Are CFOs right for the chief executive seat?

A study covering large US plcs has concluded that former finance chiefs are significantly less likely than candidates drawn from other roles to prove successful as CEOs


There once was a time when the route to the top of an organisation was a well-trodden one. To assume the role of CEO, a candidate would need to work their way through the ranks of their business to become deputy chief executive and then take over when their boss stepped down. The only significant alternative to this approach occurred when a firm opted to parachute in an experienced CEO from another company.

But that time was long ago. Over the past two decades, 85% of serving CEOs in the S&P 500 have either achieved promotions from one of three C-suite roles – CFO, COO or divisional CEO – or leapfrogged straight into the top job from a position one level below them, according to The Last Mile to the Top, a 2021 research report by management consultancy Spencer Stuart.

Of all the CEOs appointed to the US’s biggest plcs in 2020, 10% previously served as a CFO – double the proportion who’d taken this route at the turn of the millennium.

This trend indicates a growing belief among finance chiefs that their roles are as good a preparation for the top job as any other. Indeed, a recent survey of CFOs by accounting software firm Sage found that 77% of respondents were harbouring ambitions to become CEOs.

Are CFOs being overlooked?

The main reason for this increase is clear, argues Andrew Kakabadse, professor of governance and leadership at Henley Business School: over the past 25 to 30 years, the function most crucial to ensuring the effective operation of a business has changed from product delivery to finance.

“Cost consciousness and control of the organisation’s costs, as a stepping stone to profit, has become a key issue,” he explains.

Mark Freebairn is partner and head of the board and financial management practices at executive recruiter Odgers Berndtson. He believes that the career path from CFO to CEO is becoming increasingly popular because “the CFO is the only other person in the company with same commercial bandwidth and breadth of vision across the whole business. The CFO is also the only person who has the same level of investor and board relationships as that maintained by the CEO.”

The Sage survey supports Freebairn’s view: 95% of the finance chiefs it polled said that they were deeply involved in nearly every aspect of their firms’ operations.

The logic of promoting a CFO to the top job may be clear, then, but the jury is out on whether it’s necessarily the best appointment a company can make. The Spencer Stuart research into the S&P 500 has found that former CFOs are 24% less likely than former COOs to lead their firms into the top quartile of performance as measured by shareholder return – and 41% less likely than leaders who’d leapfrogged them into the CEO role.

This chastening finding is a clear sign that competence in managing a company’s finances doesn’t necessarily transfer to running a whole organisation. As Kakabadse, who advises businesses on succession planning, stresses, the move up from CFO to CEO is still “a massive jump”.

Yet the most visionary CFOs-turned-CEOs know that the data is not always to be trusted. Freebairn argues that “the only perceived conflict was that CFOs were always seen to be risk-mitigating, which led to the lazy stereotype that they couldn’t grow a business. This has since been disproved several times over.”

Making the jump from CFO to CEO

Doug Baird, founder and CEO of the New Street Consulting Group, believes that a CFO is most likely to become an effective leader “when financial issues are at the heart of the business’s strategy, such as when a turnaround is needed”.

He cites Peloton, which has struggled badly in recent months. Its appointment of Barry McCarthy, a former CFO at Netflix and Spotify, to the role of CEO in February was a smart decision under these circumstances.

With his experience, “McCarthy clearly grasps the subscription model”, Baird says. “Peloton needs someone with significant financial acumen to steer the business back to full health and make investors feel comfortable.”

Another sensible choice, according to Baird, has been the appointment of Xavier Rossinyol as CEO of Swiss travel retailer Dufry. He’s due to take up the job in June, having previously worked for the group as CFO and, latterly, a regional COO. Rossinyol had left Dufry in 2015 to become CEO of airline caterer Gategroup.

“He knows the business, having worked there previously. He has already been a CEO in its sector, so he brings vision and commercial skills back to Dufry,” Baird says.

The capital markets are less convinced by Rossinyol’s credentials, though: Dufry’s share price fell when news of his appointment broke in February.

Baird says: “To find the perfect fit, we must look beyond someone’s CV and assess what they have achieved, as well as their natural character. It’s not the case that all CEOs are adventurous and all CFOs are conservative. CFOs often take calculated risks.”

While he accepts that it’s unwise to generalise, Anthony Chadwick, founder of the Alpha Vet International group of companies, believes that the traits that often make CFOs successful are unlikely to work in their favour when they become business leaders in most situations. Last year he stepped aside as CEO of one of his firms, The Webinar Vet, to focus on developing newer units in the group, and appointed the COO, Kathryn Bell, as his replacement.

“My own feeling is that, while CFOs can be ideal candidates for some firms, they are often conservative,” Chadwick says. “Detail is their strong point and, given their accountancy background, they prefer to save money, not spend it.”

Such tendencies make them a better fit for a larger, well-established business, whereas they might struggle in faster-moving firms that must frequently adapt to disruption in their sector, he suggests.

“These younger businesses often need to be more agile and have a high profile in their industry,” Chadwick says. “CEOs must increasingly be the voice of their company – to comment on hot topics and bring a larger employee base along with them as the business develops. This requires strong communication skills and personal empathy. CFOs will often struggle in these areas.”