Career transition from chief financial officer to chief executive officer

¶ … company boards have decided that in order to best serve shareholders it is prudent to promote the CFO to CEO" (Corporate Finance, 2005). Traditionally, there were few CFOs who were aiming for the top job and even fewer shareholders who would consider appointing them.

Chief financial officers with pure accounting backgrounds were considered simple storekeepers, with no organizational and strategic skills whatsoever. Despite that image, at the end of the 1990s, many companies began to perceive CFOs as strategic partners, with great influence in building shareholder value (Brewis 1999).

"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." (Corporate Finance, 2005). In short, CFOs are now much more trained to face the responsibilities of the CEO position than they were a few decades ago. They became more dynamic and strategic, moving from being merely a functional head to also being a corporate leader.

There are many reasons for which companies could appoint former CFOs as chief executive officers. Their financial expertise and market approach, their prudent manner to take on new challenges and the well supported arguments of their investment decisions are definite advantages. There are two qualities required from someone reaching the position of CFO: a comprehensive knowledge of finance and internal controls and an understanding of the operational and commercial aspects of business. These attributes are also demanded for CEOs.

The strong financial background is an important quality. Nick McCall, chair of the London chapter of The Financial Executives Networking Group (Feng), cited in one article published in Corporate Finance, April 2005, explains that: "Business is becoming increasingly complex - and deal making highly technical - [so] CEOs need to have a sound financial background."

However, it seems that financial prowess alone is not enough to secure the CEO title. Mr. McCall also pointed out that vision and leadership are also prerequisites. The CFOs' exposure to a wide range of areas can develop such characteristics. "A CFO has experience of accounting, treasury and HR, he is the key to setting up a company's business strategy and he is the link with the market, creditors and shareholders." In addition, proper understanding of the company's business strategy and market should give a good CFO the other important attribute - operational skills.

There are many things a CEO must be in order to be successful. One article argues that "three qualities, more than any others, characterize successful CEOs - vision, tolerance for risk, and a willingness to try new things. Vision is critical not only to open the door to the CEO executive suite but also to keep the CEO and his or her organization moving forward." (Sandrick, 1995). The CEO should have a grasp of the dynamics of the marketplace, exhibit appetite for mergers and other complex operations and especially have the leading-edge mentality everyone expects from a CEO. The chief executive officer sets the direction for all the members of the company, in an effort to unite and harmonize collective energies. The ability to take risks is part of the material required for a CEO. From this point-of-view, CFOs are somewhat disadvantaged. They are used to being prudent and not engage in risky business.

CEOs must mobilize diverse groups of individuals and exhibit leadership skills. A CFO can develop such abilities if he or she trains under a CEO who is driven by the market and the future. A CEO must act as a role model for a CFO preparing for the top job.

However, there is no such thing as a short course to leadership. The former CFO must prove that he or she has the ability to lead diverse elements toward his/her particular vision, the ability to achieve success whatever the criteria for success may be, and the involvement in various other concerns.

Interpersonal communications are another important skill for any CEO. A significant portion of the job consists in discussing with the employees and other individuals involved in the business. Talking to people and gathering information puts the decisions made by the CEO in a proper context. Outside the organization, communications skills are even more critical. The skill to communicate with the other players on the market is essential. Sometimes, even discussions with legislators, unhappy customers or the media may be involved. Due to the technical nature of their job, CFOs are often not the best "people" people in a company. However, that does not mean that the COO, for instance, is much more suited for this kind of activities.

Analytical skills and community involvement are also qualities that determine the success of a CEO. Executive officers need strong analytical skills in today's fast changing marketplace. The needs of many groups have to be addressed everyday, while the interests of the organization must also be fostered. A CEO, cannot appear distant, single-minded or out of touch. The need to interface with all parties and to creatively analyze all information becomes more and more important. From this point-of-view, due to their analytical nature, CFO are well prepared for the job. As far as community involvement is concerned, my opinion is that it is the nature of the individual that decides the degree a company and its top representative are involved in social events of all types. I think that a CFO is no more or no less inclined to community involvement than a COO, for instance.

Since the number of CFOs promoted to the position of CEO has increased lately, there are some strategies that people have taken in order to have a broader experience, which might bring them closer to the top job. Lateral shifts that pay less or offer less in status but provide for chances to gain such experience are an option. Other CFOs have oriented themselves toward smaller organizations for advancement opportunities.

As far as education is concerned, it usually involves earning a master's degree in business administration, since one of the basic requirements for a CEO is the exposure to issues of economics, and operations as well as finance and law. Mentors are also very useful, since they can help CFOs understand office politics and can act as a sounding board for their ideas. CEOs, acting as mentors, may also create opportunities for CFOs to enhance their impact within the organization (also mentioned by Brewis, 1999). Such a mentor should be honest, straightforward, sensitive to the strengths and weaknesses of CFOs, constructively critical, well informed about the requirements and demands of the CEO position, as well as trustworthy.