CFO Forum: Thames Valley

15th September 2011

Moving from Chief Financial Officer to Chief Executive Officer

Our latest CFO Forum was held at Cliveden House, Berkshire on Thursday 15th September, with eleven senior CFOs from the Thames Valley Region attending and the Full Potential Group facilitating.

The discussion was on the development of leadership skills in order to make the transition to become a CEO and asked:

  • How has your CFO role changed in the past 2-3 years?
  • How has the role of your CEO changed?
  • What are the biggest challenges for you when considering a successful transition to a CEO role?
  • How do you plan to bridge the gap?

 

To get the most out of this discussion we asked the Full Potential Group (FPG), a market leading coaching, leadership, high-performance culture specialist to chair the discussion and to focus on the following questions: 

1.    Do Finance Directors make good Chief Executive Officers?

The global financial crisis has led to a growing interest in the changing roles of the Chief Executive Officer (CEO) and the Chief Financial Officer (CFO) and, more specifically, the question as to whether CFOs make good CEOs.

  • 49% of serving CEOs in the current FTSE 100 Index have financial backgrounds, compared to only 31% in 2008.
  • 9 FTSE 100 CEOs have been appointed over the past year, of which six leaders (65%) have financial backgrounds.

 

This accelerating trend can also be seen in the Fortune 500. However putting these trends into a broader context, Tappin and Cave in their book ‘The New Secrets of CEOs,’1 underline the fact that “only 57 of the chief executives of UK FTSE250 companies hold accountancy qualifications. That’s less than 23% and very few have actually served as finance directors, with many just picking up the qualification”.

Traditionally we also often view CEOs with a financial background as financial value drivers, using their technical and analytical skills to drive shareholder value, rather than being great leaders demonstrating strategic vision and leadership skills. Occasionally however there are exceptions to this rule – a well-known example being Martin Sorrell, Group CEO of WPP and a respected corporate entrepreneur who was previously Group Financial Director at Saatchi and Saatchi. Nevertheless such CEOs are comparatively rare and finance leaders with CEO ambitions need to be very honest about their own skill sets and those effective CEOs needs to display.

The recession has offered many CFOs the opportunity to assume a higher profile position on the leadership team, spending more time with the CEO whose focus has been increasingly drawn to financial necessities such as working capital, cash management and financial liquidity. This broader exposure has equipped many CFOs with a more holistic view of business operations but the fundamental question for any CFO remains the need to honestly consider ‘do they really want to be a CEO’ and are they ready to face up to the considerable challenges this very different role will bring?

2.    The Changing Roles of the CEO and CFO

The volatile economic environment over recent years has placed new demands on all business leaders and impacted on the pre-requisite skill sets required to effectively embrace high-profile strategic positions. Any CFOs contemplating the move to CEO need to consider that the new position will require the ability to handle:

  • The growing speed of business transition
  • The requirement to make quicker decisions based on incomplete data – bringing higher risks and a greater reliance on ‘gut feel’ rather than hard facts
  • The frequent calls for public speaking and the need to enjoy and enthusiastically embrace all opportunities across a variety of media
  • The need to encourage and inspire others using ‘softer’ leadership skills, bringing emotional intelligence elements such as self-awareness, self-regulation, motivation, empathy, and social skills

 

As a CFO, the need to communicate across a wider range of more diverse stakeholders has also grown in recent years, whether it is working with the banks, managing investor relations, presenting to the Board or direct involvement in internal employee communications. The CFO role has become an increasingly visible one, assuming a more central strategic position on the Leadership team, as well as greater direct involvement with employees at all levels. The CFOs remit has also broadened beyond the traditional financial functions, frequently extending to holding responsibility for such areas as pricing models, supply chain efficiency, IT procurement and support etc.

An additional complexity for any CFO aspiring towards the leadership role is the changing nature of the CEO role itself in this current economic climate. According to the Chartered Institute of Management Accountants, today’s CEOs need to address:

  • Winning in the unpredictable business world following the global financial crisis and    proficiency in handling the capital markets
  • Dealing with the onset of ‘hard’ globalization
  • Making sense of environmental and social sustainability
  • Capitalizing on the third wave of the internet
  • Competing in a global world war for talent

3.    Personally Making the Leap from CFO to CEO

Having shared these thoughts on the current situation, the attendees were asked to personally consider four questions:

  • How has your CFO role changed in the past 2-3 years?
  • How has the role of your CEO changed?
  • What are the biggest challenges for you when considering a successful transition to a CEO role?
  • How do you plan to bridge the gap?

 

Several attendees expressed the view that the CFO and CEO roles have become intertwined as the CEOs priorities align more closely with the CFO responsibilities – the situation often being that the CFO solves the problem with the CEO acting as spokesman. An effective leadership team often requires a flexible, collective leadership approach – where “senior management cells” with the necessary skill sets are being set up to address organisational needs at a specific time.

The rapid pace at which business and technology environments are changing, and the need for the whole Board to step-up into more strategic roles, with greater decision-making responsibilities, is becoming a corporate reality. In parallel, Board members need to lead and develop their own team members to support this change, challenging them also to operate more independently beyond their functional roles. For a CFO moving beyond their traditional financial areas of operation, this brings with it a need to ‘sell’ and communicate this broader role to colleagues and employees, re-positioning established preconceptions of the role of the CFO in the business.

The view was also expressed that the recent financial crisis has created a more risk-adverse business environment, with many CEOs wanting a CFO to provide a more calculated perspective on high-level strategic decisions. One attendee introduced the ‘yin yang’ concept to describe the CEO:CFO relationship – representing two complementary but diametrically opposite forces working together to achieve the best possible result. On one side, the CEO will bring vision, strategy and inspiration while on the other; the CFO offers cost control and risk minimisation, frequently putting the necessary checks in place to ensure decisions are properly assessed. A CFO stepping-up to a CEO role will need to let go of their “controlling” nature and give the entrepreneurs in the organisation the opportunity to grow the business and exploit commercial opportunities.

Attendees expressed the view that a CEO position is not a “job for life” and it is imperative that any prospective CEO finds the right organisation, at the right stage in the business growth cycle, to meet their personal skill sets. CEOs with a financial background operate well within a mature business looking to control costs e.g. Ian Livingstone at BT, whereas growing businesses will look for greater commercial acumen and entrepreneurial skills. Attendees also felt certain business sectors would be more pre-disposed to employ a CFO as a CEO. These typically included the financial sector or companies considered by investors to be ‘value stocks’ i.e. an ‘undervalued’ company that tends to trade at a lower price relative to its fundamentals (dividends, earnings, sales, etc.) and thus requiring a financially astute CEO to efficiently manage the financial markets. The view was also expressed that there are two types of CEOs – those holding an ‘operationally focused role’ and those purely acting as a leadership figurehead, with smaller businesses generally needing the former and larger businesses the latter.

An ambitious CFO should also consciously seek out a CEO who is willing to mentor and work with them as part of a succession plan programme. Some CEOs may be protective of their position and maybe less willing to assist a CFO in making this transition or supporting them in developing the necessary skill sets. However, several participants did share encouraging stories of working with mature, confident CEOs who proactively mentored their development and choosing which CEO to work for emerged as an important factor when assessing new opportunities for the next step in their careers. An alternative route would be to seek out non-executive roles on PLC Boards to gain the necessary breadth of leadership experience and to develop the self-confidence required to move up the leadership ladder. Some attendees promoted the value of a sideways move to take a Chief Operational Officer or general management role in the organisation, such an appointment allowing a CFO to become actively involved in business strategic planning and broaden their operational management, sales and marketing skill sets.

4.    Personally ‘bridging the gap’ in the transition to a CEO position

On a personal level, an ambitious CFO needs to be honest about ‘what they really want?’ The role of a CEO can be a lonely frightening place and ultimately as President Truman used to say ‘the buck stops here’. A prospective CEO not only has to worry about being a charismatic, strategic thinker  and the inspiring public face for the company but also have the personal strength and self-resilience to navigate the internal political minefield. As well as acknowledging this challenge, some participants saw the responsibility of the CEO role as exciting and motivating – how else would they know that they could lead an organisation unless they took this step and proved to themselves that they could do it.

Carole Gaskell and John Blakey from FPG left our audience with a couple of thought provoking quotes;

‘When you move from being a CFO to being a CEO, you have to change the way you think, act and communicate. A CEO must think at a higher level of abstraction – more inductively and less deductively. A CEO must be more willing and able to act on key decisions with fewer facts, relying more on grounded assumptions. And a CEO must be able to communicate effectively to a broader constituency – in particular, he must be far more politically attuned”
John Dasburg, CEO of Burger King, previously CFO of Marriott International

The chief executive who was primarily the cold analyst gazing at the numbers around the boardroom table – that model is going to be more difficult to make work”
Archie Norman, formerly Group Finance Director at Kingfisher and ex–CEO at ASDA plc, currently Chairman of ITV plc

 

Attendees: Kevin D’Arcy (Centrica/British Gas Plc), Richard Fenton (The Vita Group), David Anderson, Anthony Lawrinson (Reliance), Jonathan Smare (Cisco Systems Ltd), Ian Pain (DX Group), Şeyda Pirinççioğlu (Hanson), Michael Speakman (Expro International Group Ltd), Toby McKeever, David Stickland (LeasePlan UK Ltd), Nick Woods (Serco Group Plc).

 

 

 

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