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Promoting CFO Can Be More Beneficial Than Hiring Outside CEO

Promoting CFO Can Be More Beneficial Than Hiring Outside CEO

A research report unveiled at the annual convention of the American Accounting Association in August reportedly suggests that new CEOs brought in from top-performing companies may negatively impact the firm's performance during the first three years in the position.

According to a blog post written by David McCann, this is likely positive news for current chief financial officers, as the alternative to hiring an outside CEO would be to promote someone from within, often the CFO.

With the CFO taking on more strategical responsibilities and focusing more heavily on human resources in recent years, the financial bosses are also becoming prime candidates to take over the chief executive role.

One of the major reasons for the poor performance viewed for outside CEOs from large companies was that firms looking to hire often focus on a candidate's past performance rather than whether or not the CEO has the skill set required to run the new company, according to report authors Richard Cazier of Texas Christian University and John McIness of the University of Texas at Austin.

Companies looking for new CEOs should "cautiously consider both the extent to which an executive's prior-firm performance is a reflection of his managerial ability and the extent to which that managerial ability is likely to transfer to the hiring firm," the authors wrote, according to McCann.