Into the Hotseat: Why More CFOs Are Becoming CEOs

A recent article in the Financial Times states that, anecdotally at least, finance directors possess the ideal qualities for boardroom leadership. Their perceived smaller egos, meticulousness, risk awareness, and profit focus set them apart from other C-suite constituents – or so goes the fable!

And the data seems to back this up. Research from Heidrick & Struggles reveals a notable increase in FTSE 100 companies appointing CEOs with prior CFO experience. Currently, around a third of FTSE 100 CEOs have held the CFO position at some point, a significant rise from 21% in 2019. This trend surpasses the global average of 19% for CEOs with CFO backgrounds in markets tracked by the firm.

Furthermore, approximately 15% of current FTSE 100 CEOs were CFOs immediately before assuming their current role, contrasting with the global average of 8%.

But, as the FT article points out, the CFO rise is not restricted to the UK. In fact, of the 674 companies featured in the Fortune 500 and S&P 500, 8.4 percent of vacant CEO positions were filled by CFOs in 2023 — the highest percentage dating back to 2013, the first year of available data for the annual report by Crist Kolder Associates. In 2013, the level was 5.8 percent.

Why, and why now?

Turbulence is often a great driver for the prioritisation of risk management. When times are uncertain, it’s often those balancing the books who are number one on speed dial. Think global political instability, think Brexit and increasingly volatile financial markets – all adding to the recipe for risk.

In addition, the evolving role of the CFO, moving beyond traditional finance responsibilities, is a contributing factor. In recent years, particularly over the last decade, the stereotype of the CFO as merely a 'bean counter' has shifted. The role now encompasses a wider range of responsibilities, including corporate strategy, deal activity, sustainability initiatives, and data analytics.

Reputable examples of where such transitions have led to highly successful CEO careers include the likes of Sir Jeremy Darroch (Sky/ Comcast), Margherita Della Valle (Vodafone), Tom Greenwood (Helios Towers), Nick Hampton (Tate & Lyle) and Susan Davy (Pennon).

Making the Transition: How CFOs Can Become Successful CEOs

Success is not a guarantee for finance leaders moving into the CEO role. CEOs are expected to have a comprehensive oversight of a company's operations, overseeing every aspect from legal and HR to technology, marketing, sales, finance, and transformation. Their role in steering the company's direction by managing other executives and addressing challenges or growth plans demands a broader perspective and more extensive supervision than the CFO role, which primarily focuses on financial management.

Research suggests that CFOs need to adopt a significant shift in focus as they get promoted to CEO: matching financial prudence with a growth orientation for the business. The analysis finds that only 8 percent of CFOs-turned-CEOs steered their companies to the top-quartile of performance. By contrast, “leapfrog” CEOs — those promoted from two or more levels down — and divisional CEOs had far higher odds of outperformance.

It turns out that promoted CFOs outperform their peers on the dimension of the business they are already most familiar with. On average, they achieve higher levels of profitability during their early CEO years yet lag their peers in top-line growth. To bend the odds of CEO success in their favour, promoted CFOs need to equally lean into the less familiar: driving growth.

As one finance leader told me at a recent Workday CFO Community event: “CFOs tend to excel at managing costs and optimising efficiency, but may not be as adept at driving revenue growth. They may need to boost their skills and develop their experience in sales and marketing to effectively boost the top line. There's a tendency to prioritise cost-cutting measures as a path to success, rather than focusing on strategies to increase sales and overall revenue.”

To successfully transition from a CFO to a CEO, finance leaders must prioritize strategic growth initiatives. It's no longer enough to simply manage cash flow and identify cost savings; they must actively seek out and pursue the most promising opportunities while strategically divesting from those that don't align with long-term goals.

Embracing innovation, expanding into new markets, or pursuing acquisitions that enhance shareholder value may require stepping outside the traditional CFO comfort zone, but it's essential for driving sustainable business success and maximizing stakeholder returns.