Whether or not Chief Financial Officers can make good Chief Executive Officers is difficult to define. Recent trends in business suggest that more CFOs are willing to land in the CEO’s chair. Simultaneously, more companies choose former CFOs to become their CEOs, hoping that the latter will improve their financial and strategic performance.
However, not everything is easy with the CFOs who want to become CEOs. Financial experience may add rigor to future CEOs’ decisions and achievements, but finance departments are not always the best place to train Chief Executive Officers. Only CFOs who broaden their outlook, reconsider business issues from multiple perspectives, and develop excellent relations with people will have a chance to excel as chief executives.
More Chief Financial Officers want to become CEOs. They have sufficient education and experience to manage financial affairs. They possess a perfect understanding of the financial processes affecting firms’ strategic performance.
U.S. and international businesses know numerous examples of successful CFO-CEO transformations. In 1985, D. Wayne Calloway became PepsiCo’s President (Picker, 1989). That was the time when cash flows in PepsiCo were so low that the company had to borrow money, in order to pay dividends (Picker, 1989).
In less than four years, PepsiCo would become one of the most profitable food manufacturing giants (Picker, 1989). The knowledge and financial experience of the new CEO became the foundation of the company’s success in the food manufacturing industry. Other companies followed PepsiCo’s example. In 2005, after the 2000-2001 energy crisis in California, the $11 billion investor-owned PG&E Corp. chose CFO Peter Darbee to become its new CEO (Durfee, 2005). Continental Airlines, Lowe’s, and Harley-Davidson followed the same path (Durfee, 2005).
In 2005, “20 percent of Fortune 100 CEOs were former CFOs” (Durfee, 2005). Yet, not all companies are willing to surrender themselves to those in charge of financial operations. At the end of 2010, Nokia replaced its CEO Olli-Pekka Kallasvuo with Steven Elop, who used to be the head of a business division at Microsoft (Butcher, 2010). The same year, MasterCard chose Ajay Banga to become its CEO; before joining MasterCard, Banga had been the head of the Citigroup’s international consumer group (Anonymous, 2010).
IBM is currently trying to decide who will replace 60-year-old Sam Palmisano: Sales Chief Virginia Rometty and the head of IBM’s services business Mike Daniels are the most probable contenders to follow the current CEO (Hoffman, 2011). None of these publicly traded companies wants to see its CFOs in the CEO’s chair or trust management and strategic decisions to former financial officers.
At times, finance departments can be a good place to train future CEOs. A sophisticated knowledge of financial processes and issues is what many CEOs need to deal with the challenges of increased market competition and cost-efficiency (Spencer Stuart, 2010). However, only CFOs who can broaden their outlook and look beyond finances can become excellent chief executive officers.
To excel as CEOs, CFOs must be able to determine their strengths and weaknesses, identify skills and knowledge they need to develop, develop and sustain productive relations with people, and participate in the organization beyond finances (Kowalski & Campbell, 2000). These are the knowledge and skills which finance departments do not provide. As a result, only CFOs who are ready to take a challenge and expand themselves beyond their primary obligations can have an opportunity to become CEOs.
The pros and cons of choosing CFOs to become CEOs are obvious. CFOs have a firm grasp of financial matters (Spencer Stuart, 2010). They have balance-sheet discipline needed to support companies during transition (Durfee, 2005). Finance is becoming a bigger part of CEOs’ work, and a strong financial background will add value to CEO’s skills (Durfee, 2005). Ethical scandals, recessions, and financial crises suggest that a perfect understanding of financial processes is essential to any CEO (Durfee, 2005).
Finance executives are getting involved in strategic decisions and company operations; as a result, they develop the strategic knowledge they need to excel as CEOs (Durfee, 2005). Companies that are run by former CFOs have proved to be increasingly focused on shareholder value, have higher rates of returns, pay particular attention to business and financial metrics, develop perfect relations with investors, and always keep an eye on potential risks (Durfee, 2005).
Nevertheless, many companies believe that a CFO can never make an excellent CEO. “When companies need creative solutions and marketing approaches, decisions about adding or discontinuing product lines or making acquisitions, many CFOs wouldn’t be at the table” (Goodman, 2010). Other managers and chief executives believe that CFOs are too conservative and pessimistic in their decisions (Goodman, 2010).
Finally, CFOs are believed to act as CEOs’ counter-consciousness; as a result, they can hardly qualify for a perfect runner in their quest for a CEO position (Goodman, 2010). A CEO has an ability to see and assess the entire business situation – a task which is unachievable for many CFOs (UTS Business, 2010). Nevertheless, the set and scope of CFOs’ obligations constantly increases. Many of them develop strategic skills needed to excel as CEOs and can successfully lead their companies to the desired strategic outcomes.
Whether or not CFOs can make good CEOs is a matter of continued debate. CFOs are believed to have a firm grasp of the financial processes affecting firms’ strategic performance. Yet, they can be excessively pessimistic in their strategic decisions. Finance departments are not the best place to train CEOs. Only CFOs who can broaden their outlook, expand themselves beyond their primary obligations, and develop perfect relations with people can have a chance to excel as CEOs.
Anonymous. (2010). New CEO’s for MasterCard, ValueClick. Forbes. Retrieved from
Butcher, M. (2010). Nokia’s new CEO has a mobile mountain to climb. Tech Crunch. Retrieved from http://eu.techcrunch.com/2010/09/10/nokias-new-ceo-has-a-mobile-mountain-to-climb/
Durfee, D. (2005). The top spot. CFO Magazine. Retrieved from
Goodman, A. (2010). Why do so few CFOs become CEOs? Financial Times. Retrieved from
Hoffman, K. (2011). IBM: A new CEO for its 100th birthday? Business Week. Retrieved from http://www.businessweek.com/magazine/content/11_25/b4233022707215.htm
Kowalski, R.B. & Campbell, M.W. (2000). Leadership skills help financial managers achieve career success. Healthcare Financial Management, 54(4), 50-52.
Picker, I. (1989). Do CFOs really make good CEOs. Institutional Investor, 23(9), 47-50.
Spencer Stuart. (2010). From CFO to CEO: Route to the top. SpencerStuart. Retrieved from http://content.spencerstuart.com/sswebsite/pdf/lib/CFOtoCEO.pdf
UTS Business. (2010). CFO and CEO. University of Technology Sydney. Retrieved from http://www.business.uts.edu.au/bofacc/benefits/cfoceo.html