Route to the Top: CFO to CEO

There is no single route to the top. So what are some of the experiences that will help you prepare for the challenges you may face as you step up into the CEO role? Route to the Top is a webinar series of conversations with experienced practitioners to learn about leadership transitions. The first event explored the CFO to CEO transition.

By: Katherine Baker

In the 2013 School for CEOs research project, Stepping up to CEO, 40% of CEOs interviewed previously had financial backgrounds; 26% of CEOs had General Management backgrounds and 14% of CEOs had Sales & Marketing backgrounds. This indicates a bias towards CFOs rising to CEO position. But why?

David Sole Managing Partner of School for CEOs joined Sandy Mason, CEO of Johnston Carmichael for the past 10 years, to discuss not only why CFOs make such great CEOs but also the possible challenges to this career path. As a CEO and a Chartered Accountant, Sandy is well positioned to shed some light on this popular transition from CFO to CEO.

Given Sandy’s role as Deputy President of ICAS (Institute of Chartered Accountants of Scotland) his view may have been biased towards favouring CFOs, but his perspective was that CFOs are uniquely positioned, possibly now more than ever, to become CEO.

He cited the way big data and technology are reshaping how we do business and that the CFO should have the commercial insight and ability to interpret all of this data. CFOs are no longer seen as just number crunchers. Their relationships with the City, investors, brokers, and private equity owners ensures that they build trust with the investor community. Ever since the recent economic and financial crises, investors are looking for a safe pair of hands. CFOs are trusted as they tend to focus on data first when making decisions.

CFOs also have a lot of hands on experience even before they become CEO. They are involved in every major decision made jointly with the CEO and Chairman so they develop great commercial insights into their businesses. Not only do they know how to measure profit, but they learn how to make a profit.

With this unique positioning of the CFO in mind, companies need to have the foresight to manage their CEO pipeline and give potential CEOs the opportunity to become true leaders with the right development opportunity. One example given was the CFO of a major Scottish plc who rose to become a very successful CEO. This was only made possible by the fact that his predecessor gave him challenging assignments when he was CFO to really stretch his leadership capability. For instance, the CFO ran a key part of the business, accountable for the whole P&L. P&L accountability, along with more general leadership skills were considered to be the key areas that CFOs needed to hone in order to make the next step up to CEO.

What are the potential obstacles for CFO to CEO transition?

Even though CFOs, or those with financial backgrounds, do seem to have some advantages over others, once they become CEO what could now stand in their way of successfully leading?

Sandy said, “I loved the accounts, but you have to divorce yourself from that and let your replacement CFO take charge of the numbers. You now need to excite, energize and enthuse the organization and people around you.”

No longer can you just look at the numbers, now you need to have a strong vision of what you are going to do with the business and become a great strategist with keen commercial insight.

Establish trust:

One risk of the CFO to CEO transition is that former CFOs have a tough time getting their heads out of the numbers when they become CEOs. This can always be surpassed by hiring a new CFO that they can really trust.

Not only do you need to trust those around you, but they need to trust you too - trust is a two-way relationship. While coming from a financial background may have initially established the foundation of trust within the investor community, you must also carefully build strong relationships with your Chairman, new CFO, Head of Marketing, Head of Technology and a host of other important players. As Sandy said, “This can be a challenge for those of us who are brought up being wizards with debits and credits.”

Act faster:

As a new CEO you must get it right, but you don’t have all the time in the world to prove yourself. There is intense pressure with everyone scrutinizing all your decisions. Former CFOs are in a great position to act rationally, weighing up all the data and assessing the situation before they act. Being analytical people, CFOs will look at the evidence to figure out what is best for the company. But as the pace of business is now faster, you will need to get more comfortable with making decisions even when you don’t have enough data, or even when the data doesn’t exist.

Can’t know it all:

Being a leader does not mean you have to know everything. You just need to surround yourself with people who can do what you cannot. One of Sandy’s most uncomfortable initiatives as a CEO was to rebrand the business. He said, “As a chartered accountant, I don’t really do branding!” But he employed a great marketing director who guided the company through the successful rebranding. Sandy’s job was to keep it all on track and make final decisions with great people providing him with viable options.

CEOs are not born but made:

As a CFO you must think like a CEO and immerse yourself in the business to truly understand all the different dynamics. Then make sure to have a clear sense of purpose. Why are people coming to work for your organization? Make sure this message is really understood throughout the entire organization. As a CEO who has been the CFO, the need to inspire the hearts and minds of your people and stakeholders is the most critical capability.

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