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It has become common practice for companies to
promote their Chief Financial Officers to the
designation of Chief Executive Officers as more
and more companies are realizing the benefits
of doing so.
The examples are endless: in July 2004, Zamba
Solutions Corp. promoted Michael Carrel to president
and CEO, who was with the company for seven years
as executive vice-president and CFO. He was expected
to remain as CFO while also serving as CEO (Zamba’s
CFO named CEO). RTW Inc. named Jeffrey Murphy,
former CFO, as its CEO (RTW promotes CFO to CEO).
Kmart Corp., which was expected to emerge from
bankruptcy in April 2003, made a surprise move
by tapping the president Julian Day as their new
CEO. Day was a finance executive who had earlier
spent four years with Sears as executive vice
president and CFO before being promoted to chief
operating officer. When recruited by Kmart, he
served the finance function until 2003, when he
became CEO of the company. In 2003, it actually
happened that for the third time in less than
a week, business insiders got news of a company
hiring a chief financial officer to be its chief
executive officer. Storage Networks Inc., Argosy
Gaming Co. and BHP Billiton, the world’s
largest diversified resource company announced
that their CFOs will be taking over as CEOs (Taub,
2003).
Observers of this phenomenon in the business
world call the happening an emerging trend rather
than sheer coincidence. A strong accounting function
has become a crucial requirement and a high-priority
issue for many companies, and a ‘lightening
rod’ for shareholders and regulators. Financial
expertise does seem to be the order of the day.
This skill is being sought after with such desperation
that corporate boards have started looking for
experienced finance executives who would lead
the company in the days after such corporate fiascos
as Tyco and Enron (Picker, 1989).
CFO jobs have become highly volatile as well owing
to recent accounting scandals and the impact of
legislation such as the Sarbanes-Oxley Act. According
to Isabel Meharry, President and CEO of Financial
Executives International Canada, “the CFO
role has been expanding with higher demands and
some won't fit the new profile.” But the
high turnover that CFO jobs are being subjected
to is not all bad: the CFOs being promoted to
CEOs also contribute to this turnover rate (CFOs’
jobs most volatile).
A study conducted by Chicago-based research firm,
Crist Associates found that when companies were
recruiting, they were twice as likely to promote
someone from within to occupy the CEO designation
rather than choosing an internal candidate for
CFO. While CFOs were hired from outside the company
44% of the time, CEOs were hired from outside
only 21% of the time (CFOs’ jobs most volatile).
Meharry agreed with the suitability of the trend:
“I’m seeing more CFOs promoted to
CEO. They know what the financial drivers of business
are and that’s becoming more and more important
for CEOs.” (CFOs’ jobs most volatile)
David Moffatt is the ideal person to talk about
the differing roles of a CFO and CEO as he served
as CEO of General Electric, New Zealand and Australia
before becoming CFO, Telstra. According to him,
both roles have a common element: both are about
‘people, processes and money’. But
the emphasis is on different aspects. “The
CEO is more the driver, the challenger, and the
visionary, while the CFO role is more the enabler,
the problem-solver, and the analyzer.” And
this might be where the problem comes in (Visionaries
and enablers: CEO and CFO leadership styles).
The requirement of financial expertise might be
crucial in today’s times but there was a
good reason for companies to have a CEO as well
as a CFO because both had to serve different roles.
A CEO was supposed to be a growth driver, motivator,
cultural leader, customer champion, people-centered
and figuratively speaking, the public face of
the organization. If a CFO is promoted to the
position of CEO, he might have a tough time because
his expertise lies in the areas of strategy support,
productivity, process transformation, compliance
and risk management (Brewis, 1999).
A CEO and CFO are both leadership roles, but the
difference lies in their areas of emphasis. As
Moffatt put it, “The skills are common,
but the weightings are different.” The trend
of hiring CFOs as CEOs has just surfaced in the
past 1 or 2 years and hence its impact can not
be fully judged at present. But it might be a
tall order for most CFOs to fit the mould as CEO
owing to the different expectations from them
in both roles.
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