Following the exit of its CFO earlier this week due to health reasons, German airlines, Lufthansa has split his responsibilities among the senior management as it focuses on 'operational and structural crisis management'.
Succession planning, or more often the lack of it, is the centrepiece of conversation around governance quite frequently. The turmoil due to COVID-19 outbreak is highlighting the need for succession planning in the finance function in an unprecedented fashion.
When the German airline Deutsche Lufthansa's CFO Ulrik Svensson quit earlier this week for health reasons, its board decided to do something unusual. It split the various departments under the erstwhile CFO and divided the responsibilities among the various members of the top executive panel.
Accounting and balance sheets, taxes, corporate finance, controlling and risk management were added to a department earlier known as "IT, Digital and Innovation". In keeping with its expanded role, the department would be renamed "Digital and Finance".
The M&A department was transferred to the Human Resources and Legal Affairs team. And the purchasing responsibility would be taken over by the head for customers and corporate responsibility. Investor relations would fall on the shoulders of the Chairman of the executive board.
Lufthansa follows the European model of two levels of the board - the Executive Board and the Supervisory Board. Svensson's responsibilities have thus been split and fallen on the different members of the Executive Board. The Supervisory Board, akin to the Board of Directors in India is tasked with governance-related aspects.
Announcing this reallocation of work, Karl-Ludwig Kley, Chairman of the Supervisory Board of Deutsche Lufthansa AG, said: "We today came to the conclusion that this is not the right moment to appoint a new CFO. We are therefore focusing on an internal team solution for the near future, using the expertise and experience of the current members of the Executive Board and the knowledge of our leadership. We are convinced that this team solution is the right structure to set the necessary course to overcome the crisis."
It has been well documented that the entry or exit of CFOs has the potential to influence the stock price. Yet, in these unusual times, when airlines the world over are grounded and stare at issues of basic survival this move to carve up the finance function is unusual to say the least.
"In these difficult times of an unprecedented crisis, operational and structural crisis management determines our Executive Board work more than anything else. Our daily, close cooperation in the Executive Board team suggests that responsibility for finance, which is currently more important than ever before, should be distributed within our existing departments under the leadership of three proven and experienced experts from our company," said Carsten Spohr, Chairman of the Executive Board.
Spohr's statement indicates that notwithstanding the importance of the finance function, the company clearly had no internal candidate who could step into the CFO's shoes.
Given the unprecedented stress that the aviation sector as a whole is facing, firefighting is perhaps the only immediate task for the executive leadership. Hiring a CFO takes time, resources and management bandwidth or the Supervisory Board is fairly confident about the governance processes that it does not miss the finance head in short gaps.
Lufthansa has had these gaps in CFO appointment in the past as well. When Stephan Gemkow, the CFO who led the airline through the 2009 crisis quit in 2012, there was a hiatus of several months before Simone Menne was appointed.
Similarly, when Menne quit, though the airline appointed Svensson before the CFO exit, he took charge several months down the line.
Equity analysts, however, expect the return of a formal CFO role as the operating environment becomes more predictable. Such a division of roles can only be a stop-gap arrangement for a company as large as Lufthansa.