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Strategy and innovation
The natural evolution of the chief financial officer: from CFO to CEO.
Is the chief financial officer called upon one day be the company's CEO? That is the natural development for the CFOs who broaden their vision, equip themselves with better communication tools and reinforce their horizontal leadership within the company.
Is the chief financial officer called upon one day be the company's CEO? Although until now it has been more the exception than the rule, this is going to become a natural evolution for those CFOs who broaden their vision, equip themselves with better communication tools and reinforce their horizontal leadership in the company.
In the first edition of the CFO Frontline Report study, an annual barometer of the profession prepared by Bankinter, 29% of the chief financial officers consulted saw their careers progressing. Six out of ten saw the CFO as number two the company, behind only the CEO. We talk about a more empowered CFO, to use the term now so in fashion, who displays the attributes of a more strategic, horizontal leader and who, therefore, is clearly in pole position to climb up to a new category.
If we look at Spain, just among the companies included in the Ibex-35 we find at least 5 CEOs who were previously chief financial officers. In the industrial sector and in telecommunications, banking and travel. It is likely that this situation will become more common as CFOs take up this new strategic position in companies, a kind of “strong arm of the CEO”, as noted by Loreto González, a partner at Korn Ferry, during the presentation of the barometer in Madrid.
The 14% of executive chairmen and/or chief executive officers in Spain who come from financial management does not differ from other global statistics, such as that given by Forbes, which found worldwide a percentage of 18% of CFOs promoted to the position of CEO. It is a phenomenon that is more common in the Anglo-Saxon world, where it is considered that one in five CEOs was previously a chief financial officer.
When is this move from CFO to CEO most evident? According to a study by the McKinsey consulting firm, over 70% of CFO to CEO promotions among the 250 companies on the London Stock Exchange FTSE index were made in a context of cost reductions or of acquisitions or mergers being carried out.
Most of those promoted had acquired the skills to be the CEO of their company by taking on broader roles in finance or serving on the board of directors of other companies in the past.
It is significant that in 90% of the cases analysed by McKinsey, CFOs who became CEOs were promoted internally; they were not hired from outside the business. This means that shareholders were looking for a profile with in-depth knowledge of the company and its corporate culture. And that condition was met by the CFO.
Download 2022 CFO Frontline Report
The CFO as a replacement for the CEO: most see this as feasible
According to "View from the top", KPMG's global survey of the CEOs of companies worldwide. How CEOs evaluate their CFOs: 47% of CEOs believed their CFOs wanted to become CEO one day – but at a different company.
The percentage of those surveyed who did believe that their CFO aspired to succeed them as CEO – 29% – was noteworthy. A majority of CEOs answered that they expected that their chief financial officers would seek higher and better paid positions, both within their own company and in others. They are aware that their careers do not end in the Finance Area.
“We are becoming advisers to CEOs and their strategic allies”
, said Marta Alonso, CFO of Opticalia, at the recent CFO Forum where the Bankinter barometer was made public.
So CEOs are the people who can see best that CFOs have stepped forwards and become less confined to their office. The CFO assumes a role of strategic support for the organisation, providing essential help for CEO's decision-making, as Jacobo Díaz, Bankinter's chief financial officer, also emphasised at the CFO Forum.
What do CFOs lack to be able to take on the role of general management?
Chief financial officer faces challenges enough without having to worry about feeding their personal ambition. But it is precisely as they go about transforming their profile, adapting to an increasingly horizontal and strategic role, that they come nearer to role of the CEO. Whether it is because the two profiles get closer to each other and share their skills or because CFOs play a more prominent role and have a closer relationship with shareholders and investors, the CFO becomes the natural successor to the CEO.
What do CEOs think of this evolution in the CFO's role? According to the previously mentioned KPMG report, in the opinion of the CEOs consulted, the CFO still has to overcome three challenges before aspiring to become CEO: show greater leadership, expand their vision and overcome their limited experience outside the finance area.
This is what CFOs lack in the opinion of their immediate superiors:
- 45% of CEOs think they lack commercial experience, not financial.
- 41% think they have scarce leadership skills.
- 38% think that the CFO still has a narrow focus.
- 32% say the chief financial officer lacks an overall vision.
- 30% find the CFO has scarce interpersonal skills.
What does the CEO value in the CFO? What does the CFO resolve for them?
The Bankinter Barometer places precisely the relationship with the CEO as one of the concerns of least importance for the CFO. Chief financial officers rank this concern seventh, behind other priorities such as legislation, financial reporting, training, non-performing loans, cash flow and technology. According to the survey, the relationship with the CEO is placed above only other minor concerns, such as supplier management, the number of staff reporting to them and shareholders.
According to the KPMG report, one thing is what CFOs see as their priorities, and quite another, the CEO's vision of this. When the consulting firm asks CEOs what they want the CFO to resolve for them, these are their answers, in order of importance:
- Ensure a control environment and information.
- Maintain regulatory compliance.
- Provide financial forecasts that are accurate and timely.
- Contributing a risk perspective to strategic talks.
- Reduce costs throughout the organization.
The differences between the CEO and the CFO: a question of hemispheres
The CFO is evidently presupposed to have financial skills, a strategic mindset and a relationship of trust with the shareholder. These are strengths that, as we have said, would explain the natural transition to the position of CEO. But what reasons do the experts find for this profile not occurring more frequently?
The answer, according to the Korn Ferry consultancy, lies in the brain. Chief financial officers develop fewer of the more liquid skills related to the right hemisphere. Here we are talking about things like leadership, emotions and interpersonal relationships.
Korn Ferry, which specialises, precisely, in the selection of top executives, such as the CFO and CEO, for large companies, sees CEOs as people who integrate vast experience in decision-making, who learn from mistakes and who are able to keep moving under great pressure. As Tim Steinkopf says in Forbes, many CEOs have built their businesses from the ground up, and they have the knowledge, experience and scars to show for it.
Some skills that the Korn Ferry CEO, Gary Burnison, identifies as unique and that CFOs should develop to advance in their career:
- Leadership. The ability to inspire, influence and motivate others. We talk about qualities like being extroverted and having charisma. The CEO does not tell people what to do, but guides them towards how they should think. CFOs, in contrast, have developed knowing that they are the person who says no and that this is what is expected of them.
- Courage. So important at times of adversity and crisis like the ones we are now experiencing. It is that ability to step forward at critical moments and convey the appropriate message without hiding the problems.
- Outside-in thinking. Their influence extends outwards, to customers, and inwards, to employees. CEOs empathise with employee sentiments and concerns. For example, regarding technological change. Towards the customer, they demonstrate their vision of how the market will evolve. Until now, the CFO did not need that vision.
- Optimism. A positive thought that encourages and gives impetus to the entire organisation. It is the stimulus to persevere and tackle problems with confidence and optimism, anchored in transparency. Employees want to know what is going on and how it affects them. And little more needs to be said about the new consumer's demand for information.
In the Bankinter Barometer presentation session, Ana Clavero explained her transition from CFO to CEO of the Emilio Moro and Cepa 21 wineries. How did that transition come about? In addition to talent and preparation, she saw it connected with her personal history: her intellectual strength was in numbers, but her life experience tended towards people.. In her case, following Burnison's theory, the two hemispheres were balanced. That ability to lead people and understand the world is what put her in charge of the company. For Tim Steinkopf, where resource allocation is the science of running a company, people management is its art.
According to Gary Burnison, CFOs and CEOs have very similar talents in matters related the left hemisphere: strategic mentality, decision-making, knowledge of the sector and the market and being results-driven. These are interchangeable skills in which CFOs, moreover, have an advantage due to their financial knowledge. But the differences come out when we look at the right hemisphere.
CEOs are more focused on fostering and managing innovation. This is described graphically in a comparison with the chief financial officer: the CFO is more likely to fill in between the lines, while the CEO draws the lines. The CFO sees things more in black and white and focuses on risk management. Chief financial officers are more analytical and anticipatory than creative. These are complementary talents in a company, but the CFO must take a step forwards.
The big change in recent years: the new CFO
In the Bankinter barometer, as we saw, the CFO's main concern is regulatory. This aspect that caught the attention of Endesa's CFO, Adolfo García, at the presentation of the national survey. It shows that this evolved profile of the CFO has not yet become universal in Spain. Legislation is obviously one of the inescapable tasks of financial management, but it should not be the core.
“The great change in recent times is to be more ambitious and take another step forwards”, the Endesa CFO encouraged his colleagues. The CFO must bridge the gap between two needs: efficiency and the creation of strategic value.
The CFO of the future acts as a catalyst, gives support to all areas, assumes a role of interpersonal communication and people management and acts as an interlocutor with shareholders and investors.
This CFO can become CEO and does not have to be passed over in favour of the Marketing or Operations Manager, says Ana Clavero. “But we CFOs have to sell ourselves better”, says the former CFO and current CEO of the Emilio Moro and Cepa 21 wineries, and, above all, never lose the curiosity that makes you question everything, as if you knew nothing.
