Over the years, there has been a growing of companies appointing there chief executive officers from the finance department and more specifically the chief finance officers. Recent studies show that overall, about 25% of the appointed CEOs are former CFOs. There are many proponents and opposes to this practice based on differing views on the relationship between the two positions. This paper agrees with this practice.
One reason why it is best to hire a CFO as a CEO especially in modern management practices is the increased importance of strategic management in the roles of CEO. Strategic management requires that decisions are made in with clear focus on the long-term financial implications to the company. Consequently, in the process of developing strategies, CEOs have to strongly liaise with the CFOs in order to ensure that the decisions are as accurate as possible.
This strong relationship between the CEO and the CFO as opposed to other executives gives those working in the finance department including the CFO, a much bigger role in overall management than any other department. This being the case, the CFO is likely to better understand the nature of the company’s products and nature of business (Picker,1989, par3).
In addition, the current investor community is far more critical of business performance as well as the strengths and weaknesses of management. At any given time it is clear that the most important people for investors are the CFO and the CEO. Consequently, the CFO already has the opportunity to gain confidence among investors meaning that promoting them to the post of the CEOs is a much less risky affair in terms of the effect on stock prices in comparison with any other appointment (Brewis,1999, par5).
The fact that CFOs have firsthand experience on the financial management and control of the company means that in the new position of the CEO they are better equipped to engage in more extensive analysis and understanding of the financial implications in making decisions. This is a highly valuable trait for the very powerful CEO.
Critics opposed to the appointment of CFOs as CEOs raise several concerns. First is the fact that, CFOs are mainly trained in strict adherence to data analysis meaning that there are tendencies of looking at challenges narrowly on numerical terms thus missing out on the opportunities lying behind a more intense understanding of the business operations involved.
They also argue that CEOs should be people with much greater emotional stability to deal and internalize a wide range of issues much broader than the principles taught in school. CFOs are known to be excellent performance in school but this does not necessarily confer the required passion to run companies with a myriad of dynamic challenges to be handled (Sandrick, 1995, p4).
Despite the limitations of the CFOs, it is clear that the most central element of business management is finance. Therefore, a CEO who best understands the financial implication of decisions is best suited to run a company. This is because; he/she is likely to ensure more prudent application of financial concepts likely to not only better performance but also lead to improved shareholders value. Again, the fact that the CFO will in most cases have a closer interaction with the shareholders instills more confidence thus stabilizing company’s share value even in times of transition.
Reference List
Brewis, J. (1999). How a CFO can graduate to CEO. Corporate Finance. London.
Picker, I. (1989). Do CFOs really make good CEOs? Institutional Investor.
Sandrick, K. (1995). From CFO to CEO: what does it take to make the leap? – Healthcare Financial Management. Web.