Why are more CFOs becoming CEOs?

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It is common in the City of London that CFOs make the best board chairs. They are seen as having smaller egos (at least compared to some CEOs who are good at the table), detail-oriented, understanding of risk management, and intensely focused on the bottom line.

But these days chief financial officers are increasingly being tapped for the executive role – from Margherita della Valle at Vodafone to Murray Auchincloss at BP, both of whom got the top job at a time of turmoil at their companies. As always, when a crisis strikes, call the number guy or girl.

Data from executive search firm Heidrick & Struggles showed that about a third of CEOs in the FTSE 100 had previously served as CFOs, up from 21 per cent in 2019. This compares to 19 per cent in the markets the company tracks globally. About 15 per cent of current FTSE 100 CEOs were CFOs immediately before becoming CEO, versus a global average of 8 per cent. Halma's Mark Ronchetti and Centrica's Chris O'Shea are other more recent examples.

“If America is run by lawyers, the UK is run by accountants,” said one headhunter. The impact of Brexit, political dysfunction and a more difficult economic environment has enhanced the prioritization of risk management.

But it's no longer just a UK phenomenon. Among the 674 Fortune 500 and S&P 500 companies, 8.4 percent of vacant CEO positions were filled by CFOs in 2023 — the highest percentage dating back to 2013, the first year of data available for Crist Kolder's annual report. Associates. In 2013, the rate was 5.8 percent.

This is partly due to the ever-increasing role of the CFO outside of the finance function. Over the past decade in particular, the role of the traditional bean counter has expanded to take on more responsibilities in everything from corporate strategy and deal activity to sustainability and data analytics.

“They are the architects of business resilience and growth,” consultants at Egon Zehnder said in a new report. In the company's survey of nearly 600 CFOs, 82% said their role had increased significantly in the past five years. As their visibility and fame increased, 60% said they had ambitions to become CEO.

If they already deputize for the CEO both internally and externally, why don't they go to the top job? Many company CEOs told me that if their CEO was hit by a bus, the CFOs would be the ones to intervene. One of them said: “Without a doubt.”

This is especially true for companies in the financial services sector and those companies that have something like debt restructuring or major deal activity on the agenda that requires number crunching front and center. Importantly, CFOs are an entity known to the board, investors and the wider company. Board directors say companies seeking to hire new CFOs do so with the vision that those candidates might one day hold the top job.

In a time of massive economic and geopolitical uncertainty, being considered safe certainly isn't a bad thing. “Everyone is guarding their reputation like never before,” said Mark Freebairn of Odgers Berndtson. “CFOs are taking the top job more and more and will dominate president appointments as well. This says a lot about the future development of business leaders.” In addition to its current CFO, British Land has a former CFO as Chairman, CEO and Head of Audit on the Board.

But even though this makes sense on paper, does it work? Research shows that CEOs promoted from CFO do not drive top revenue growth as quickly as CEOs from other backgrounds, especially in the first few years.

Spencer Stewart, a headhunter, said only 8 percent of CFOs-turned-CEOs led their organizations to the top quartile of performance, looking at factors including revenue growth. While some have broader experience than CFOs of yesteryear, many maintain a mindset of conserving cash versus pursuing new opportunities. Sometimes they also have to work harder at building relationships with department heads after fighting with them when they are in their finance role over funding allocation.

“Some are really struggling. For most of their careers, everything has been numbers-driven. At the C-suite level, there are a bunch of intangibles, like how to get along with the CMO or Head of your HR department.” “Some have to learn how to develop a CEO mindset and grow the organization.”

The CFO will likely get the top job in 2024, but success in the role is not guaranteed.

anjli.raval@ft.com