The Chief Financial Officer: From the Back Office to the Front Line
By: Jason Karaian
"Number cruncher" used to be an insult. It was commonly used by managers dismissing the supposed small-mindedness of colleagues who didn't appreciate the nuances of the business world. But few can credibly claim that "gut feel" alone informs their strategies today; the breadth, depth and sophistication of data now available is too compelling to ignore. The ability to harness and interpret data at each stage of devising a corporate strategy is now a sought-after skill.
This thrusts the Chief Financial Officer into the spotlight. Given the pervasive influence of financial markets and the growth of data-driven decision-making, the role of the CFO is uniquely in tune with the times. This is why they are much more prominent than before, often sharing the stage with chief executives when meeting with investors or announcing anything of importance. The ranks of former finance chiefs on boards of directors are growing, and ex-CFOs are increasingly promoted to CEO. These days, number crunchers are in high demand, as I explain in my forthcoming book The Chief Financial Officer: What CFOs Do, the Influence They Have, and Why it Matters.
Take Matthias Zachert. When the CFO of German pharmaceutical firm Merck was recently tapped as the next CEO of Lanxess, a specialty chemicals group, Merck's share price sank by 10% while Lanxess's stock gained about as much in value. All told, these one-day moves were worth more than $4 billion in market capitalization. Zachert is credited with helping lead a tough restructuring plan at Merck, which was one of the best-performing stocks in Germany in 2013. Lanxess had a less successful year, and hopes putting Zachert at the helm will bolster its own restructuring effort and, eventually, reverse its waning fortunes. So far, the markets seem to agree.
Around a quarter of chief executives appointed at large, listed companies in the US last year were once CFOs. If you take a broader view of an executive's "financial DNA", as recruitment firm Crist/Kolder Associates puts it, then around a third of CEOs appointed last year boasted a financial background, up to and including CFO.
There is a common theme to many CFO-to-CEO appointments. As at Lanxess, companies tend to look for former finance chiefs to oversee big turnaround projects and heavy financial restructurings as CEO. For example, Marcel Smits was promoted from CFO to CEO at consumer products company Sara Lee; a year later, the group was split and spun-off into two separate companies. Following a string of profit warnings, Joe Kaeser stepped up from CFO to CEO at industrial giant Siemens; he promptly announced an acceleration of the company’s efficiency drive.
But this this is not to say that companies promote CFOs solely as a safe pair of hands during turbulent times. Indra Nooyi at PepsiCo and Paul Polman at Unilever are both ex-CFOs lauded for their strategic acumen as chief executives at sprawling, complex multinational firms. The modern finance chief’s remit extends much further than it used to, so it is not uncommon for CFOs to take responsibility for a key business unit or customer segment on top of their traditional financial duties. The route to CFO is also far more varied these days, and often features stints outside of the finance, giving finance chiefs a more well-rounded perspective on strategy, relationships and how a company works than CFOs in previous generations. “CFOs need to understand that they should always think like a CEO,” says Denise Ramos, who made the step up from CFO to CEO at industrial conglomerate ITT.
After just over a year as CFO of Bank of America, Alvaro de Molina stepped down, claiming that "the CFO of a well-run company gets all of the guts but none of the glory.” Although this was only back in 2006, things have moved on considerably since then. The global financial crisis in 2008 forced many CFOs to fight for their companies' survival—slashing costs, conserving cash and defending balance sheets ahead of making new investments or launching long-term strategic initiatives. Those that proved themselves up to the task during the darkest days are being rewarded now that conditions are brighter, from adding new responsibilities to their current roles to taking on outside board positions or being tapped for chief executive roles.
The markets now appreciate the value that a good CFO brings to a company—just look at the reaction to Zachert’s move from Merck to Lanxess. The need for a steady hand with deep financial expertise is understandable during a downturn, but there are also structural reasons why the CFO’s profile will continue to rise even as economic conditions improve. Companies increasingly rely on their CFOs to marshal the ever-increasing volume and velocity of data flowing through their systems, crunching the numbers in order to identify the key insights that will give them an edge on the competition.
Jason Karaian is Senior Europe Correspondent at Quartz, where he writes about business, finance and economics. He previously covered the financial services industry for The Economist Intelligence Unit and served as deputy editor of the European edition of CFO magazine. He is the author of The Chief Financial Officer: What CEOs Do, the Influence They Have, and Why it Matters. Follow him on twitter @jkaraian.