themes that have been raised even when a framework does exist. These plans and policies have rarely been reviewed and critiqued by an independent third party either before or after implementation. They are tested for completeness so irregularly that the plans run significant risk of being outdated or containing fundamental flaws. Furthermore, the policies and frameworks often do not contain metrics that correlate with board or ExCo ambitions. In these instances, is it safe to assume that companies are “ticking a box” rather than building a long-term, sustainable solution?

The subjects of talent retention and attraction are intrinsically linked to the topic of this whitepaper. Given the current challenging economic environment, now more than ever companies in the GCC need to retain business critical people and where necessary, attract top talent in order to sustain their businesses and execute strategic plans. Without these people, firms run the very real risk of either missing targets and opportunities, or in extreme cases, failing in their entirety.

Compelling compensation and benefit structures are integral to the region and play a massive part in the attraction and retention of talent. Despite this, companies rarely take the time to innovate in this field and often stick to prescriptive structures. While this topic could be a study of its own, here is one high-level suggestion: Could companies link a portion of the annual performance bonus to mentoring and knowledge transfer initiatives which are deliverable over a defined period of time? This portion of the bonus, while deferred, could also be linked to the performance of the recipients using third party assessments of candidate development as well as quarterly 360 degree internal reviews. At negligible cost, a bonus such as this would then encourage the development and growth of national and high-potential talent through mentoring and coaching, while also ensuring longer-term retention and reward across the business.

FREQUENCY OF SUCCESSION PLAN TESTING BY ORGANIZATION

ANNUALLY

QUARTERLY

MONTHLY

NEVER ON Q

M52%

28%

8%12%

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MOORLANDGRAY.COM

Moorland Gray is regularly retained by clients across the region to either review and assess the veracity of either pre-existing succession planning frameworks or the feasibility of proposed policies.

In the unlikely event that we find no room for improvement, we are still able to verify the quality and robustness of these plans, using the same quantifiable research-backed methodologies that we use in all of our work as an executive search firm. Having this important strategy independently verified naturally provides credibility and comfort to boards and shareholders alike.

CONTRIBUTORSWe would like to extend our sincere thanks and gratitude to our panel of CFO contributors. Their support, time, expert insight and guidance have been both informative and pivotal to the success of this whitepaper.

Written by: ZAK MARAR Head of Practice – CFO and Corporate Governance T: +971 4 279 6300 | M: +971 52 790 1502 [email protected]

Moorland Gray is the most trusted retained executive search firm in the GCC, with an unrivaled track record of success across emerging markets. Over the course of the last 9 years the team has completed over 1,200 assignments across 22 countries in the Middle East, Africa and Asia. In the process, they have become trusted long-term advisors to hundreds of Chairmen, Chief Executives and CHROs who have engaged the firm on complex, hard-to-fill, confidential and niche leadership searches for leading private and public sector entities.