June 15, 2020
This is the 20 mark exam question that if you get right means the difference between an A grade or just scraping through with a pass, and one that I have constantly juggled with during my 2.5 decades of recruiting some of the most experienced and influential finance professionals in the UK.
The biggest issue as I see it, is that decisions are made by human beings; “people buy people” after all. As human beings we can either inflate our own view of what good looks like, or due to the complexity of the human brain and human decision making, personal preferences and cognitive bias[i] creep in and skew decisions without us even realising. The adage “never recruit in your own image” has never been truer, but it never ceases to amaze me how many people still do.
The value of data to support recruitment decisions
In an era being shaped by pandemic, global economic, political and technological challenges, CEOs must confront many uncertainties as they map the future of their business. One trend is clear however — the growing importance of data in shaping critical business decisions. How CEOs handle, manage and utilise that data will, to a great degree, define their own success as they navigate their digital journeys. Hiring decisions for the C-suite are no different.
Psychologists primarily focus on personality, which as we all know can have a huge impact on how we work and interact with others; both internally and externally in an organisation. These tools have been known and used by leaders, elite sportsmen and women, and recruiters for decades with great success. Data analytics models however, have the potential to find important but previously unconsidered relationships. Hand-in-hand with psychometric tools, we can now also ask the broader question: What identifies a potentially good hire?
Data analytics, can come up with highly predictive factors to indicate performance. For example, research by Evolv (a workforce analytics pioneer) found that expected commuting distance for the newly hired candidate predicted staff turnover very well – almost perfectly in fact. The beauty of all these support tools of course, whether psychometric profiling or data analytics, is that they are not an “either/or”; you can use them seamlessly side-by-side to tailor a dashboard of information to inform a much better-quality recruitment decision.
So what would be my perfect toolkit look like if I were hiring a CFO myself today?
1. Firstly, I would use a reputable and high-quality search firm. There are quite a few to choose from, although not all firms are created equal! I was always surprised why potential candidates would always return my call yet ignore calls from others. When asked, they replied: “Well, if you rang me, I always knew that what you said was worth listening to, even if I wasn’t looking for a move myself right now.” I am sure this also goes for many other recruiters out there, but not everyone.
2. Having hired PLC and PE CFOs for over 25 years, I am very excited to see that data analytics can now be brought in with psychometrics to help inform better quality recruitment decisions. Now, I would always use a tool to model the complex inter-relationships between the board (both Non-Exec and Exec) and what type of CFO will complement the collective skillset. You can use the traditional route and discuss these things purely face-to-face of course, with nothing to guide the conversation, but cognitive bias[i] is always there.
Data (as long as it is not used in isolation) can help get to the truth of the situation. For example: What skills, experience and attributes are missing in the board to deliver the strategy? How do the various types of CFO in the market potentially fit into the CEO’s/Shareholder’s value creation or growth strategy? And do they add accretive value when compared to the remaining board skillset or just replicate it?
Figure 1. Success propensity of upper quartile teams
Tools like the Leadership Success Propensity Model (powered by drxDATA), can do this by using predictive algorithms to compare people and teams to successful businesses in the past (figure 1). Using tools like this to brief your search firm is much more likely to increase the chances of a successful hire when compared to the traditional route of using the outgoing CFO’s previous job description, amended slightly to reflect the CEO’s current frustrations, and then asking the search firm to perform alchemy.
3. I try to decouple the gut feel and passion of any negative experiences of the outgoing CFO by involving the entire board, especially the Audit Committee Chair, to evolve the brief and tease out what “good” looks like for the business, not just the CEO. Sometimes the other board members know what the CEO and business need better than the CEO themselves do. And often the best CFO for your business is not the person that is at the same golf club or who you “gel” best with at interviews.
4. If possible, I use both psychometric personality profiling AND behavioural models to assess the shortlisted candidates against the CFO archetype and attributes required and as defined above. There are several Jungian-based personality profiling tools out there (e.g. Spark, PF60, Wave, Hogan) which can help with team dynamics, but there is now a behavioural model PACE. In certain situations, and time-bounded growth models such as in Private Equity or a PLC growth strategy, behaviour can be a much more reliable predictor of success than personality type alone.
Figure 2. Example of a PACE behavioural model summary
None of this is free but if we look at the opportunity cost of making the wrong hire, it runs into the £millions. At the end of the day, we are looking to both de-risk the chances of making the wrong appointment, whilst increasing significantly the probability of hiring someone who can in all likelihood have a significant impact on the growth strategy or value creation model. By tailoring the best tools out there in the market to inform decision making, it can only assist the CEO in improving hiring decisions and delivering better quality leaders.
If you run the NPV model on that one, it’s a no-brainer.
MD – Leadership
[i] Every business leader shows an inclination towards a particular outcome, idea or individual. Cognitive bias can emerge when we make decisions based on limited information or apply non-relevant facts to a particular situation.