The Rise Of The Fractional CXO

Hybrid and remote work mean that executives aren’t reevaluating whether they need permanent, full-time offices. Small and midsized firms are starting to ask the same question about certain senior roles. As a result, the idea of using contingent workers is beginning to permeate higher rungs of the corporate ladder. We’re seeing the gradual arrival of the fractional chief executive.

In fairness, you’re unlikely to find a longstanding fractional executive at a Fortune 500 company. (Yes, sometimes unexpected retirements and disciplinary issues force corporations to appoint temporary replacements. For the most part, though, these are interim assignments.)

Fractional executives are experienced hired guns who, for whatever reason, need to right an organization’s ship. The best ones can immediately hit the ground running, identify thorny internal problems, chart a path to resolution, and oversee its execution. Unlike their consulting counterparts, fractional executives are fully embedded and accountable members of their leadership teams; they’re in it for the long term.

Ken Weil has served as a fractional chief financial officer for dozens of companies over the past 15 years. Researching my book, The Nine: The Tectonic Forces Reshaping the Workplace, I spoke extensively with him. Weil offers several reasons that fractional CFOs are becoming more popular, some of which apply to other business functions.

• Business need. Some startups simply aren’t mature enough to need the talents of a full-time CFO. Beyond that, there are financial factors to consider. Founders or investors may lack the desire to award equity grants to new executives. Beyond that, it’s often difficult for a new venture to justify a $250,000 salary at such an embryonic stage.

At the same time, there are only so many hats that even the most intelligent, accomplished, and efficient business leader can effectively wear. (Elon Musk seems to finally have learned this lesson the hard way with Twitter.) A fractional CFO lets other executives stick to their knitting. For example, a COO need not pretend to possess the skills of a CIO and vice versa.

As Weil explained, his clients hire him because they frequently face a complicated tax or accounting issue that their current leadership team has never confronted. In these cases, the costs of winging it far exceed his fee.

In a way, fractional leaders aren’t all that different from their full-time counterparts. Karina Mikhli is a fractional COO and the founder of Fractionals United. When I spoke to her, she emphasized the parallels between full-time and fractional COO roles. No two are alike; each must complement what the founder or CEO needs.

• Executive turnover spikes. Thirty-seven CFOs stepped down from S&P 500 companies in 2020. That number represents an increase of 27.6 percent from the previous year. And this was before the Great Resignation arrived in earnest.

• The scarcity of talent.  Historically low unemployment rates are likely to persist and, because of that, some firms simply can’t find the right candidates for senior positions. All things considered, hiring a fractional CFO might represent the best option at the time. What’s more, a six-month contract locks in a talented, experienced individual and provides a modicum of certainty.

• The ubiquity of remote work. During our extended chat, Weil told me that, for specific clients, he used to spend upward of three hours per day commuting. During the early days of the pandemic, some of his clients forbade him from coming to the office. Travel restrictions ultimately eased, but Weil mostly kept working from home.

Covid accelerated the adoption of remote and hybrid work. The biggest lesson: Employees don’t need to always be in the office to be productive, communicate and collaborate. What’s more, against a backdrop of rising inflation, we’re realizing that we can’t necessarily afford pricey full-time execs.

Brass tacks: Fractional employment will only increase in the future. Rather than fight it, embrace it. Think about positions that might benefit from a flexible, fractional arrangement.