Received wisdom is that chief financial officers, or finance directors as they used to be called, seldom make it to the chief executive’s office. This was until recently borne out by the facts.
A famous 2015 survey by Korn Ferry, the executive recruitment specialist, found that just 13 per cent of chief executives in the Forbes 2000 ranking of the world’s largest companies had previously been chief finance officer.
A study by the same firm in partnership with the University of Michigan also found that high-performing chief executives had more in common with high-performing chief human resources officers than they did with most other high-level executives.
That partly explains why the path from chief human resources officer to chief exec has been increasingly well-trodden of late. Recent examples include Maggie Timoney, who moved from being HR chief at Heineken’s US business to its boss and Leena Nair, chief executive of Chanel since 2022, who for the previous six years had headed Unilever’s HR operations.
There are several reasons why finance bosses have traditionally been overlooked as potential company leaders. Firstly, they are often perceived by boards as lacking operational experience, something regarded as indispensable in a chief executive.
Secondly, chief financial officers are often seen as innately conservative and risk-averse and of having too narrow a focus on a company’s finances. Thirdly, they have been perceived as too analytical and too in the background to be leaders and lacking in the “up and at ’em” approach to leadership taken by many successful chief executives. This latter perception is particularly unfair.
Anyone who has met, for example, the former chief financial officers Andrew Higginson (Tesco), Richard Meddings (Standard Chartered) or Brian Gilvary (BP) can confirm they are every bit as charismatic and blessed with outstanding leadership qualities as any of their successful chief executive peers. All have gone on to become distinguished company chairs, the role traditionally seen as the one for which most chief financial officers are most temperamentally equipped.
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Some of those perceptions, however, may be justified. A 2022 analysis by Spencer Stuart, another executive recruitment firm, found that just 8 per cent of CFOs-turned-CEOs steered their companies to the top quartile of performance while what it described as “leapfrog” chief executives — those promoted from two or more levels down — and those chief executives who had previously headed a company division enjoyed better odds of outperforming. It found that a chief operating officer promoted to chief executive had a 25 per cent chance of achieving top-quartile performance and a former deputy chief executive a 27 per cent chance.
The Spencer Stuart executives behind the study wrote: “CEOs promoted from the CFO role on average are slower to drive top-line growth than CEOs from other backgrounds, especially in the first years of their tenure … slower top-line growth comes at a cost.
“We modelled revenue growth for promoted CFOs and their peers over the first five years of a CEO’s tenure for a company with revenue of $11 billion, the median revenue in our sample. Companies led by former CFOs are at risk [of generating] nearly $1 billion less in revenue due to lower growth during the early years.”
Either way, things appear to be changing, particularly in the UK. In its “route to the top” survey, published at the end of 2023, Heidrick & Struggles, another executive recruitment company, found that almost one third of chief executives in FTSE 100 companies had previously served as chief financial officer — up from 21 per cent in 2019. Recent high-profile examples include Margherita Della Valle at Vodafone and Murray Auchincloss at BP.
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What is especially interesting, though, is how pronounced this trend has become in the finance sector. In February HSBC’s chief financial officer Georges Elhedery succeeded Noel Quinn in the chief executive’s chair. In the asset management sector, Richard Oldfield and Jason Windsor were respectively named chief executive of Schroders and Abrdn (now Aberdeen Group) on the same day last September. Meanwhile, in wealth management, Mark FitzPatrick — an interim chief exec at Prudential but previously its long-running finance boss — took the helm at St James’s Place at the end of 2023.
The latter’s appointment is perhaps the most instructive. Executive search firms have noted, in recent years, a trend for chief financial officers to expand their responsibilities, addressing the criticism that they often lack operational experience. FitzPatrick, who has won plaudits for the turnaround he has instilled at St James’s Place, had broadened his finance role at the Pru to also become chief operating officer.
Another factor, pertinent to the asset management sector in particular, is the attributes a chief financial officer brings. The Spencer Stuart analysis found that, while CFOs-turned-CEOs are less adept at growing the top line compared with their non-finance peers, they are significantly better at growing operating margins. Asset managers, wrestling with the drift from active to passive fund management, are finding top-line growth increasingly difficult to come by and so may prefer to grow the bottom line in this way.
Another skill set that chief financial officers often bring is their understanding of technology. Many boast experience of embedding software into their firm’s processes and, at a time when AI is disrupting the business models of many financial services companies, that is valuable. Chief financial officers have increasingly in recent years also been at the forefront of building resilience in risk management and cybersecurity which, again, are growing priorities for businesses now.
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Many boards are now coming to realise that, rather than having a narrow financial focus, the modern chief financial officer is well versed in adapting quickly to a change of circumstances. The past two weeks, with levels of market volatility not seen since the pandemic, have highlighted how vital that is.
Finance chiefs have also, increasingly, been instrumental in incorporating environmental, social and governance policies, again a particular priority in wealth and asset management.
The role of the chief financial officer has changed hugely in the past couple of decades. It should be no surprise that, in this volatile, disruption-prone world, increasing numbers of them are becoming chief executives.
Ian King is a business presenter on Sky News
