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The CFO skillset morphs towards the top job

“THE CFO often is the voice of restraint and caution (and sometimes the naysayer – not the cheerleader). But the CEO needs to motivate, encourage and energise people – and frequently urge them to take more chances than they are comfortable taking.”

The observation that chief executives tend towards egotism, while their finance chiefs act as the tempering counterweight to their boss’s wilder flights of fancy is a trite one, but one that nevertheless retains a kernel of truth. Particularly when it comes from a CFO – of a biochemical company – turned CEO.

Commenting as part of research undertaken by recruiters Russell Reynolds Associates, this biotech CFO highlights that, despite finance types typically exhibiting many of the attributes suitable for the top job, more prosaic behavioural traits nevertheless remain. The research, Inside the Mind of the CFO, finds CFOs have a strong analytical bent, are data-driven, have a propensity to be reserved and tend towards being guided by process. Sound familiar?

CFOs v other executives
Comparing 129 CFOs with a broader database of executives on 60 psychometric scales, the research highlights the behavioural and leadership attributes of CFOs as opposed to other groups of executives. Given the accounting backgrounds that continue to dominate as almost a prerequisite for a top CFO job, it is unsurprising that finance professionals were found to be an objective and logical bunch as well as the group that pays most attention to detail. At the same time, greater exploitation of enterprise data through better analytics software supports the finding that CFOs are the most “data-powered” group of executives.

“Of all C-suite figures, chief financial officers are tasked with the most difficult balancing act. They are asked to be detail-orientated experts in everything from accounting to IT, while, at the same time, they are expected to generate a strategic vision at the highest level for a company’s financial path forward,” the research posits.

A piece of you

CFOs v CEOs
Nevertheless, the CFO role has rightly gained prominence if not pre-eminence among the executive suite. Globally, businesses exited the downturn with record levels of cash – REL’s latest working capital report finds companies in Europe have more cash on hand than ever before, with cash up 6% from 2013 and 62% over the past seven years – and CFOs largely succeeded in their role as stewards.
Indeed, nothing elevates the CFO as much as a crisis. As David Axson, managing director at Accenture Strategy, points out, “there is nothing like a good financial crisis to make the CFO a CEO’s biggest friend”.

As the research suggests, CFOs have become more ambitious, but being a successful steward and analyst doesn’t necessarily equate to being the next leader. Some of the CFOs at the UK’s biggest companies have found the transition challenging.

“As CEO, I made the conscious effort to become the leader, not the supporting actor, which meant being clear in decision making versus being the adviser. This isn’t easy,” suggests one FTSE 100 CFO who became CEO for the largest division within the group. “CFOs typically have a smaller ego than CEOs and are used to being number two.”

One of the biggest transitions a CFO should expect, according to one FTSE 100 finance boss turned CEO, is that “everyone wants a piece of you all of the time”.

“You have to get accustomed to being the centre of attention. If you’re an introvert – as I am – this kind of intensity, being in front of people all day, can be exhausting,” the CFO-turned-CEO adds.

The research finds CFOs are 11% more likely than CEOs to dislike being the centre of attention but increasingly this is becoming a moot point as listed company finance chiefs are expected to play a prominent, public-facing role. Meanwhile, an introverted style of leadership lends a contemplative authority and can be highly effective.

“If you look at CFOs at listed companies, look at their diaries. Every quarter is taken care of through endless analyst presentations,” explains Suzzane Wood, a specialist in board-level finance appointments at Russell Reynolds.

Tried and trusted

Rollercoaster CFOMark Hampton, CFO at privately owned Collinson Group, echoes the sentiment that the pressures of a group-wide role often come back to time. “Everyone wants a piece of you,” he remembers of his time acting as interim CEO of BUPA’s US care management company for six months.

Here, the CFO can always turn to the tried and trusted spreadsheet. Wood recalls one CFO who, on realising the new time pressures after making the step up to CEO, drew up a spreadsheet of where time was spent to “devote more people time”: “It can make you a very effective CEO,” she says.

CFOs aiming for a chief exec post could do much worse than rely on some of the attributes that made them good CFOs. Finance chiefs are 16% more objective and logical than CEOs, and are 13% more likely to be detail-orientated and driven by data analytics.

“This strong analytical bent serves them far better than just crunching numbers – it drives an objective and logical approach to problem solving that nicely counterbalances the more emotional nature of chief marketing officers,” the report notes.

Indeed, one only has to read our interview with Lenovo’s CFO to see how the ‘objective’ approach has to be taken when announcing thousands of job cuts to the market. Hampton faced a similar challenge when he was at CFO of BUPA’s Health Dialog business. The sector had just begun to comprehend how president Obama’s healthcare initiative – dubbed Obamacare – had turned the sector on its head. Ultimately, he had to take out $200m (£130m) in cost and lay off 100 people.

“I had to be the dispassionate voice and take tough decisions,” he remembers. “As CFO, you have to take business to where it needs to be. You have to rationalise – you do the right thing and sell it to the board.”

While the image of the axe-wielding cost cutter persists – and indeed flourishes, with many prominent CFOs known for their cost transformation skills – it is, in isolation, not always the best advert for the top job.

“You need all aspects of your personality to come to bear on the business agenda during economic cycle. The characteristics you exhibit depends on where your preference lies,” says Wood at Russell Reynolds.

It is often those CFOs most successful throughout the economic cycle that receive the most plaudits. She points to the Co-op’s CEO Richard Pennycook by way of example. She says he was “instrumental” in the turnaround and subsequent growth at Morrisons until he left in 2013, and she credits Pennycook as a joint “architect” of its strategy under the previous CEO.

End game

Even if becoming CEO is the endgame, the first thing many FDs will experience is the change from divisional to group level. This engenders its own set of behavioural shifts. For instance, group CFOs – challenged ever more frequently by activist shareholders – show greater composure and decision-making skill than their divisional peers.

Hampton, who joined Collinson as CFO in 2013, has also served as CEO on “the sexy side of the desk” and divisional CFO at BUPA. He remembers “being just a cog in a bigger machine” at BUPA where “you compete for investment with everyone”. In terms of character, the enterprise CFO makes sure there is a level playing field.

“Historically, they were separate business run autonomously from each other, they compete for investment, it was about a better return. Now we try to foster a group view and apply an investment filter, which was a big cultural shift,” he says.

That sounds closer to the CEO role than that of the divisional FD still poring over payroll ledgers. Indeed, while a divisional CFO will “rarely get fired for hitting your numbers”, that is “the price of admission” for the group CFO.

“At a divisional level, you are interested in not making mistakes – at group level, you work out how one plus one equals three,” says Accenture’s Axson. He adds that the finance function’s ability to rapidly analyse unstructured data has seen the role “move upstream”.

“CFOs generally tend to have strong analytical skill set, and tend to take a backward view of the business’s financial outcomes. By the time it hits the P&L, it’s too late,” he says. “We are now at the tipping point when digital technology goes mainstream. CFOs can look at how changes in consumer behaviour impact future sales.”

It is understandable that, given the breadth of the function, taking on a CEO role would be a logical step. But as Wood points out: “The biggest differentiator is not expertise – it’s behavioural and personal ambition.” ?

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