Many chief financial officers (CFOs) have the potential to become successful CEOs due to their unique understanding of the business. Surprisingly, though, the chances of promoted CFOs outperforming as CEOs are quite slim compared to their counterparts.
According to a study by Spencer Stuart on CEO transitions, only 8% of CFOs who became CEOs managed to lead their companies to the highest level of performance. In contrast, CEOs who were promoted from lower positions or had divisional experience had a much higher likelihood of success.
Why is there such a difference in performance? It turns out that promoted CFOs excel in areas they are most familiar with, such as achieving higher profitability. However, they often struggle with driving top-line growth, which is essential for overall success. To increase their chances of becoming successful CEOs, promoted CFOs need to focus on areas that may be less familiar to them, particularly driving growth.
Financial conservatism, a trait commonly associated with CFOs, has its benefits. CFOs ensure financial discipline, responsible stewardship, and risk management, which are vital for a company’s stability. However, they often lack experience in more risk-taking aspects of the business, such as innovation and revenue generation.
Data analysis reveals that CFOs promoted to CEO roles tend to be slower in driving top-line growth, especially in the initial years of their tenure. As they gain more experience in the role, they gradually close the gap. Nevertheless, this slower growth comes at a cost. Modeling revenue growth over the first five years of a CEO’s tenure shows that companies led by former CFOs risk generating nearly $1 billion less in revenue compared to their peers. On the positive side, these promoted CFOs generated additional operating income of $374 million during the same period.
To succeed as CEOs, promoted CFOs must embrace the challenge of driving top-line growth. While CFOs typically focus on cost management and efficiency, CEOs need to prioritize revenue generation and find ways to increase market share. This shift in mindset is crucial for sustained business success.
Effective communication and vision are also vital for CEOs. They need to be skilled storytellers who can inspire and engage the organization by connecting objectives to a larger purpose. CFOs can enhance their communication abilities by broadening their perspective beyond shareholders and considering the interests of all stakeholders.
Building connections with peers is another important aspect. CFOs often feel pressure to fulfill their role as the financial conscience of the company, but this may hinder their ability to interact and learn from colleagues. Taking off the finance hat requires vulnerability and the willingness to seek help when needed. By nurturing relationships and embracing multiple perspectives, CFOs can develop influential connections within the organization.
Investing in the development of successors is crucial for CFOs who aspire to become CEOs. Since most CFOs appointed as CEOs are promoted from within the company, it is essential to foster talent and provide opportunities for growth. A strong focus on coaching and delegating tasks will not only benefit the CFO’s performance but also prepare them for future leadership roles.
It’s important to remember that data is not destiny. By understanding the mindset, capabilities, and priorities of successful CEOs, CFOs can proactively prepare themselves for long-term success. Expanding their knowledge of the business, adopting a growth-oriented mindset, and honing their leadership skills will not only improve their performance as CFOs but also increase their chances of becoming highly effective CEOs.