Internally appointed CFOs achieve better returns
Internal hires’ tenures exceed external hires by 30%, and return on assets a third higher than external hires, research finds
INTERNALLY APPOINTED CFOs have longer, more stable tenures and are associated with better returns than CFOs hired from outside, according to research from the Curzon Partnership.
The executive search firm’s analysis of FTSE 100 CFOs over the last five years shows that internally appointed CFOs have an average tenure of six years, which is 30% longer than the average of just 4.6 years for CFOs appointed externally.
The return on assets for businesses with internally appointed CFOs is a third better, at 9.5%, than the 7.1% for companies that hire their CFOs from outside, Curzon said.
“Internally bred CFOs know the company, its markets and its culture far better than an outsider. The best CFOs will not only understand the right strategy to improve returns and properly exploit the businesses’ assets but, crucially, they will know how best to deliver that strategy,” said James Colhoun, a partner at Curzon.
“Externally appointed CFOs, on joining, will have no discernible network and, therefore, less of a power base and less leverage with the board and other key executives within the company and are likely to find it harder to effect the changes they want to make or hold business units to their targets.”
Colhoun added the longer tenure of internally appointed CFOs can be attributed to trust and familiarity established with key stakeholders, greater specific business knowledge, confidence in his or herself and with the board and senior management, as well as a strong cultural fit with the business.
