Chief Financial Officers (CFOs) perform central roles in organizations. However, these are roles that are focused mainly on the financial aspect. Nonetheless, the finance department is a factor that determines the performance of the organization. The finance department is also a factor that can influence organizational leadership, organizational culture and overall organizational performance. As a result, the CFO is a potential candidate for CEO, and the finance department is good training ground for future CEOs. In functioning as a CEO, a former CFO is expected to apply general knowledge and skills about financial management and decision-making, as well as knowledge and skills specific to the situation of the business organization. Experience specific to the organization increases the likely success of the CFO in fulfilling the role of a CEO.
Chief Financial Officers are potentially successful CEOs based on their background and knowledge of the business organization’s finances and related concerns.
Finance Departments for Training Future CEOs
Finance departments can be the best place to train future CEOs, as long as the finance department is a high performer in the organization or the finance department is the main determinant of the organization’s good performance. In some organizations, the finance department may be a problem area, such that having it as a training ground for future CEO could lead to future problems in handling the organization’s finances. Even though a poorly performing finance department can help future CEOs identify problem areas, it cannot necessarily provide examples and training in good leadership and handling of organizational finance. In effect, poorly performing finance departments should not be considered as good training ground for future CEOs.
A finance department with high performance is one that has implemented decisions, policies and programs that has contributed to the growth and high performance of the organization. This means that good financial leadership and decision-making, as well as good financial research and analysis characterize such a finance department.
These characteristics are important in using the finance department as a training ground for future CEOs because they can determine the future performance of such CEOs. For instance, a finance department that has helped turn the organization from decline to high level performance can provide the future CEO with valuable knowledge and experience in finance leadership and decision making that can help in managing and leading the entire organization.
Pros & Cons of Hiring a CFO to be a CEO
Hiring a CFO to be CEO is beneficial because it can help ensure the organization that the new CEO has extensive, realistic and specific knowledge in finance management and leadership. Considering that the CEO is a former CFO, the organization can be sure that the CEO has extensive knowledge and experience in finance management and leadership. This means that the CEO has gained a lot of expertise that can be used in leading the entire organization.
Hiring a CFO as CEO can also ensure that the CEO has realistic expertise in finance management and leadership. Realistic expertise is important because it accounts for the good and bad sides of finance management. When applied to the entire organization, this can mean that the CEO can maintain very realistic leadership and make realistic decisions that address organizational problems while taking advantage of opportunities at the same time. Specific knowledge in finance management and leadership of the CFO ensures that he/she, when functioning as a CEO, can ensure that his/her leadership and decision-making are specifically customized to fit the needs of the organization.
However, hiring a CFO to be CEO can also be disadvantageous to the organization because the CFO may become too focused on the financial aspect of the organization and inadequately address the issues and problems in other aspects. This situation can lead to the organization’s decline.
The finance department can serve as the best place to train future CEOs. In relation, hiring CFOs as CEOs can help ensure that the organization has top leadership and decision making that is realistic and specific to the needs of the organization. By ensuring that the CFO’s mindset is not limited to the financial aspect, the CFO can become a high-performance CEO.
- Agrawal, A., Goldie, J., & Huyett, B. (2013). Today’s CFO: which profile best suits your company. McKinsey Quarterly, 1-6.
- Fabich, M., Firnkorn, L., Hommel, U., & Schellenberg, E. (2012). The strategic CFO: new responsibilities and increasing job complexity. In The Strategic CFO (pp. 1-5). Springer.
- Kim, J. B., Li, Y., & Zhang, L. (2011). CFOs versus CEOs: Equity incentives and crashes. Journal of Financial Economics, 101(3), 713-730.