Always Second in Command: Why CFOs Rarely Become CEOs

During his three-year tenure as CFO of Aquion Water Treatment Products, Cal Stuart took on progressively more operational responsibilities, including some unusual ones, like overseeing manufacturing and engineering, and architecting the annual strategic plan. So when the company’s CEO left unexpectedly in late 2010, it was in many ways no surprise that the board, largely made up of Aquion’s private equity backers, tapped Stuart to fill the role.Why CFOs Rarely Become CEOs

The most surprising part, in fact, was that the opportunity was unexpected, from Stuart’s point of view. “I was not specifically being groomed for the role,” the former Motorola executive recalls, and “it’s not like I had an eye on becoming the CEO,” despite the breadth of responsibility he had. As a result, he and the board agreed that he would initially become COO (and keep his CFO title) so that both sides could get comfortable with the idea. The happy ending then came quickly: by April 2011, Stuart was the full-fledged CEO, a role, he says, that he continues to thoroughly enjoy.

Although CFOs are increasingly the closest partners to CEOs and deeply involved in business operations and strategy, Stuart’s ad hoc, multi-step promotion track helps explain why it is still so rare that they become CEOs. Last year, only 5% of new CEOs came directly from the CFO chair, according to an analysis of the largest U.S. companies by recruiting firm Crist/Kolder Associates. Like Stuart, most of those CFOs-turned-CEOs were promoted from within the same company. While the percentage can vary year to year, its peak over the past decade was still a slim 10.8%, in 2008. Experts estimate that the transition happens more often at smaller companies, where executive roles are generally broader than those at large ones, but still, it isn’t usually the type of move anyone is planning on. “More often than not, the track to CEO happens by accident,” says Samuel Dergel, an executive recruiter in the San Francisco office of Stanton Chase International.

It’s not that finance experience is irrelevant to the top spot; it’s that in most cases, finance executives have to move beyond the role to prove their versatility. In fact, nearly a quarter of those designated as CEO last year had some “finance DNA,” according to Crist/Kolder’s analysis, but came from broader roles such as division president or COO. That’s because boards want to know that a CFO can cover some of the intangible requirements that come with being a CEO, like interacting well with customers, motivating employees, and being decisive. For example, “there is a natural tendency in financial roles to do a lot of analysis and present multiple solutions to a problem,” notes Stuart, “but when you’re CEO, you’ve got to make the call.”

How to Make the Leap
While there’s no magic bullet to making the leap from CFO to CEO, finance executives who aspire to the role can certainly better their chances. The first step is the obvious one: Get involved in operations in whatever way possible. “The general mistake would be to stay too narrow,” says Scott Simmons, an executive recruiter with Crist/Kolder. “If your strength is accounting, and you don’t ever push to, say, run FP&A or go out as a division CFO,” you won’t be in the running. The best possible experience in his opinion is to become a division CEO – “even if you only want to remain a CFO, you should absolutely take the chance to run something” – but an often-overlooked stepping stone is an external-facing role like heading investor relations.

Large companies, especially those like Pepsi and Honeywell that are known for grooming finance talent, are a great place to start if you have the option. “If I could write a script for a college graduate, it would tell them to look for the biggest enterprise that will train you through as many different experiences as possible over, say, 15 years, so that you have a solid base that will be attractive to an outside suitor,” says Simmons.

As a career progresses, getting those operational experiences often involves being a good judge of the CEO you sign up to work with, says Mike Corkery, who was recently promoted from CFO to CEO of Deltek, a software and application provider for government contractors and professional services firms. “You can have a profound operating effect from the CFO’s chair if you partner effectively with the CEO, but that means identifying a CEO who will be a mentor to you,” says Corkery, who held multiple CFO roles before Deltek, as well as being VP of operations finance for Nextel earlier in his career. In fact, the former CEO of Deltek, Kevin Parker, was also previously a CFO, and when he left last fall, he recommended Corkery take his place, the new CEO says.

The second critical piece of the equation is for the CFO to build a close relationship with board members. “There are more CFOs who don’t have a strong relationship with their boards than those who do, because in many cases the CEO acts as a gatekeeper to the board relationship,” notes Dergel.

Often, the opportunity to forge new connections comes in the midst of upheaval. Stuart says the cost reductions made necessary by the financial crisis initially increased his exposure to the board. And Corkery’s promotion came soon after private equity firm Thoma Bravo took Deltek private. The new investors “knew me well both from the sale and from a financing related to the deal, so that gave us a foundation to establish a working relationship,” says Corkery.

Things have worked out well for many CFOs who ascend to the CEO role, but recruiters caution that others should ponder long and hard before seeking or accepting such a promotion. In fact, Dergel says he often advises CFOs who are looking for growth to focus on board opportunities rather than CEO roles, since “there are a lot of reasons why being a CFO is a great way to end a career.” One of the most compelling, to his mind, is that there may be no going home again. “Yes, it’s an increase in pay and position to be a CEO,” says Dergel, “but if you don’t do a great job, you may not be able to be taken seriously as a CFO again.” 

Alix Stuart is a freelance business journalist based in the Boston area.


Member's Profile

This is a GOVERNANCE "choice". Succession planning is one of the most critical issue that the Board should plan for and should make opportunities (and training) open from within. Promotion and training from within is a choice Boards make. As in Stuart's case, the temporary COO role was a choice made by the Board and the opportunity was made available to him.

Even if you are a standout CFO (that has the capacity or able to assume the CEO role), the Board still has to give you a shot or training to be one. Else, the best track (to be a CEO) is outside the company.

Topic Expert
Member's Profile
SBA * Consulting LTD

I think the perception of CFOs, inculcated by the predominant view that they are glorified bean counters, inhibit management from looking upon the group as a whole as capable of supreme management and global governance.

We as a group need to do more to dispel this stereotype.

Proformative Advisor
Member's Profile

I have experienced it first hand. People tend to think the only thing we know how to do is count things. So as a leader I think to change this perception we must be strategic in thinking, effectively problem solve and wear many more hats than the traditional role was designed. The end of this article I found interesting as well. Do we really want to step into the CEO role?

User picture

One other point is that although I agree that CFOs do generally know most about the company; not all of them have the acumen needed to be a CEO in regards to a 360 vision across all business lines. Customer interaction can also be challenging for the numbers orientated CFO.

Member's Profile

I thought more and more CFOs were becoming CEOs? Others please help me out with data here. CFOs know the most about the company and CFOs are taking more ownership of company growth, and that means being groomed to be CEOs.

Member's Profile

Another thing to think about is that not many CEOs have the financial acumen to be CFOs and that the latter are hard to replace. So easier to replace CEO, then replace both a CEO and CFO (ie the CFO were to assume the position.