I strongly believe that the finance department offers the best training to future CEOs of both private and publicly-traded companies. Research studies reveal that financial management is the most common metric that stakeholders use to evaluate business performance. It is best that the Chief Financial Officer becomes the CEO because of his or her experience in financial management (Brewis, 1999). The financial department provides training to the chief financial officer on how to manage the organization’s financial resources.
Over the years, the role of the chief financial officer has changed from the mere functional leadership to corporate leadership. This reveals how much the role of the CFO is increasingly becoming dynamic and strategic. In fact, the best CFOs act like mini-CEOs because they possess two of the most important qualities of the CEOs. First of all, they have comprehensive knowledge in financial management and internal control (Ida, 1989). Secondly, CFOs understand the operational and commercial aspects of the business organization. Furthermore, the finance department gives the CFO a chance to advise the CEO on matters related to strategy development and relationships with the investment community. Since the 1970s, the finance department broadened the role of the CFO by adopting formal strategic planning and information management in enhancing organizational competitive advantage. This has resulted in CFOs having responsibilities almost similar to those of CEOs.
In the last five years, a number of CFOs became CEO of public-traded companies. James Bell was Boeing’s CFO and the company promoted him to the position of CEO after Harry Stonecipher departed the company. Jose Luis Duran is also another example of a CFO who became a CEO. He was the CFO of Carrefour, and the company promoted him to the position of CEO. In the last two years, an increasing number of organizations have promoted CFOs to CEOs because of the rising demand to meet the needs of shareholders. Most of the shareholders are interested in maximizing returns on their investments and CFOs are most suitable to steer companies towards exemplary financial success.
Research studies reveal that promoting a CFO to the position of a CEO is not a guarantee that the company will become successful. There have been mixed results for CFOs who graduate to becoming CEOs. CFOs-turned-CEOs like Robert Allen of AT&T and Douglas Ivester of Coca Cola had very difficult times running their respective companies. On the other hand, CFOs-turned-CEOs like John Dasburg of Burger King and Edward Liddy of Allstate Insurance recorded excellent performances in their respective companies. This implies that promoting a CFO to become CEO has both pros and cons.
The greatest advantage of hiring a CFO to become a CEO is that the company can assess business opportunities and the corresponding risks using financial merits (Brewis, 1999). A CFO has great experience in financial management, which involves the management of risks such as exposure to foreign currencies. The other advantage is that CFOs understand internal controls, which help the company achieve very high levels of accountability and efficiency. A CFO is also proficient in managing investors since he, or she has experience in information technology and capital markets. On the other hand, hiring a CFO to become the CEO is that they may take a longer time to make important decisions. This is because CFOs are analytically-oriented and always wait for all of the data before making a critical decision. This may cause the company the opportunity to stay ahead of the market (Brewis, 1989). Additionally, CFOs may lack the skill to motivate other employees into enhancing organizational performance. This is because CFOs have a habit of working with numbers rather than people. Interacting with employees and building consensus may become a challenge to a CFO-turned-CEO.
All in all, it is best for a company to hire a CFO as the CEO because of a number of reasons. They are familiar with strategic management, risk management, and investor relations. These are some of the qualities of great CEOs (Brewis, 1999).
Brewis, J. (1999). How a CFO can graduate to CEO. Corporate Finance.
Brewis, J. (1989). Do CFOs Really Make Good CEOs? Institutional Investor.
Ida, P. (1989). Do CFOs Really Make Good CEOs? Institutional Investor.