With their strong financial acumen, risk management skills, and corporate governance experience, modern-day CFOs are emerging to become strategic leaders proficient in managing the business. But are these capabilities enough for them to take on the CEO spot?
Much has been said and written about the evolving role of the CFO. Most of it has been about how the finance chief has now also taken on more strategic and operational decision-making responsibilities in addition to being the gatekeeper of the financial organisation.
On par with the CEO in managing the business, many believe that the experiences and skillset of the finance chief might make him or her a natural fit for the role of a CEO. However, it is still so rare that they get the role, traditionally division presidents and COOs are the ones who ascend to the position.
Former CFO and now Co-CEO of Bahrain-based investment company Investcorp, Rishi Kapoor believes that the CFO’s role in a 21st century enterprise has evolved beyond the traditional focus on financials and reporting into decision support through mining and analysis of key performance and financial data at all levels. “CFOs are now playing more of a leadership role with a strong grasp of corporate governance,” he says. “These are all core competencies that you want to have in a CEO and because of that, many more boards today consider CFOs amongst the group of natural successors to the CEO. I’m not saying that every CFO will become a CEO or indeed is suited to becoming one. But, there are those who will continue to thrive and add value in the more finance focused regular CFO role.”
Fintan Somers, International CFO, Change Leader, SomersConsult, seconds this view and says that the skillset of the newer breed of CFO may qualify him or her for the top post. “However suitability will depend more on leadership skills and the context of what is required than anything to do with skills particular to being a CFO,” he adds.
The CFO’s role covers exceptional grounding in a number of aspects within the business. They often possess a rigorous knowledge of a company’s financial facets, while also aware of its internal and external strategies as well as its growth potential, which makes them an ideal candidate for the CEO position.
“There are many factors that help in the grooming of a CFO as potential CEO candidate,” says Kapoor. “Among which, is their ability to collate and analyse data across all financial and operational aspects of a company’s operations, including its macroeconomic and competitive environment and use this as a decision support tool to shape the firm’s strategy on an ongoing basis. They also have the capacity to engage internally in a constructive manner with senior leaders across the firm – including the Board, the CEO, business and functional unit heads.
“Finally, they can be credible spokespersons for the firm with key external stakeholders including lenders, banks, capital markets participants, shareholders, investors and the likes,” he adds.
According to Somers, the CFO is often the only member of the executive team that fully shares the CEO’s overview of the business and understands the relativity of the various contributors; while being dispassionate about the allocation of capital and resources to assure overall business performance. However, he believes that what CFOs are lacking sometimes is the capability to make political compromises necessary to move the team and the business forward.
“The CFO role is, to some extent, the conscience of the executive team,” explains Somers. “And we all know that CEOs and other leaders sometimes have to make decisions that necessarily involve some practical compromises.
“As a CFO I believe my job is to ensure that my colleagues understand the potential costs as well as the immediate and potential benefits of such decisions. But, at the end of the day, no matter how collegiate the team is, it is the CEO’s call. Also, the best CFOs may not necessarily be the best risk-takers, deal-makers, strategists, customer and product people or, for that matter, the most charismatic leaders. Depending on the needs of the business, these can often be far more important skills than the great skillsets that most CFOs bring to the table,” he adds.
Many CFOs are stepping up to take charge of dealing with a broader set of business issues. With their expanding competencies at the strategic front and strong grasp of a company’s financial picture, finance chiefs may very well have a clear understanding of what it takes to run a business in a tactful and cost-effective manner.
Once an organisation allows the CFO to take on the position of the CEO, it will only yield the benefits if the board finds someone who has a clear understanding of the businesses both from an operational and financial perspective, explains Kapoor. “He or she will should have a strong working relationship with key internal and external stakeholders including senior management, the Board, shareholders, lenders etc., as well as being known among the company’s employees,” he says. “More importantly, they should source a CFO who knows what it takes to run an efficient operation and how to optimise profitability over both a near-medium term as well as long-term horizon – something that is absolutely critical to being a successful CEO.”
Somers reiterates that reaping benefits from a CFO turned CEO really depends on the context of what is required by the business. “CFOs can excel in situations that require a certain amount of dispassionate crisis decision-making where transforming numbers, cash flows, funding, balance sheet – quickly – is the objective. We can, perhaps, be less effective in other business contexts that require entrepreneurial and deal making skills,” he adds.
Nevertheless, as the context of the CFO’s duties broaden and lines within organisational structures blur, some may argue that the finance chief already holds a very influential position that can drive change in business and corporate strategies.
In fact, a research carried out by EY entitled ‘The DNA of the CFO – CFO: staging post or career destination’ showed that 73 per cent of CFOs surveyed in the EMEA region sees their role as a destination in its own right and only 10 per cent harbour an ambition to be the CEO.
“The role of the CFO is much more strategic today and consequently the modern CFO is certainly more empowered in a decision-making and leadership position within the firm,” says Kapoor. “As far as aspirations go, human civilisation is all about aspiration but different individuals will have different aspirations. While some CFOs will aspire to be CEOs and will potentially be well-suited for it, others will may well prefer to focus more on the financial and operational aspects, and others may opt to do something entirely different. There is no one size fits all!”
Somers, on the other hand, thinks that CFOs need to be very cautious about politically positioning themselves as the “natural” successor of the CEO. “The last thing that the CEO or the executive team needs is a CFO with a political agenda. Our political strength and trustworthiness are, to a very large extent, based on our independent focus on numerical outcomes.
“That is not to say a CFO should rule him or herself out from being a potential successor of the CEO. Depending on what is needed by the business when a new CEO is required, the CFO could be a great choice. But until the context is presented it is probably not a good idea to make a selection in advance,” he adds.