A growing number of CEOs have been attaining the CFO job, with a record number of them reaching the top rung at the biggest companies last year.
CFOs bring crucial financial skills to the CEO role, but they must also learn new skills to navigate the top job at an organization, especially at a time of economic uncertainty.
“Sometimes boards want to have a steady hand at the wheel, somebody who’s very familiar with the financials of the organization can help steer them through this period,” said Rich Brady, CEO of the American Society of Military Comptrollers and global chair of the Institute of Management Accountants, who is himself a CFO turned CEO. “The second factor, though, is also just the skills and capabilities that CFOs develop in their roles that really lends them to be good successors at the CEO level.”
Increasingly, CFOs have become the right-hand person of the CEO, he noted. “They tend to have a company-wide enterprise perspective, and they also have a lot of knowledge of the financial levers for value creation in the organization,” said Brady. “As a result, they have the ability to drive innovation in an organization and help manage risks, which are increasingly complex. As you look at globalization and what’s going on around the world, there are a lot of risks out there that CFOs really have a strong handle on. Also, CFOs are leading in the area of digital transformation. That really allows them to elevate up to that CEO role today, probably more than we’ve seen in the past.”
To be sure, there can be drawbacks when a CFO tries to tackle the CEO role. “CFOs, finance and accounting professionals tend to be somewhat conservative, particularly financially conservative,” said Brady. “As a CEO, you’re going to have to take risks. You have to move from fiscal conservativism to creating and looking for business opportunities. And while CFOs obviously have to engage in a lot of communication internally with boards and with the senior leadership team and the investor community, they need to be able to communicate a broad vision for the organization as well and speak to employees and other groups to get them behind the vision for the organization. For some CFOs, these aren’t the comfort areas that they operate in. But when you get up to that CEO role, you’ve got that broader perspective of the organization. You have to have a strong vision for the organization. You have to translate that into the strategy for the organization, and you need to be able to communicate that broadly with many shareholder and stakeholder groups, much more broadly than a traditional CFO would.”
CFOs’ strength on the financial side can help companies grow their profits, but maybe take fewer risks.
“Clearly, their comfort area is going to be on the cost and financial side of the equation,” said Brady. “It’s important for a CFO who’s aspiring to be a CEO to gain a broader commercial background understanding of the overall business other than just finance and accounting. The research shows that early on in a CFO’s tenure as CEO, there tends to be a bit lower top line growth, although profit margin tends to be stronger in the near term. In the long term, that gap narrows. The slower top line growth compared to CEOs who come from other areas of the business narrows, so they do get that top line growth, but I think that’s a reflection of some of that fiscal conservatism and risk aversion that’s inherent in the finance and accounting field.”
CEOs are not only responsible for the financial aspects of a company, but other aspects such as marketing, he noted. “Many CFOs aspiring to the CEO role will naturally still carry some of that fiscal conservativism with them, so they may be less inclined to take bold risks,” said Brady. “But over time, the research shows that they do develop that ability to drive more top line growth.”
Sometimes the board will appoint a CFO to take over from a CEO who is not achieving the financial goals they want to see, or if they see financial trouble ahead.
“Obviously, the CFO has got a lot of insight into the finances of the organization and knows cost structures and revenue structures, where they can extract the most value out of the organization from a financial perspective,” said Brady. “There is a lot of uncertainty out there. There’s tightening of the credit markets, interest rates rising, a lot of geopolitical risks, and a desire to have a steady hand at the wheel, somebody who’s really got a strong hand on the financial aspects of the organization to weather through this period and get to a time where it’s maybe a more business friendly economic and marketing environment.”
Even without a formal title change, the role of the CFO is changing into more like a CEO. “This is really about the evolution of the CFO role,” said Brady. “Traditionally, the finance and accounting person or the CFO role was the standard capturing, recording and reporting of financial information. When I came into the field that’s what we did 30 or 40 years ago, but that role of the CFO has been evolving. We’re now really a business partner, a strategic partner in the organization and with the CEO, looking to help drive growth and value for the organization, because they’ve got that enterprise view of the organization. They understand the finance aspects and how to align your financial strategy with your overall business strategy to achieve your organizational goals and objectives. The broader picture is this change in the finance and accounting profession over the last 40 or 50 years, a lot of it brought about with technology that still is going to be driving change over the next five, 10 or 15 years.”
To help with the transition, the IMA offers a Certified in Strategy and Competitive Analysis program. The
