Companies are increasingly looking internally for their next finance chiefs, grooming junior executives in an effort to sidestep steep learning curves that can stymie outsiders and reduce the risks inevitably associated with hiring an outsider, especially in such a high-profile position, recruiters say.
Boards’ demand for strategic managers—not just numbers people—and pressure from investors, new regulations and technological change are adding complexity to the role. Finding the right person from the outside can be complicated, and the searches can also prompt exits of internal candidates that don’t make the cut.
“Companies now appreciate how hard it is to recruit great talent,” said Jenna Fisher, head of the corporate officers practice at executive recruitment firm Russell Reynolds Associates. About three-quarters of the Fortune 500 CFO searches Ms. Fisher is involved with have at least one internal candidate. Three years ago, she said, it was less than half.
CFOs are retiring at the fastest pace in at least a decade. Meanwhile, fast-growing private companies are also vying for executive finance talent. As competition for top finance executives increases, so does the case for internal candidates.
The average tenure of a Fortune 500 or an S&P 500 CFO is now just under five years, down from 5.2 years in 2015, data from recruiting firm Crist Kolder Associates show. Nearly 70% of CFOs at those companies are first-time finance chiefs.
“Finance teams at many U.S. companies have depleted their internal benches,” said Peter Crist, chairman of Crist Kolder Associates. “They are now looking to replenish them.”
At Marsh & McLennan Co s., a New York-based professional services firm, internal promotions are seen as a risk-management tool, especially in the finance function.
Mark McGivney, the company’s CFO, said he has four divisional finance chiefs who report to him—all groomed and promoted internally—and he has identified internal candidates to step into these roles, should one of the divisional CFOs leave. Mr. McGivney, himself an internal CFO hire, has even lined up potential successors for his own role, including his divisional CFOs, he said.
“The CFO positions are the ones where I want a pipeline,” Mr. McGivney said. “It is risky going to the outside.”
At Columbus, Ga.-based insurer Aflac Inc., the recent promotion of the company’s CFO, Frederick Crawford, to the role of president and chief operating officer means that soon-to-be CFO Max Brodén, formerly the deputy CFO, can rely on his predecessor’s assistance when he takes over the finance function in January. “We will be working very closely with each other,” Mr. Brodén said.
Elevating an internal candidate to a key finance role also motivates other executives, said Kevin Entricken, finance chief at Dutch information services company Wolters Kluwer. “When candidates see their peers progress, that inspires people and makes them feel that they can get ahead,” Mr. Entricken said.
A former CFO of one of the company’s four divisions, Mr. Entricken has held the group CFO role for more than six years. “I have a few individuals in my succession plan that would be ready now,” he said. “Others would be in two to five years from now.”
CarMax Inc., the largest used-car retailer in the U.S., draws up formal succession plans for all vice president roles and above. The Richmond, Va.-based company also regularly checks on whether internal candidates would be ready for a promotion within two years, said Diane Cafritz, CarMax’s chief human resources officer.
The company in October elevated its then-treasurer, Enrique Mayor-More, to CFO and promoted its previous finance chief to executive vice president of finance.
Some sitting CFOs prefer an internal successor because they are afraid that too much information—gathered over many years at the company—might get lost under a new, external CFO.
“Whenever the time comes for me to retire, I don’t want to lose institutional knowledge,” said Gerry Laderman, the finance chief of United Airlines Holdings Inc.
Mr. Laderman, previously the company’s controller, became acting CFO in 2015 to replace an outgoing finance head, illustrating that internal succession planning was less of a focus at the time at the Chicago-based airline. He became permanent CFO after a second stint as acting finance chief in 2018.
Of three key appointments he made this year, two came from inside.
“You benefit from people already understanding the business moving up,” he said. “It’s a little bit easier if you are already here.”
Write to Nina Trentmann at Nina.Trentmann@wsj.com
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