What Happens When a CFO Questions the Value of Executive Coaching?

By Jim Butler

Last year I was coaching the CMO of a startup bank; we’d done a chemistry session and he was keen to agree to a programme of 5-6 sessions but he had to get that agreed by the CFO. During the first proper coaching session I asked if he’d had any issues justifying the investment. His answer was so good I asked if I could steal it. Here’s what he said:

The “One Better Decision” Argument: Justifying Coaching ROI

“CFO asked me how much the programme of exec coaching would cost and when I told her she pointed out that it was around 1% of my annual salary. She came straight out and asked if I’d be more motivated if they just added that to my bonus. In other words, did I think the coaching would be more valuable to me and the bank, over just giving me the cash? The question caught me off guard, but after thinking about it for a moment I replied that if I made one decision better next year, that would easily justify the coaching – both to the organisation and to my own success (and the size of my bonus).

Then I thought about something we’d had on the exec agenda for the last three meetings. Frankly, if as a team we could make one decision like this quicker, the salaries of the senior team would pay for the coaching. So my answer was yes, I thought the coaching was a good investment, and she was happy to sign it off”

Beyond Hard Metrics: Why Management Coaching ROI is Different

Obviously, not all RoI conversations go that smoothly, but I thought it was a good reminder to relate coaching to critical activities, particularly decisions that have measurable RoI. When you deliver frontline L&D interventions like sales or Health & Safety training, there are hard metrics you can use to assess the return on investment. Higher sales are very easy to calculate, and reduced accidents or absenteeism can, with a little effort, be quantified in terms of impact on the bottom line. Management training gets a bit harder to measure in these terms and the value of to one coaching of senior leaders is much harder to quantify, for a few reasons.

The Elusive Nature of Coaching Impact: Wide-Ranging Topics and External Factors

The first is that the subject matter covered in coaching sessions will, by definition, be wide ranging. Every coaching relationship is different, and even if topics are agreed beforehand it’s very likely that the process of coaching will uncover root causes that change the focus of discussion. Secondly, the number of intervening variables is potentially huge. Senior leaders rarely produce work alone, they are working with their own teams, with peers and often third parties. So even if they improve their performance in a specific task, it may not be obvious what the measurable outputs are.

The “Delay” Factor: Patience and Long-Term Vision in Leadership Development

Finally, the impact of coaching may take some time to be visible clearly. In Peter Senge’s models of Systems Thinking the concept of “delay” is critical to understanding why humans are often poor at managing complex systems. If we don’t see an immediate result of our actions we tend to either double down or reverse course – either of which can undermine the initial action we took. The example often quoted is the hotel shower that has a delay between adjusting the temperature control and the actual change in how hot the water is. Unless we take that delay into account, we end up with a shower oscillating between freezing cold and boiling hot. I can be the same in leadership – if we don’t see an immediate result of a new behaviour we quickly abandon it (especially as it often feels uncomfortable at first).

Focusing on Critical Decisions: A Clue to Assessing Coaching Value

So, with all those difficulties, how do you assess the value of coaching? Going back to the anecdote at the top might give us a clue. If the role of senior leaders is to make critical organisational decisions, individually but more often with their own teams or their peers, can we consider these critical activities and measure the impact of those? We can’t “AB test” reality but we can review performance against past performance or similar work within the organisation – even against competitors.

Borrowing from Marketing: The “Customer Lifetime Value” of Leaders

Another way of looking at this approach is to borrow a marketing concept – Customer Lifetime Value. It’s not unusual for business to spend £100 getting a new customer to make a first purchase of much less than that acquisition cost. That transaction might look like a poor return, but if the lifetime value of that customer is measured in the £1000s it’s a great return on investment. It’s surely the same with employees, especially senior ones. A programme of coaching might cost a couple of thousand pounds, and the initial return might not be obvious, but if the coaching improves the performance of that person by 2%, 5% or 10% what’s the impact on the bottom line? Let’s say staff costs are 25% of a company’s turnover, that means the company expects a 400% return on investment. So if someone is paid £100,000 and increases their effectiveness by 10% they will have delivered £40,000 in additional value – and this is a permanent improvement, whereas the cost of the intervention is a one off.

The Retention Factor and the “Ethical Exit”

Even retaining an effective leader for another year represents a great RoI – the cost of recruiting senior staff is usually 20-30% of their salary, on top of the reduced effectiveness of new team members, and the cost of inducting them into the organisation. The flip side of this is one that leaders are often loathe to consider: what if the coaching results in the coachee deciding that this isn’t the right organisation for them? This has happened a handful of times in my experience – though usually with mid-level managers. I’d argue that this also represents value to both the organisation and the individual. Clearly there is a danger that the coach could sway the coachee, but as long as they are staying on the right side of the ethical line, surely this is the best result for everyone. After all, what’s the alternative? A leader that becomes increasingly frustrated, whose performance and behaviours begin to deteriorate?

The “Force Multiplier” Effect: Coaching Your Team and Beyond

There’s one more factor to consider when assessing the impact of coaching – the “force multiplier” you get from exposing leaders to the power of coaching. Any executive coach worth their salt will challenge their coachee on how they can coach their teams, their peers and even their boss more effectively. The “magic” of coaching is that it unlocks hitherto unused resources, increasing the capacity of people to create value. A leader who undergoes a programme of coaching will inevitably be better equipped to coach others and the multiplying effect of this, while difficult to measure directly, is undoubtedly going to impact on the organisation. Look for improved retention of key staff, engagement survey results and observe behavioural signs – are that leader’s team t participating more actively in group discussions for example? If enough leaders adopt a coaching approach that creates a coaching culture, something widely recognised as making the organisation more effective and more resilient.

The Leadership Judgement Call: Data, Alternatives, and Learning from Every Intervention

Effective leaders gather all the relevant data they can before making a decision, but in the end they get paid to make judgements about what direction to steer the organisation. This includes decisions like recruitment – a good process will generate as much objective data as possible but the final decision is made on a combination of data, experience and judgement. Think of L&D interventions, and in particular coaching ones, the same way. Gather as much data on the benefits of the coaching, assess alternatives (mentoring, secondments, experiential programmes, academic programmes for example) and calculate the return on investment. And then apply the judgement that leaders are paid to make. And whether the coaching is effective or not, extract the learning points from it. What worked well, what exceeded expectations and why? What was disappointing or even disastrous? Everything tells you something…

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