The transition of a modern-day FD to CEO

From Dominic Blakemore at Compass and Alison Cooper at Imperial Tobacco to David Thomas at Barratt Developments, figures from the Global Accounting Network show that over 50% of FTSE 100 CEOs have a background in finance, nearly 20% from accountancy alone [1]. With an increasing number of FDs successfully making the transition, there’s clearly never been a better time to be a finance-function head.

As an integrated specialist recruitment and strategic HR consultancy, working regionally across a wide range of industry sectors, here in the UK, we are well placed to spot emerging trends. Whether it’s through succession planning, the mentoring and coaching of a company’s leadership team or the long-term career development of our senior finance and executive candidates, we have noticed that, increasingly, there is a trend towards the appointment of FDs or CFOs when boards are searching for a new CEO.

So, what’s driving it and what are the key factors for an FD to consider in taking the next step in their career development?

Do boards simply appoint functional heads to meet business-critical priorities?

McKinsey make the point that where ‘expertise is core to meeting a company’s immediate business challenges’, then there is a good business case for appointing a functional head to the role of CEO [2]. They cite the statistic that more than 70% of former CFOs promoted to CEO at FTSE 250 companies ‘were appointed specifically to lead cost-reduction or M&A-led growth initiatives (January 2000 to February 2006)’ [3]. These numbers are a little misleading, however as, at the time, less than 20% of CFOs, in the UK, transitioned directly. (But more on that later.)

Of the functional-head cohort surveyed, in 2017, only 15% secured the top job. This would suggest that functional-head expertise, alone, doesn’t make you a shoo-in. If that were the case, with digital transformation currently a C-suite priority for most organisations, you would expect more CTOs, CIOs or CSOs getting the nod. (And, with the convergence of data analytics and sales, the CMO should be a good option, for that matter.) But, in our experience, this isn’t happening… yet! So why are more FDs currently finding themselves at the top of the tree?

The Bottom Line is the bottom line!

When times are tough, FDs rise to the top! Since 2008, in an operating environment where the only certainty is change, cashflow and cost control have become crucial. As such, organisations have been looking to the finance function to take the lead. In many organisations, CFOs and FDs are now trusted advisors to their CEOs, helping pilot them through the turbulence and disruption. Often working with the board at a strategic level, the finance function is increasing its influence. This is the arena in which key relationships are forged and relevant experience gained.

Interestingly, the research shows that a higher percentage of FDs appointed to CEO have headed up the finance function in more than one company, suggesting that, beyond the functional expertise itself, it is this wider board-level experience that is enabling many to make the transition. (You don’t necessarily have to leave your current job to gain it, either. Although easier said than achieved, a position as a NED in a different organisation offers excellent opportunities to gain wider experience.)

Masters of the strategic drivers across the whole of an organisation

Today’s CFOs are more than just experts in their own field, they are becoming masters of the other strategic drivers across their organisations, too. Henner Schliebs, Global Vice President of SAP’s ERP and Finance Solution, highlights the growing influence of the function in his trends for 2019 article, writing that the CFO’s role is evolving ‘from strategist to captain’. He predicts that FDs will not only be creating the strategy but leading its execution, too, saying: ‘Finance chiefs will guide operational and business units to deliver against the strategy they have defined’ [4].

In the same article, Martin Naraschewski, GM, Head of LoB Finance Solutions at SAP, notes that in many progressive organisations, with increased automation and the leveraging of deep insight data analytics, the finance function is already taking the digital lead, writing: ‘CFOs are finding their defined roles and responsibilities increasingly blurred. CFOs are now expected to own not only the financial sphere but to help build an intelligent enterprise with technical fluency.’ (Which highlights another must-have: Speaking digital and understanding how best to leverage the latest technologies will be increasingly important for any aspiring CEO.)

So, what’s the best route in?

Whilst research suggests a roughly equal split between promoting from within and bringing in fresh talent, the majority of organisations we’re working with are focussed on succession planning and appointing internally, where possible, especially where the culture is strong. Which brings us back to an earlier point. Confusingly, research also shows that a relatively low number of finance heads are being promoted directly. So how are so many former FDs ending up as CEOs?

Certainly, from our experience, the McKinsey numbers appear low. And, in the two years since the research was conducted, the market has moved on. During a period of slow growth overshadowed by economic and political uncertainty, cost control has been a priority. Organisations are inevitably cautious and individuals with a finance background are viewed as a ‘safe’ option. As such, we are seeing a significant number of FDs making a direct transition. That said, whether being directly promoted or arriving in the top spot by a more circuitous route, wider senior strategic and operations experience is, without doubt, advantageous.

Douglas Flint, who made the move from group FD to Chairman at HSBC Holdings, argues that beyond the current political and economic climate and the growing influence of the finance function across most organisations, inherent in the role itself is a necessary accumulation of ‘business leadership and followership skills’ that put FDs firmly in the frame.

Are you right to make the transition?

There are already a plethora of articles out there listing the must-have skills to make the transition successfully. And you may well tick a good number of those boxes. But, in answering the ‘are you right?’ question, executive coach John Mckenzie highlights the importance of developing the necessary mindset [5]. He suggests that a finance background can be both a blessing and a curse. Where a finance mindset has become ingrained, over many years, the transition may not be a straightforward one.

For example, he writes: ‘It is more common for the CFO to operate in an environment that is shorter term (financial quarter, half year, annual) rather than longer term (strategic, visionary, 3 to 5 years out). It is also more likely to be rule driven (statutory reporting, accounting standards, audit etc.) rather than “tear up the rule book” (think outside the box, strive to find competitive edge, blue sky thinking).’ You will be moving from fact-based, passed-performance decision-making to that which is “what if?” and future-orientated. In an uncertain business environment, can you handle the pressure of making big decisions based on imperfect knowledge when the buck stops with you?

When asked: ‘What does it take to move from a career in finance to the top job?’, the majority response of the business leaders we’ve spoken to is ‘bravery’! None of us can see the future and there will be times when you must stick your neck out and follow the courage of your convictions. For an FD, this more instinctive, intuitive way of decision-making isn’t always a natural fit. Of the senior leaders we’ve poled, with hindsight, the thing they’ve regretted most was being too cautious. Most finance functions tend to be risk-averse, yet the CEO needs to be visionary and entrepreneurial.

Crucially, Mckenzie highlights the fact that CFOs largely enjoy unchallenged supremacy in their domains. As the CEO, you will be answerable to external investors, key stakeholders and major customers. And, from a role which demands significant control, you will be moving to one where a lighter touch is required. To return to the ‘captain’ analogy, Richard Stone, from Share PLC, in describing his first year after moving from FD to CEO, writes: ‘As CEO you are steering, nudging the tiller’ [6]

To conclude

Whether it is to lead streamlining and restructuring, expansion into new markets, the roll out of new products and services, mergers and acquisitions or the adoption of new technologies, boards are looking for nimble, operationally focused, strategic thinkers who can collaborate across the whole of an organisation. These individuals will also have the creativity, vision and communication skills to drive transformation. Today’s CFOs are more than just experts in their own field, they are becoming masters of the other strategic drivers across their organisations, too.

Danone’s Emmanuel Faber is the epitome of the modern CEO, having moved nimbly between finance, administration, general management and operations in several different organisations before being appointed CFO at Danone. In making the transition to the top job, he sums up the necessary balance needed, writing: ‘Finance without strategy is just numbers, but strategy without finance is just dreaming.’

As we’ve seen, to make the transition, the right mindset is crucial. Steven Giles, in his ACCA CPD article How to attain the corporate summit, writes: ‘Certain aspects of the CEO’s role cannot be learned – for example, entrepreneurial spirit and a strong appetite for risk-taking. These qualities were central to Sorrell’s success at WPP, although he was exceptional. Many FDs are by inclination and training more cautious. For them, a more comfortable transition would be a move to chairman [7].

In a climate where many organisations are looking to promote from within, beyond developing a strategic and commercial mindset, he goes on to encourage aspiring CEOs to build networks and contacts across the business, again, as we’ve seen, particularly at board level. For those who do have the right mindset, he recommends making a plan, one that includes personal and professional development through coaching, mentoring and, where appropriate, gaining wider business qualifications.

Against a backdrop of uncertainty, financial fundamentals are key. As such, this is your time to shine. A strategist, fluent in Finance and already working with the board, your stars are aligning. If you have the right mindset, a good network of contacts and a breadth of business experience then, as an FD, there’s never been a better time to go after the top job!

[1] Jessica Fino, News, Economia, ICAEW, 18th February 2018, https://economia.icaew.com/news/february-2018/fifth-of-ftse-100-ceos-are-accountants

[2] Michael Birshan, Thomas Meakin and Kurt Strovink, How Functional Leaders Become CEOs, McKinsey Quarterly, April 2017, https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/how-functional-leaders-become-ceos

[3] Richard Hobbs, Doina Harris and Anders Rasmussen, When should CFOs take the helm, McKinsey, November 2006, https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/when-should-cfos-take-the-helm

[4] Henner Schliebs, 2019 CFO Priorities: experts predict top trends, Digitalist Magazine, 18th December 2018, https://www.digitalistmag.com/finance/2018/12/18/2019-cfo-priorities-experts-predict-top-trends-06195293

[5] Lawrie Holmes, Skilling Up: CFO to CEO, Financial Director, 21st August 2018, https://www.financialdirector.co.uk/2018/08/21/skilling-up-cfo-to-ceo/

[6] Richard Stone, Guest Column: My year as FD-turned-CEO, Financial Director, 28th January 2015, https://www.financialdirector.co.uk/2015/01/28/guest-column-my-year-as-fd-turned-ceo/

[7] https://www.accaglobal.com/sg/en/member/discover/cpd-articles/leadership-management/ceosept18-cpd.html

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