Finance Professionals as Future CEOs, Research Paper Example

There is a growing debate within the business and corporate world as to whether or not individuals with strong finance background, or even previous experience as CFOs, are the best candidates for management positions.  Today, many companies utilize the position of CFO to train finance-minded professionals to one day inherit the position of CEO at some point in the future.  Literature shows that there are specific traits that are required for CEOs to be productive and efficient in their business leadership roles.  Nevertheless, it is clear that CFOs do not make for good CEOs because they typically have very little leadership experience and they lack a strong knowledge of the actual day-to-day business operations.  However, with a clearly evolving job description, CFOs may have a formal training system in place to provide them with the necessary experience to become the next CEO.

Individuals with a background in finance lack a number of typical qualities that are inherent in CEOs.  First of all, “a finance-oriented person, lacking ‘real-world operating experience’ … may be ‘more concerned with romancing numbers than romancing operations’” (Brewis, 1999, p. 14).  Instead of focusing on the daily operations, or the actual leadership qualities associated with professionals in such high-ranking positions, CFOs are well-known for romancing the numbers and only caring about activities that improve finances.  While this is a very exciting trait to have, organizational leadership and transformational leadership traits are very important in motivating professionals and ensuring efficiency in the daily operations.  These are traits that finance professionals would not likely have without additional background experience.

In addition to these traits, there are several additional reasons why very intelligent and knowledgeable CFOs actually fail when they are promoted to the position of CEO.  Research shows that individuals with a purely accounting background are able to achieve an expedient rise up the corporate ladder due to a mentoring system that companies have in place.  This mentoring system provides individuals with a “breadth of experience across several functions [so that they] may stand a better chance of rising to CEO, and will be more indispensable to the kind of CEO who seeks advice from his or her staff” (Brewis, 1999, p. 14).  In other words, without a formal training system in place to help teach the CFO day-to-day operations of the company, the professional will likely fail in a CEO position because their main focus is accounting and not how to interact with employees.  Furthermore, “the ideal CEO communicates well, is adept at managing his managers, understands the company’s product and operations, and provides a consistent vision.  The best CEOs have honed their managerial skills in an operational post before taking on the big job” (Picker, 1989, p. 48).  A CFO in the old manner in which people consider them, as pure bookkeepers, would not have the experience necessary to perform all of these tasks.  However, the role of CFO has started to evolve with the growing demand of merging CEO with a financial background.

As the growing need for financial-minded CEOs is emerging, companies are evolving their vision of the job description for a CFO.  Today, CFOs take on dynamic leadership roles in the areas of strategic management, strategic decision-making from line management, transformational leadership in investor-relations, and leadership that can be carried over in all other areas of the company (Favaro, 2001, p. 4).  CFOs are now expected to interact with their management boards, and in particular with the CEO, and contribute to strategic planning in order to help build shareholder value (Brewis, 1994, p. 13).  This close interaction would provide the CFO with a knowledge of the necessary leadership styles to help motivate and organize the company efficiently, as well as providing a systematic and strategic plan for the entire company in all areas, not only financial.

Many professionals continue to debate whether a CFO is properly capable to take over the CEO position.  When it comes down to it, it really depends on the individual and his or her ability to have been properly mentored through the company or the industry.  Emerging mentoring systems are providing CFOs with the proper experience to become the future CEO, but without these systems in place companies can watch as untrained CFOs take over the company and fail almost immediately.  Leadership and other essential daily activities are important for a CEO, and the CFO must be able to portray these traits if he or she is going to be successful in such a high-ranking position.

References

Brewis, J. (1999). How a CFO can graduate to CEO. Corporate Finance, (175), 13-15.

Favaro, P. (2001). Making the leap from CFO to CEO. Financial Executive, Retreived on October 19, 2009, from Web site: http://www.favaro.net/publications/cfo-to-ceo/CFOtoCEO.htm

Picker, I. (1989). Do CFOs really make good CEOs?. Insitutional Investor, 23(9), 47-50.