Everything you ever wanted to know about being a CFO

The CFO role is widely regarded as the most complicated position in the C-Suite, and only those with a close attention to detail will excel in the position. The New Economy spoke to Suzzane Wood, Head of Russell Reynolds’ European Financial Officers Practice, about the ways in which the role of the CFO has expanded in recent years, as well as what’s holding them back from making the leap to CEO.

What core attributes do CFOs share?
The attributes CFOs share are the same ones I think make them unique in the C-suite. At the core of their role as risk managers they need to have diligence, detail orientation, a strong focus on data and, of course, the technical knowledge for regulation and governance, whether they’re listed or private companies.

It’s a common misconception that there are major differences between a listed CFO versus one for a private equity or family-owned business: the truth is that governance is strong on every well-run board, and the CFO is a critical steward, custodian, strategist and operator on any board.

Have these attributes changed?
They haven’t. What happens is that the business agenda changes, and therefore the skill set required of a CFO has to tune into that agenda. So an example would be back in the dotcom boom days, when companies needed very strong M&A skills. If you remember, people were actually buying and selling companies very quickly, so they needed people who ensured they were good at crafting messages. As a result, they were going for CFOs with banking or consulting backgrounds: advisory types who were used to working with boards, making quick changes, and crafting messages.

Then, of course, with the financial crisis, the pendulum swung, and what we saw was an emphasis on a safe pair of hands at the helm: one who could de-risk the balance sheet. I would have boards say to me, “Have they actually dealt with debt markets?” and, funnily enough, many of the CFOs, because we were following a dotcom boom, had only ever worked in equity markets. No one knew how to deal with this new situation, and you could see the differences between the CFOs who had been through tough times, and those who had only been in good times.

What I’m saying here is that the business world is speeding up on its agendas, so that every five years or so we’re seeing a swing on the pendulum.

After the financial crisis, when boards made sure they had people who could de-risk the balance sheet, they then asked us, in 2010 onwards, for a CFO who could help find the growth story. “We need stronger performance management, we need to drive this business’ performance using the numbers”, they said.

Interestingly, they’ve been emphasising to us that the skills needed for a CFO are somewhere between operational and corporate, so they’re not letting go of the need to look at the details. They still need that, but additionally, they have to get more engaged operationally in order to help drive business performance and bring value-added to commercial decision-making.

Has the role of a CFO expanded beyond a traditional focus on finance?
The role has been expanding for the past couple of decades, largely because it’s the second most important person on the board. The two – CEO and CFO – are widely considered co-pilots – although it’s not a word that everyone likes. Regardless, it’s the second most important person in there, in that they’re a critical friend to the CEO and they’re also expected to put into strategies.

The role has been getting broader and, again from a sector point of view, that’s where it varies the most. There are some sectors where the CFO remit is much broader than others, where it could be narrowed by virtue of how finance impacts what they do, for example. If you’re in a technology company, then arguably the products are going to make or break the business, so it’s a different type of CFO remit there. On the whole, I’d say that their job is to look at functional areas such as procurement, IT, HR, supply chains and logistics – really anything you can centralise or have synergies across the group.

In the main, what’s holding CFOs back from making the leap to CEO?
They’re the counterbalance to the CEO, so the hardest transition for them is going from having been that advisor to the guy that’s actually the leader, the guy that actually has to have the ideas. So generally speaking, as the CFO, you’re evaluating the ideas, and suddenly, as CEO, you’re the leader.

It’s actually an emotional shift. Not all CFOs want to be a CEO. Many of them believe they can deliver and create value for an organisation from the CFO’s seat using their expertise. And to be a CEO you have to be outside of that area of expertise, and deliver value through all functional areas with a vision. That isn’t always the strength of a great CFO.

In fact, many of the people we interviewed said words to the effect of “if you’re a great CFO, you’re likely to be a poor CEO”, which I thought was quite interesting. If you’re an OK CFO and if you’re highly commercial, you’re likely to be a good chief exec, and I think that’s true, but if that’s the case then you need to make that transition to the CEO seat earlier in your career. You don’t really want to be failing on the board of a big company as a CFO before you realise you should’ve been the CEO.

Do you expect the percentage of CFOs making the transition to increase?
Yes, we’re seeing that happen already. It’s surprising that it’s not more common than it is, especially when you look at the UK, for example, and how many of the chief execs there have CFO backgrounds. Many of them are becoming chairmen rather than chief execs.

This doesn’t mean all my CFOs want to be CEOs – that’s not increased actually. If they do, then they get out of the CFO role quite early in their career.

Why is it CFOs have the most difficult balancing act of the C-suite?
They have to keep on top of all the details, input strategy and deliver service to every aspect of the business. They’re the ones that often have to say, “you can’t do that”, as well as saying, “if you did less of this then we can do more of that”. When it comes to capital allocation and prioritisation of capital, they have a valuable role to play. They must be aware of every aspect of the business. They’re the guys, along with the CEO, who have to think holistically about the whole overarching strategy.

Are there circumstances in which CFOs are particularly suited to the CEO role?
There’s evidence to show CFOs typically make the transition within their own company, where they have the knowledge of the business and people. That’s much easier than going from CFO to CEO externally. That’s very rare.

CFOs are generally selected to be the chief exec when the agenda is financial: if it’s, say, a financial turnaround, restructuring, or even M&A. In other words, when finance is at the heart of the strategy.

If it’s a culture change or a hearts-and-mind agenda, they generally lack the competencies to make a great CEO. I don’t like saying that because it goes with the stereotype that CFOs lack charisma. They don’t lack it in my experience; it’s just a matter of how they choose to use their competencies. Don’t let people assume accountants are boring. That’s absolutely not the case.

What advice would you give CFOs struggling to make the leap?
To think about the jump earlier in their career, and to think about their leadership skills and examine what they learn. If they find that these aspects are driving them more towards a general management or chief exec route, then they should back themselves to do that earlier rather than later. They need to examine themselves, rather than work hard as an accountant and hope to get noticed.