Do Cfo's Make Good Ceo's?

Introduction

The CFO possesses many significant advantages as well as disadvantages if he/she is chosen to become the CEO.

Recently an increasing number of company boards have decided that in order to best serve shareholders it is prudent to promote the CFO to CEO. CFOs themselves remain reticent about any personal ambitions beyond the CFO role - at least in public. But given this recent string of high profile promotions there is an increasing recognition that they have what it takes to take over the CEO role. To understand why CFOs are more frequently getting the top job it is important to know what the contemporary holder of the post does with his time. Article entitled “CFO to CEO” explains that the Monty Python image of an accountant sitting in a corner counting beans has disappeared, says Ian Graves, district director of continental Europe, at recruitment agency Robert Half International. Bluntly put, CFOs are now a much more exciting breed. In the 1990s, the CFO role became more dynamic and strategic, moving from being merely a functional head to also being a corporate leader (“CFO to CEO”, 2005).

CEOs can benefit greatly from a CFO background. They will have a well grounded idea of how the financial laws affect the company as well as how official documents are created and how they are submitted. In short, the CEO with this background will be another possible safety net and another eye looking for deceit in the lower ranks. There are other aspects may bring advantage as well such as a solid understanding of cash flows, cost rations, etc. Janine Brewis points out in her article “How a CFO can graduate to CEO” that it is good decision making to involve a financial expert into upper management since it is critical for good operations and for the company's management to understand law, regulations and policies regarding financial reporting. It serves to protect the company and its constituents. Part of the reason for the trend towards recruiting CFOs who can behave as strategic partners is that the investor community looks much more critically at the business performance and management strengths and weaknesses of corporates. This strategic positioning gives them an opportunity to buff up their image, and make themselves seen as a ore credible candidate to take over the CEO role (Brewis, 1999). But though a competent CEO must have an understanding of numbers, which does not infer that having good mathematical skills is all it takes to become a good CEO.

Hard-core finance and accounting skills alone do not propel CFOs into the CEO suite. Eric Krell explains in “Room at the Top” that according to four former CFOs who became CEOs in the past few years, deep operational experiences, customer interaction and communication savvy help make CFOs viable CEO candidates. Swelling compliance workloads have limited the time CFOs can invest in value-added activities, such as strategic planning, that make them more attractive CEO candidates. Senior managers atop the CFO-to-CEO career ladder consistently point to the operational activities they engaged in while they were finance executives as the primary reason behind their ascension to CEO.

There are many examples of CFOs moving up that did not fare so well. This mainly seems to be due to a lack of managerial experience while in the financial realm and limited exposure to the decision making levels of any company until stepping into a high level executive role. CFO’s have limited experience running a company or business and how things are done. Majority of CFO’s lack well developed interpersonal skills and knowledge of leading an organization. While this knowledge can be learned and acquired, the majority of CFOs are not particularly socially oriented or interested. They are accustomed to working with numbers, which usually doesn't translate well into working with humans (Krell, 2005).

A good CEO of a company requires a number of qualities. CEOs work hard, but must delegate responsibility. However, they must be in touch with the business. Most do not embrace sophisticated thinking. Still they know of what is happening around them in their industry as well as their own company. Successful CFO’s are not at all concerned or interested with these matters.

One of the main qualities of a CFO is to look forward, and using forecasting techniques, predict the future, not only for the day-to-day operation of the company, but also for financial presentations for potential investors. One of the main qualities of a CEO is also to look forward, predict the future, but no in the same terms