December 3, 2024
Forward from finance: From CFO to CEO
There are many reasons why I love my job but prime among them is the opportunity to work with talented leaders day in, day out. Sitting down with different people from all walks of life, all committed to doing good, all determined to make a difference, is something that I’ll always treasure.
While these discussions are often about helping organisations finding the right people for their own unique needs, the conversation often turns to how individuals can map their own different pathways and options for their future. After all, few careers progress exactly as envisaged. Plans shift, circumstances change, ideas evolve.
CFO compass setting
A good example is the well-trodden journey between a chief financial officer (CFO) and the chief executive. This is a subject that my colleagues and I have been exploring in recent months and is one that, perhaps inevitably, has sparked many different findings and perspectives.
The move from CFO to CEO is well-established — 19% of ASX100 CEOs were appointed from a CFO role as an internal promotion or successor. But while CFOs often possess many of the key traits and skills necessary for a seamless switch into the CEO hot seat, we have found that success is by no means guaranteed.
When it comes to top-line growth, our research shows that that only 8% of CEOs promoted from the CFO role steer their companies into the top-quartile of top- line growth. By contrast, “leapfrog” CEOs — those promoted from two or more levels down — and divisional CEOs had far higher odds of outperformance on top-line growth.
Understanding why this is the case was just one of the many talking points at a dinner I had the pleasure of hosting last month. Attended by guests who have worked in both the CFO and CEO roles during their careers, we were able to dig into their own experiences and reflections, their lessons learned and recommendations for the next generation.
So, what did we find out?
Strengthening a critical pathway
It’s easy to see why nomination committees are often swayed by a CFO’s candidacy for a CEO role. After all, the CFO — much like the CEO — has full oversight over a company’s functions and operations. They also understand the numbers and performance frameworks, have strong relationships with key stakeholders and work shoulder-to-shoulder with their CEO.
But while our guests agreed that these factors remain potent, they also stressed that ambitious CFOs should not rest on their laurels. On the contrary, they need to proactively seek out different ways to strengthen their chances.
For example, one priority should be to combine their financial expertise with some operational experience. Some time on the frontline of delivery, working in a different function and picking up some extra commercial nous, can work wonders in helping them craft a fresh, growth-oriented mindset.
Similarly, they should also look to flesh out their communications skills. Although they will likely be well versed in making presentations to financial audiences, they will need many more strings to their bow as CEO. Yes, this might well involve some professional training but they should also learn from the CEOs they have worked with — both good and bad.
Another area that CFOs should focus on is how they can develop the capability of their employees. Interestingly, this is often the lowest capability in executives globally yet it’s so fundamental to the success of an organisation. Managing the finance function is one thing, managing a whole-company workforce is something else entirely.
Financial advice
It’s also important to note that when it comes to a CEO succession, nomination committees will be considering many contenders, not only from inside the business but outside too.
Much also depends on the industry and business cycle the organisation operates in, as well as macro-economic factors. If the wider economy is enduring a period of turbulence then a CFO-turned CEO can help organisations navigate moments of financial stress and volatility. But if growth is prevalent and new investment opportunities are dominating the horizon, a CFO may not be the first choice.
This all means that any CFO — here in Australia or in other international markets —should not assume that their future ascent is assured. The sheer allure of the CEO role, its enduring attractiveness to the best and brightest, means that there will always be fierce competition when succession planning gets underway.
And that’s a good thing, surely. Any organisation, big or small, private or public, requires a tailored and diverse blend of talent at its decision-making tables, starting with the CEO. Ambitious CFOs need to recognise this reality and seek to maximise their chances — there’s no time to waste.