From CFO to CEO: A Pathway to Leadership

From CFO to CEO: The perspectives of a CFO a pathway to leadership master class

by Michael O’Callaghan and Chris Campbell

By Michael Keevy

November 2012 CFOs will increasingly be considered attractive options for the role of CEO because of their strong financial acumen, risk management skills, and corporate governance experience. CEOs who were formerly CFOs suggest that today’s CFOs should seek broad experience, embrace change and diversity, and make strategically sound career moves to make this transition.

The global financial crisis has triggered unprecedented attention on the performance of executive teams, with chief executive officers (CEOs) arguably under the greatest scrutiny. But close behind are the chief financial officers (CFOs), who need the skills and experience to meet the new demands of transforming economies. CFOs have always been significant contributors to the success of organisations, but for CFOs who aspire to transition to a CEO role, this period of change and turbulence offers an opportunity to show why they should be given serious consideration for the promotion.

As they guide their organisations through competitive and constantly shifting business landscapes, CFOs need to have their eyes on the present and the future. They need to attend to future capital requirements prudently, while also meeting shareholders’ expectations on current results. Their central role in managing the business issues allows them vital interaction with their boards of directors, shareholders, financiers, and other stakeholders.

But does that exposure and experience equip them to be successful CEOs? And of those who achieved that promotion, what are their perspectives on the CFO role when viewed through their CEO lens? How do they judge their own CFOs and what weren’t they prepared for when they first became CEO? We posed these questions and others to twelve senior executives who followed the CFO path across diverse industries to become CEOs, non-executive directors, or chairmen of the board.

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Career progression has many pathways

Acknowledgements

Korn/Ferry thanks the twelve business leaders who shared their perspectives and experience for this publication.

Michael Cameron. CEO GPT Group.

Director Suncorp Group. Previously CFO Commonwealth Bank of Australia and CFO St. George Bank.

Troy Christensen. CEO Accolade Wines. Previously President Constellation Brands Europe and Australia; CFO Barton Inc. Robert Elstone. Director Westpac Banking Corporation. Previously CEO ASX; CEO Sydney Futures Exchange; CFO Pioneer International.

Mark Hooper. CEO Sigma Pharmaceuticals. Previously CFO PaperlinX; CFO/COO Symbion Health; CFO Sigma Pharmaceuticals; CFO Ashton Mining.

Michael Ihlein. Director Westfield Retail Trust, CSR, Snowy Hydro, and Chair Australian Theatre for Young People. Previously CEO Brambles; CFO Brambles; CFO Coca-Cola Amatil.

Chris Lynch. Director Rio Tinto.

Previously CEO Transurban; Group CFO BHP Billiton; President Carbon Steel Materials BHP Billiton.

Steve McCann. Group CEO Lend Lease. Previously CFO Lend Lease; CEO Lend Lease Investment Management; ABN Amro Australia Head of Equity Capital Markets.

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Many would expect a CFO turned CEO to have had strong ambition to attain that role, but not all started their careers with the intent of one day leading a company. For most, their careers evolved from junior roles in finance or administration, but for others, it was purposeful progress. GPT Group CEO Michael Cameron always wanted to be chief executive of an ASX company.

In order to better position himself for that next rung, he once stepped away from being CFO of Australia’s largest bank to lead its biggest business unit.

Non-executive director Michael Ihlein chose to move from Business Development Director of Coca-Cola Amatil Limited to running its Coca-Cola business in Poland (which required him to step down from the company’s executive committee) to gain broader leadership experience in an unfamiliar environment. This placed him very well when he returned to Australia less than two years later as CFO of the company and an executive director.

Similarly, Sigma Pharmaceuticals CEO Mark Hooper took up opportunities across mining, health care, and manufacturing companies in CFO and Chief Operating Officer (COO) roles in preparation for his CEO succession. Rio Tinto director Chris Lynch was also strategic in his thinking: he had ambition originally to become a CFO, but without putting a cap on his broader corporate aims.

The intellect and capabilities of these executives allowed them to rise to whatever was demanded of them as their own objectives evolved. Their road to the top job provides a salutary lesson to anyone who aspires to be a CEO. They were prepared to step aside from what may have been the most obvious pathway in order to gain experience. Their flexibility and their ability to learn new skills and new industries improved their competency and candidature for the CEO post.

The CFO is ideally positioned Although divisional and business unit heads are exposed to their boards, the CFO probably gets the most consistent interaction on the broadest range of subjects. This exposure helps the board to assess whether the CFO has the skills and attributes to be a CEO. Westpac director Robert Elstone believes the CFO role is one of the more obvious and smarter paths to becoming a CEO, but CFOs must understand the business rather than be pure number crunchers. “My two five-year stints as a CFO helped me to transition to a CEO role as I had been dealing extensively with boards and the investment community,” he said. “I was well credentialed when the CEO opportunity arose.”

Lynch said the CFO role gives The CFO role gives fantastic grounding in all aspects fantastic grounding in all aspects the business, enabling the CFO to see the big picture of the business. This familiarity and form views on what is best for the corporation. enables the CFO to see the big picture and form views on what is best for the corporation. The CFO also has the significant benefit of dealing with investors, bankers, and the markets, he pointed out.

Farsighted boards will recognise potential for leadership early and then actively work with executives to develop it through broad and challenging experiences.

Telstra CFO Andrew Penn is ideally positioned to consider the differences between the roles of CEO and CFO, as he is the former CEO of AXA Asia Pacific. He revealed that the AXA board gave him feedback that he was highly regarded but that he needed to take some hard knocks to round him out. Difficult professional and personal experiences were very valuable because they challenged him, Penn noted.

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Acknowledgements

(Continued) Christine O’Reilly. Co-Head Infrastructure CFS Global Asset Management. Director Transurban, CSL, TRUenergy. Previously CEO Gasnet; CFO Gasnet.

Andrew Penn. CFO Telstra.

Previously CEO AXA Asia Pacific; CFO AXA Asia Pacific.

Greg Robinson. CEO Newcrest Mining. Previously CFO Newcrest Mining; CFO BHP Billiton Energy.

One executive said his career has been underpinned by the strength of the professional network he was able to build as CFO. Although his personal style is not naturally outgoing and he does not typically seek advice and support, he recognises the important role of his “sponsors” in recommending him for promotions and career opportunities.

David Spence. Chairman PayPal Australia and Chairman Vocus.

Director Hills Industries. Previously CEO Unwired; CFO OPSM; COO OzEmail.

CFOs have more chances than many of their colleagues to demonstrate their talent and leadership to the board. Those who recognise these opportunities are poised to benefit from them.

David Turner. Chairman Commonwealth Bank of Australia.

Previously CEO Brambles; CFO Brambles; CFO GKN.

The transition to CEO

We also thank Suzanne Panagiotopoulos, Senior Associate, Korn/Ferry International, for her considerable contribution to this research.

When the CFO becomes the CEO everything changes. No longer the expert exclusively on financial matters, he or she now shoulders responsibility for the entire organisation. Several executives mentioned the loneliness of the CEO role, in contrast to their time as CFO when they had colleagues at the same level.

The “weight of finality in decision making” is what really came home to Accolade Wines CEO Troy Christensen as he settled into the top job. Furthermore, he realised he had to change his mindset “from risk aversion to understanding risk but being a business enabler who makes things happen.”

Decades of executive experience do not mean that one always understands the nature of the shift to CEO. The realisation of the importance of people

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Relationship with the CEO

“ The CFO can usually suggest ideas—you can fly a kite, you can elicit feedback. As COO or CEO you cannot fly a kite. You have to make the decisions and you need to take people along with you.”

David Spence

Chairman, PayPal Australia and Vocus

Several executives interviewed likened the relationship between a CFO and CEO to a marriage—a marriage that the board watches very carefully.

The CEO and CFO must be fully aware of each other’s strengths and weaknesses. The CFO also needs to have an acute understanding of the CEO’s work style and views on issues, to the point where the two could almost speak interchangeably to investors and financiers.

At the same time, the CFO needs the confidence and acumen to constructively engage with the CEO, offering opposing counsel and advocating different courses of action when appropriate. The idea that the CFO and CEO do not always agree is considered healthy. There will be differences of opinion. But each must maintain respect for the other and strive to have their differences aired and settled before board meetings.

cially are keen to hear a countervailing voice in the company, and the person best placed to provide it is the CFO. “The audit committee needs to feel that the CFO has independence and boards like to rely on the CFO’s playing a questioning role,” said Greg Robinson.

But that also means the CEO has to be mature enough to accept those differences of opinion.

The question of whether CFOs should be executive directors drew mixed views, with many remarking that there is not much difference in legal liability for the CFO if not on the board. But everyone agreed that the CFO needs to have plenty of exposure to the board, with some individuals emphasising that the CEO should not be the sole filter of information to the board.

Robinson sums up the nature of the relationship this way: “They need to respect each other and agree to disagree when necessary.”

That said, boards do want to see lots of communication between the CEO and CFO. Non-executive directors espe-

and change management can be very jarring to finance executives. One acknowledged that he is surprised by how he spends his time, as there is far more people management in the role than he expected. Another observed that leading and managing people cannot be portrayed in a spreadsheet.

Similarly, Penn said the intensity of the CEO role is never fully appreciated until you are actually doing it, and he now deeply empathises with CEOs. He agrees with Christensen’s take on the “weight of finality” but notes that at least the CEO is able to set the agenda. However, as CEO Penn has found, there are far more stakeholders—both external and internal to the company—than he’d previously recognised.

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Commonwealth Bank of Australia Chairman David Turner said, “I found the biggest challenge was to get people to collaborate, forget national pride and boundaries, to let the data speak for itself. I realised if we were able to achieve that we were halfway to success.”

For Cameron, the challenge was to “work on the business rather than in the business. … To create the environment where the team can do their best work, rather than me being expected to be the expert in everything.”

Chairman and non-executive director David Spence viewed the change from CFO to COO and then to CEO as a big jump. “The CFO can usually suggest ideas—you can fly a kite, you can elicit feedback. As COO or CEO you cannot fly a kite. You have to make the decisions and you need to take people along with you,” he said. Spence realised that he was suddenly the focus of attention in the company. “Every single person knows you and is watching you.

The focus on you is quite scary,” he noted. “As a CFO I had lunch at my desk but as CEO you are sending a message if you do that. Implicit signals get taken up.”

Historically, if the CFOs provided the right numbers to the board they had done a good job. Today’s CFOs must have a broader business brain in order to provide the right information, and they are expected to focus on the future. But the scope doesn’t nearly match that of the CEO, who must lead change and innovation across the business. The CEO’s work is at a higher speed and across a wider variety of issues.

A number of executives realised that they had to consciously avoid One chief executive expressed surprise at how hard it getting involved in “doing CFO was to solicit reaction or frank advice from the senior work” and treading on their successor’s toes. They had to team, or even from directors. deliberately avoid the old and familiar and focus instead on the new spread of responsibilities.

One chief executive expressed surprise at how hard it was to solicit reaction or frank advice from the senior team, or even from directors. CEOs instead are critiqued by the markets and the media. But as the executive noted, that commentary isn’t of the constructive variety one typically gets from colleagues. He considered himself fortunate to have a good chairman who provided honest feedback.

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External stakeholder management Credibility with external stakeholders is vital to the success of the CFO. In Robert Elstone’s view, “over the last five to ten years stakeholder management has gone off the scale.” This requires sensible time management as the demands from shareholders, media, customers, prospective customers, or partners can be intense.

What to communicate and how to communicate requires skill, patience, and judgment. This is perhaps best illustrated by one executive who distinguishes between the media and long-term shareholders. “There is heavy media scrutiny and they will write nonsense, no matter what you tell them.

With shareholders you rarely get a constructive contribution as most are only there for the short term. But there are a couple of long-term shareholders who I do listen to as they have been supportive through thick and thin.”

Another executive realised, on becoming CEO, the importance of linking the company strategy to all

communications—be it with the board, externally or internally. A CEO is an ambassador for the company and needs to provide clear and simple messages, this executive said. Another confirmed that credibility and track record are important. “The market will need to know you,” this leader noted.

The CFO is regarded as more important today than he or she might have been in the past, and investors pay almost as much attention to the CFO as the CEO. Boards need to have confidence in the CFO, particularly with the requirement of continuous disclosure. One interviewee said that investors are looking for a CFO who is credible, not a lackey of the CEO, and one who can constructively challenge the CEO. “The market is looking for two people to run the company,” this leader said.

One executive noted that people take you more seriously as the CEO. The CEO role is about making decisions all day, different ones from those made by a CFO, the participant said.

Preparedness for the CEO role CFOs who have led divisions or business units found such assignments very valuable because they gave them broader experience covering operational and commercial issues, cross-functional team leadership and, most important, accountability for the bottom line.

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However, the variety of issues faced, especially around people leadership, is what struck some of these executives. One confessed that he didn’t feel properly trained for strategic people management, for instance, though he now spent most of his time thinking about people and structures and who should be in which box. He also had to try to understand what made people tick. He is attempting to instill meritocracy in the organisation but realises people have to see that it works to buy into it. He believed that a year spent in management consulting or IT or psychology would have helped him better understand how to manage and implement change.

Greg Robinson, CEO of Newcrest Mining, noted that chief executives are the focal point for all the moving parts in an organisation. “If the CEO gives the wrong impression, people will notice,” he said. “Being the CFO does not necessarily equip you to be a CEO. Generally the CFO is the brain of the organisation, whereas the CEO is more the heart of the organisation. The combination of the two is of course very important.”

CEOs must understand what drives people to come to work every day. As a CFO it is easier to manage the like-minded finance people, and when you move to a CEO role the diversity of the broader stakeholders is extraordinary. You need to deliver the decisions (messages) in a different way to a broad range of people rather than how you might in delivering to a likeminded group.

Another executive who had gained broad exposure as a CFO revealed that his experience with commercial issues had been rather black-and-white. On being appointed CEO, he believed he had to fully understand the vagaries and uncertainties of the various businesses and consider more perspectives.

Furthermore, he realised how important HR and “touchy-feely” matters were and how in tune with his people he needed to be.

Upon becoming CEO of Brambles Limited, Ihlein was struck by how time was spent and the expertise needed in managing people. “As CEO you are, in a sense, not running the business but managing the people who run the business. Being a CFO does prepare you to manage people, but not across all the disciplines. Fortunately my previous CFO experience did give me the advantage of having to do major change management.”

“ Being the CFO does not necessarily equip you to be a CEO. Generally the CFO is the brain of the organisation, whereas the CEO is more the heart of the organisation. The combination of the two is of course very important.”

Greg Robinson

CEO, Newcrest Mining

Hooper considered it advantageous One CEO confessed that he didn’t feel properly that he was CFO, COO, and acting for the strategic people management…. He had CEO before joining Sigma Pharmaunderstand what made people tick. ceuticals as CEO. “In many ways I’d been preparing for the CEO role for seven years. Once the opportunity arose I was completely prepared and, given that I had been CFO of this company beforehand, I felt like I knew its issues very well.”

One executive said his technical finance and sector experience had been very important in helping him in his role as CEO. He noted that the job of the CEO is to bring together strategic and commercial acumen so the business makes money—and his background had enabled him to do that. He also pointed out how crucial the people management factor is: the top sales people aren’t always the right choice to run the whole business, so a CEO must be able to discern commercial talent from leadership talent.

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trained to try to

Assessing the successor

“ CFOs need to give away their natural desire to control and give people power to help. A CFO who does not have the confidence to share information will not be a good CEO.” David Turner

Chairman, Commonwealth Bank of Australia.

The changes in the global economy and financial markets during the last decade have placed different demands on CFOs. Their role has evolved according to the particular challenges facing their specific companies and industries. Compared with twenty years ago, the CFO today is expected to be more involved in running the business, which requires broader skill sets than before. What skills and attributes do these former CFOs now seek in their own CFOs? Do they still view the CFO role the same way as when they were a CFO? And how do they evaluate the CFO? It goes without saying that a high level of technical expertise was considered a prerequisite by the executives, but the days of the CFO as functional specialist have passed. The CFO is not expected to be the last word on tax, treasury, accounting standards, transfer pricing, and so on but must build and lead a team that can cover those areas competently.

Interestingly, beyond this obvious technical skill all those interviewed listed attributes or characteristics—rather than skills—as the factors crucial for success as a CFO. As we expected, highly developed personal integrity is demanded of CFOs by CEOs and boards, and leadership ability and the right leadership style are vital. Turner believes that the key criterion is not to try to control everything. “It is far more effective to share information and get people involved and empowered to help solve problems,” he said. “CFOs need to give away their natural desire to control and give people power to help. A CFO who does not have the confidence to share information will not be a good CEO.” Commercial savvy and old-fashioned common sense, coupled with collegial relationship management, are also valued. CFOs need to have an interest in the whole business beyond the pure numbers and not operate in a silo. They need to own the trouble spots in the company, with the aptitude to dig deep in certain areas of it. That ability to work with colleagues throughout the organisation is essential to gain a full understanding of the dynamics of the business.

Mental agility rates very highly. CFOs need to learn quickly, handle complexity, and adapt rapidly as matters change. They should be excellent problem solvers capable of grasping the strategy with a good sense of where the business is heading. They then need the confidence to state their views and be contrarian when necessary.

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Operating style is also important. One executive sees the CFO as an agent of influence and change, strongly preferring quiet achievers, as the more subtle the modification the more impact it has. On the other hand, the CFO also has to be tough and able to play “bad cop” on commercial and other issues when necessary.

Robinson believes the CFO should “question and analyse and force reality to the myth. The CFO really needs to understand the business and its business drivers and then unpack those factors so that colleagues can understand how to improve their own businesses. The combination of communication and explanation is very difficult—a rare ability. The CFO resides in the gap between the physical operational world and the commercial outcomes and should provide that important link to reality.”

Management of external relationships has become increasingly important.

CFOs constantly deal with financiers, investors, regulators, and others, so they are ambassadors for their organisations. Dealing with those parties requires varying degrees of subtlety, but CFOs need to be good communicators and inspire confidence. This is tied strongly to their market savvy, as CFOs need to understand the dynamics of debt and equity, and be able to manage the expectations of providers of both.

The CFO also needs to build and inspire a strong team that can deliver for the organisation. Communication skills, people assessment, empowering, and teaching are all called into play. And when there is a change in leadership, the CFO needs to be a steady presence, not only to maintain market confidence but also to effectively transition to working with a new CEO. According to Lynch, a CFO’s values—and how those match the organisation’s—lie at the core of the question of whom to select as a CFO.

Evaluating the CFO Once someone is appointed CFO, he or she must have excellent communication skills that inspire confidence. Christine O’Reilly, who is co-head of infrastructure at CFS Global Asset Management, was one of several offering that view. “They must be able to articulate complex issues to the board in a way that is easy to understand and not talk ‘gobbledygook.’ They need to be good on their feet, as external stakeholders will take comfort from that and gain confidence.”

Bringing strategy to fruition was another theme. CFOs need to be able to create a clear picture of the next three to five years for internal and external audiences. They then must engage constructively with stakeholders to secure those outcomes. Credibility with the investment community becomes vital.

Effective communications, productive relationship management, and taking a whole-of-business approach also rank highly in assessing performance. Thoroughness and meeting key performance indicators (KPIs) are

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also obvious criteria, together with there being no surprises, so that the actual outcome can be accurately predicted and positive and negative trends highlighted. The CFO needs to allow the board to make an informed and proper decision. This all requires honest and deft upward management of the CEO and board.

“ They must be able to articulate complex issues to the board in a way that is easy to understand and not talk ‘gobbledygook.’ They need to be good on their feet, as external stakeholders will take comfort from that and gain confidence.”

Closing words of wisdom The CEOs who participated in this paper offered sound guidance to CFOs with aspirations to be CEOs, agreeing that obtaining broad experience is the key to achieving that goal. When concluding our interviews, we asked for some final words of advice:

• T he best thing to do is get out of finance and get to the coalface to become accountable for delivering results.

• If you want to be a group CFO you need to learn how businesses operate. You need to be accountable for a part of the business–not for the accounting, but for the business. The value chain of your business is where you will live or die.

• T he treasury role is very important for understanding capital markets, but don’t do it forever.

• If you don’t work well with the CFO, as a CEO you won’t get the right view of the business.

• A good analytical brain combined with excellent communications skills are the ingredients for a great CFO.

• Put yourself in the shoes of the person you are supporting. The more you can immerse yourself in the environment, the better job you will do supporting the CEO.

• Board papers represent your insight and are a testament to your effectiveness. Ensure that what comes through is relevant and adds value.

• Concentrate on the diversity and challenges the CFO role can give you.

Get as much strategic and operational experience as you can.

• Do not be too anxious about the role of CEO–it can impact your relationship with your current CEO.

• Nobody has a bigger vested interest in your career than you do. CFOs are in the prime seat, so make the most of it.

• T here is a huge challenge in continuing to drive the business while downsizing. It is really easy to cut costs but hard to enable growth. You cannot shrink your way to excellence. It is very important to think about the impact on the people who remain with the business when you downsize.

• Remember, if you turn a blind eye to something you have condoned it.

Christine O’Reilly

Co-head of infrastructure at CFS Global Asset Management

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Michael Keevy is a Client Partner based in the Sydney office of Korn/Ferry International where he heads the CFO practice. He has worked on senior appointments across the banking, investment banking, insurance, asset management, property, infrastructure, and industrial sectors. These include CEO, CFO, General Counsel, and HR Executive roles.

About The Korn/Ferry Institute The Korn/Ferry Institute generates forward-thinking research and viewpoints that illuminate how talent advances business strategy. Since its founding in 2008, the institute has published scores of articles, studies and books that explore global best practices in organizational leadership and human capital development.

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Š 2012 The Korn/Ferry Institute