The CFO as the Reluctant CEO-in-Waiting
Due to the high stakes of financial decisions in a turbulent economy, CFOs are increasingly seen as the natural successors to CEOs. While many leadership teams recognize the high value in their CFO’s margin discipline and strategic oversight, that doesn’t always mean they’re a good fit for the top job. In fact, many finance chiefs don’t want it.
In this article, we’ll explore the growing mismatch between board expectations and CFO ambitions. You’ll discover how burnout and misalignment are not only fueling turnover but also making CFOs reluctant to advance up the ladder. Boards and recruiters will discover what they need to know about rethinking succession planning to ensure long-term success for CEOs and finance executives alike.
The Expanding CFO Mandate
In the past, the CFO role had a primary focus on financial management. From accounting to reporting to compliance, these finance executives were primarily charged with safeguarding the company’s financial health. However, this has undergone drastic changes in recent years.
Instead of simply managing cash flow, budgets, and risks, the CFO is now expected to become a strategic business partner, analyzing data and providing insight to shape key decisions across the organization, including sales, operations, and culture.
CFOs are viewed as safe leaders; their expertise in cost and capital management fosters financial stability and profitability, which is especially critical in uncertain economic environments.
The CEO Pipeline Problem
This expansion of expectations for the CFO coincides with another critical leadership issue — the erosion of the CEO pipeline. Shifting management structures (including the gutting of middle management positions), faltering succession planning and leadership development, growing CEO burnout, and generational differences in attitudes toward loyalty and longevity may be to blame.
Still, corporations can’t operate without capable leadership. As boards continue to deprioritize executive succession planning and sudden CEO departures persist, boards must turn elsewhere to find their next candidate. For many, it’s simply a matter of promoting whoever’s in the CFO seat to the company’s top spot.
Because CFOs are increasingly handling responsibilities beyond just finance, directors often view them as the most likely successors to the CEO. The proof is in the pudding for this phenomenon, as 34% of outgoing CFOs moved into CEO roles, up 14% from the previous year. Another 15% moved into a divisional CEO role.
The Cowen Partners Executive Search team believes that boards must understand the impact of the CFO-to-CEO succession. We have noted that CFO-led CEOs boost margins but may dampen growth. This is often linked to the core responsibilities and mindsets of CFOs, whose mandate to protect company assets necessitates risk-averse strategies, financial discipline, and a focus on internal goals over outward expansion.
The Reluctance Factor
Though it makes sense for corporations to look to CFOs to fill the CEO seat, board governance and leadership teams need to realize that many finance leaders are hesitant to make the leap.
Burnout
Studies show that 82% of CEOs have experienced exhaustion and burnout. Having the company’s every move rise and fall on your shoulders can be quite stressful. With CFO demands shifting and turnover at record highs (while the average tenure remains low), many financial executives are reluctant to invite even more stress into their lives.
Personality Fit
CEOs tend to be big-picture thinkers. CFOs, on the other hand, spend most of their time in the weeds making sense of financial data and metrics. A CFO who is placed in the CEO role may become overly concerned and bogged down in the details, and this can ultimately hinder decision-making and growth.
Lack of Appetite
The CFO maintains an internal presence within the company. Although they may receive a few mentions in the media, they are rarely expected to be the “face” of the company. That honor is typically reserved for the CEO. Many CFOs prefer to remain unseen, having little appetite for the external-facing duties that the CEO must take on to maintain the company’s image in the public eye.
Expectations Mismatch
Often, CEOs are expected to make decisions that lead to company innovation and expansion. Many CFOs have an ambition to ensure the business remains financially healthy. This mismatch between the expectations of the CEO role and the ambition of the typical CFO may make the transition into a new role a less-than-ideal move.
Implications for Boards & Recruiters
A robust finance leadership pipeline coupled with a highly capable CFO may make simply placing the CFO in the CEO seat a tempting decision. However, it’s critical for the board to think these decisions through before making them. Over-reliance on CFOs in succession brings considerable risks.
If the CFO is risk-averse, their stance may hinder revenue growth and expansion. If they don’t have the personality or appetite for an increased public presence or escalating responsibilities, your company may risk a short CEO tenure and significant destabilization.
Instead, it may be a better idea to focus on broadening talent pools. This requires identifying leaders earlier and investing heavily in leadership development. As you do so, it’s important to account for any shifting leadership structures that may potentially erode your leadership pipelines.
Ultimately, boards must determine how to support willing CFOs. Ensure that their expectations are aligned with the role and provide support as they continue to develop their skills, ultimately enabling them to rise to the challenge of assuming the company’s top position.
Boards Must Recognize the Challenges of CFO-to-CEO Succession
CFO career path challenges due to the changing nature of the role have led to record turnover and low tenures in the seat. Unfortunately, this hasn’t always driven companies to make a change in the role.
Instead, many have started to look to CFOs to ascend to the CEO role. It’s essential for boards to recognize that while CFOs are indispensable, they are not always willing to be CEOs-in-waiting.
Consequently, it’s time for boards to adapt succession strategies. While there may be willing CFOs who have what it takes to excel in the role, directors must consider the possibility that their finance leaders may not be the right fit. Instead, they may need to rebuild CEO pipelines from the ground up, investing early in in-house leaders who show promise and willingness to develop the skills for long-term success.
Top CFO Search Firm | Cowen Partners Executive Search
Our hands-on CFO executive recruiters have experience working with private, public, pre-IPO, and non-profit organizations.
Clients are typically $50 million in revenue to Fortune 1000’s or have assets between $500 million to $15 billion.
Cowen Partners Executive Search is the nation’s leading CFO search firm, driven to create value for our clients. Our partner-owned model is the guarantee you need to get the ideal CFO for your company culture, your needs, and your long-term objectives.
We deliver on our guarantee by matching an experienced senior partner to every engagement, from first call to final placement. Start the journey to find and place your next CFO by filling out the contact form.
Read more of our industry-leading retained search resources to see why Cowen Partners Executive Search is a top CFO search firm — and tax and accounting C-suite recruitment partner — in New York City, Chicago, Seattle, Anchorage, Atlanta, Dallas, Los Angeles, and beyond.
Schedule a Call.
Fill out the email request form to learn more about our approach.