The CFO role provides experience, and breeds skill, in allocating capital to support the organization’s strategy. About three-quarters of the former CFOs in our research reshuffled their management teams within two years of taking office, compared with two-thirds for all new CEOs. Insider status also often necessitates a reset of relations with former peers on the management team, some of whom may also have been candidates for the CEO post. Deep knowledge of personalities and corporate culture can help the new CEO motivate employees as he or she articulates a vision for the company. More than 90 percent of the CFOs-turned-CEOs in our data set were promoted from within an organization rather than hired from outside. Broader experiences like these appeal to boards choosing CEOs, and they can also build decision-making instincts for CFOs when they encounter issues that can’t be resolved through numbers. Sometimes nonfinancial experience comes from line roles in other cases, CFOs burnish their skills by taking on additional functional roles in strategy or by joining the boards of other companies. Many of the CFOs-turned-CEOs in a sample reviewed by our colleagues -a full three-quarters of those promoted to CEO at the FTSE 250 companies-compensated for this lack of experience by spending time outside the finance function. Lack of general management experience is a challenge for all functional executives. In our experience, the issues that CFOs-turned-CEOs wrestle with are emblematic of those faced by other functional executives. so they provided the most robust fact base for analysis. The figure is between 5 and 10 percent in European markets, and even lower in Asia. Fourteen CEOs in the Fortune 100 were previously CFOs or finance directors. CFOs represented two-thirds of the functional CEOs, 1 1. To understand both the challenge and the opportunity for functional CEOs, we scrutinized the former CFOs in our data set of 599 CEOs. Regardless of the expertise they bring to bear, functional CEOs have a common set of challenges, rooted in their relative lack of operating experience.
(More than 70 percent of former CFOs promoted to CEO at FTSE 250 companies were appointed to lead cost-reduction or M&A-led growth initiatives, according to research by our colleagues.) Similarly, companies undertaking a growth plan based on M&A or a major cost-reduction effort often look to CFOs. Organizations in the midst of a major digital transformation might benefit from a CTO in the top spot, and a CMO-turned-CEO could be just what the doctor ordered for a company rethinking its brand portfolio. The case for a functional CEO is strongest when his or her expertise is core to a company’s critical business challenges.
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