According to a new survey from recruiters Robert Half, 86% of CFOs have designs on becoming the CEO. But are their dreams achievable? And are they on the right path?
The survey certainly showed that CFOs see themselves as equipped with the right skill set to become CEO, with 44% of finance leaders citing their knowledge of investor stakeholder management as making them the best candidate, 40% their economic and business awareness, and 32% their ability to deliver finance and data-driven business decisions. There is also a long history of CFOs successfully making the transition. Indra Nooyi, for example, worked her way to up to CFO at PepsiCo and eventually became CEO in 2006 - the fifth CEO in the drinks giant’s history. Peter Voser also came to Shell as CFO before moving straight up to CEO.
At present, 55% of FTSE100 chief executives have a finance background, suggesting that the CFOs are on the right trajectory. However, when you look at those who went directly from CFO to CEO, the chances appear to diminish significantly. A Korn Ferry analysis of sitting CEOs in the global Forbes 2000 in 2015 found that just 13% had gone from CFO to CEO, and this only went up to a total of 18% when other leadership positions in the finance function were taken into account.
There are a number of reasons for this, but key among them appears to be an absence - or perceived absence - of operations experience. Rather than moving directly to CEO from CFO, many are gaining such experience before making the move. Three-quarters of Fortune 100 CEOs come from operations, and David Axson, managing director of the CFO & enterprise value practice at Accenture Strategy, notes that: ‘What seems to be happening is that a lot of CFOs are now being given operational responsibilities. So they are moving out of the CFO suite and heading a line of business that is complementing their CFO skill set with a business leadership skill set. That move allows them to become a candidate for CEO succession,’ continuing that, CFOs who make the transition to CEO have managed to develop the strong ‘operational strength of running a business to complement their already competent financial skill set.’
The qualities expected of a CFO intersect at many key points with those of the CEO, but they also differ in small but significant ways. The CFO must be an effective organizational leader and a key member of senior management, act as the integrator and navigator for the organization, as well as be an effective leader of the finance and accounting function. CEOs, on the other hand, need to inspire, influence, and motivate others. They need the courage to take risks, and to persevere when it appears they might not pay off, empowering other employees to do likewise. A McKinsey survey found that CFOs often lack these kinds of leadership skills, communicate poorly, and they are particularly weak when it comes to motivating and inspiring teams.
This difference in the qualities needed in CFOs and CEOs changes, however, during periods of economic trouble. A study by the BearingPoint Institute found that CFOs were more likely to move to CEO during a downturn - 26% higher than an average year. This is likely because they are seen as relatively risk averse, and as more knowledgeable of regulations, cash management, and their relationship with stakeholders - all qualities most valuable during a period of instability.
CFOs may think that the next logical move in their career is up to CEO, but it may not be the case. Leadership at different levels is vastly different, and demands and responsibilities tend to grow exponentially rather than vertically. The CFO’s remit has grown significantly in the past few years, taking a more strategic role and a greater oversight of the whole organization, but this is greatly intensified as a CEO. It may actually be that the natural talents and experience of the CFO are better suited to a move up to a position like Chairman. Mark Freebairn, a partner at executive search firm Odgers Berndtson, said: ‘With boards under pressure to be risk-averse finance directors are a better fit to take on the role of chairman.’ CFOs are now expected to act as partner to the CEO as a counter-balance. It therefore makes more sense if they perform a similar function as a counter-balance in the Chairman role. With 86% intending to become CEOs however, it remains to be seen whether many would take such advice.