It's been many years since a CFO was widely assumed to be little more than the ultimate bean counter. While schooled in finance, many executives on a CFO track - or in that seat themselves - have business administration degrees or considerable operating experience that has prepared them for a very real strategic role, frequently as the chief executive's right-hand person.

The following articles examine the CFO role from several angles: as a potential springboard to the CEO chair; the skills that recruiters look for in placing top candidates; and from top financial executives themselves in their oversight of chief information or technology officers. Unquestionably, the CFO role at many companies is more complex and demanding than ever - but also potentially more rewarding, and not just financially.

Making the Leap from CFO to CEO
By Paul Favaro

"There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things."

— Niccolo Machiavelli, The Prince

Of course, even to be considered for a CEO post, a CFO must have already developed an impressive array of abilities. In addition to having superior financial and accounting management skills, today's CFO must advise the CEO on strategy development, lead the company's information management efforts, act as the day-to-day manager of relationships with the investment community and provide leadership on managing internal processes and initiatives. This trend toward broadening the CFO role, which began the 1970s with the advent of formal strategic planning and the emphasis on information management as a source of competitive advantage, has resulted in many CFOs having a range of responsibilities almost as broad as the CEO. 

Because of these changes, the CFO is no longer viewed as a mere functional specialist, but as one of a company's future leaders. A Financial Executive survey last year of companies with revenues greater than $500 million revealed that 33 percent of responding CEOs had risen through the finance ranks, while only 26 percent had reached the top from operations and 21 percent from sales and marketing. And a 1999 survey of Fortune 1,000 CEOs by the executive search firm Heidrick & Struggles found that 36 percent of CEOs were grooming their CFOs for a general management position, and 33 percent were usually considered CEO candidates. In turn, most of the Fortune 1,000 CFOs (72 percent of those surveyed) were grooming a successor to take over the finance function in anticipation of their own advancement.
 

"A CEO must be able to communicate effectively to a broader constituency — in particular, he must be far more politically attuned." — John Dasburg, Burger King

One man who successfully made the transition from CFO to CEO is John Dasburg, CEO of Burger King. Dasburg was the CFO of Marriott International Inc. during a period of enormous change and growth in the 1980s, when much of its value creation came from a complete restructuring of the way it developed and managed its properties. He was also CEO of Northwest Airlines through its very rocky 1990s, which included rancorous labor negotiations, a barely averted bankruptcy filing and, in 1999, a late-night call from a plane full of irate, stranded passengers on a snow-covered Detroit runway. Having been through periods of enormous change in both positions, Dasburg is quite clear on the different demands of the two jobs. 

"When you move from being a CFO to being a CEO, you have to change the way you think, act and communicate," he said recently. "A CEO must think at a higher level of abstraction - more inductively and less deductively. A CEO must be more willing and able to act on key decisions with fewer facts, relying more on grounded assumptions. And a CEO must be able to communicate effectively to a broader constituency - in particular, he must be far more politically attuned."
Certainly, many of the basic skill requirements are the same in the two positions, most important among them having strong people management and communications skills, strategic vision and analytical acumen. But it is the pace and inherent uncertainty surrounding most of the decisions that CEOs must make, the burden of accountability associated with those decisions and the need to win over multiple constituencies to support decisions that make the top job so different. 

First, the newly appointed CEO must apply his or her skills in a much faster-paced - and less controlled - context. A study conducted almost 30 years ago by management theorist Henry Mintzberg found that the median time spent by a CEO on any one issue was less than nine minutes. If anything, that time has shortened in today's wired world. CEOs have to gather facts, consult colleagues, make assumptions, consider alternatives, make decisions and move on to the next issue in a disciplined and sometimes ruthless way. 

Often, the greatest challenges come when highly visible issues arise unexpectedly. James Burke, CEO of Johnson & Johnson in 1982, made the monumental decision to pull all Tylenol capsules from store shelves when the first signs of tampering emerged. J&J emerged from the disaster relatively unscathed because of Burke's decisiveness. In contrast, Douglas Ivester, the CFO-turned-CEO of Coca-Cola, reacted slowly to the company's packaging integrity crisis in Europe in 1999. Coke soon faced enormous image problems, and its performance suffered in Europe and around the world. Not long afterward, Ivester lost his job. 

In recent years, one of the most remarkable stories of an ex-CFO taking fast and decisive action as CEO involves Allstate Insurance's Edward Liddy. Formerly CFO at Sears, Roebuck & Co., Liddy took over the top job at Allstate in early 1999 at a time when the company - and the insurance industry - were changing rapidly. Deregulation, which allowed large, well-financed financial services companies to enter the market, and the rise of Internet insurance sales - which introduced a whole new set of start-ups - transformed a sleepy industry into one in which only the quick and nimble would survive. After taking the helm, Liddy picked up the pace: he laid off the company's 6,000 employed insurance agents and offered to rehire them as independent agents. He also fired 4,000 other employees, expanded the company's product line and invested heavily in online and direct sales of Allstate insurance. 

In his words, the changes were driven by a need "to understand where the marketplace was moving and get in front." Wall Street has taken notice, driving the company stock price up sharply. In summing up the effort, Liddy said the key issue was, "How do you, as CEO, overcome internal resistance to change?" 

Accountability and Motivation
The second distinctive characteristic of the CEO job is the fact that, as Harry Truman liked to say, "the buck stops here." CEOs are accountable for action and results, more so than any other position in the company. At the same time, because of the complexity and urgency of their decisions, they are least likely to be able to predict outcomes. It is rare that any decision having a major impact on a company - strategy shift or a reorganization - can be made with full knowledge of its likelihood of success. 

This may be one of the hardest lessons for analytically oriented ex-CFOs to learn: that it is not always possible to wait for all of the data before making an important decision. Just ask Gary L. Tooker, former CEO of Motorola Inc., who in 1995 backed his management team's fateful decision not to make the leap from analog to digital mobile phone technology. Since then, Motorola has lost its lead in wireless phones, slipping to a 13 percent share of the market to Nokia's 35 percent. 

The third skills challenge for the CFO-turned-CEO is in the area of motivation. It's not that CFOs don't need to motivate, but that for CEOs, it's a bigger part of the job. CEOs must be able, through strong leadership, to build consensus across a broad set of constituencies. For example, Andrew Grove is widely lauded for recognizing a major inflection point in the chip market in the mid-1980s and making the fateful decision to refocus Intel Corp.'s business from memory chips to microprocessors, thus setting the company on a roughly 15-year run of breathtaking growth and profitability. Yet, perhaps his greatest achievement was not the decision itself, but motivating the organization to pursue its dramatically new and highly risky strategy. In his 1996 bestseller, Only the Paranoid Survive, he talks about the importance of communicating to an organization that is traversing the "valley of death" to a new order of things, what that new order is going to look like and how it will be achieved. 

In sum, CFOs must take a hard look at themselves and decide whether they have not only the skills but the character to meet the heightened challenges of pace, accountability and leadership demanded by the CEO role. Remember: A CEO's key responsibilities are making critical strategic decisions and creating conditions for those to be well-executed. A mediocre strategy executed swiftly and effectively has a higher chance of success than a brilliant strategy implemented tentatively.
 

"How do you, as CEO, overcome internal resistance to change?" — Alan Liddy, Allstate Insurance

Great CEOs are made, not born. There is, in fact, much that CFO aspirants can do to make themselves attractive candidates. First, they should increase contacts with the different aspects of the organization that they hope to lead some day. This includes information technology and human resources management, investor relations, strategic planning and regulatory issues. For example, Merck & Co.'s CEO, Raymond V. Gilmartin, has praised his CFO, Judy Lewent, for her ability to tackle some of the biggest challenges the drug developer faces. Lewent has been active in product development, seeking out acquisition candidates and creating product franchises and licensing agreements. 

What's particularly noteworthy about Lewent's role is her involvement in the creation of joint ventures, which are central to Merck's growth strategy. Unlike other acquisition-driven drug companies, Merck has opted to team up with other drug companies in therapeutic areas in which it wants to participate. After the creation of the joint venture, Lewent joins a counterpart from the other venture partner to form a two-person "executive committee" that oversees the work of the joint venture's CEO. The result is that as CFO, Lewent plays a key role in maintaining Merck's revenue growth, which, in turn, helps "fuel our independence," says Gilmartin. 

Second, CFOs should try to get as much line management experience as possible, either before or after their tenure as CFO. Leading a company successfully is a challenge too great for those without experience running a profit-and-loss business. Even the most qualified CFOs will move "horizontally" to get line experience and position themselves for the top job. Jack Greenberg, a former tax accountant at Arthur Young & Co. in Chicago, became CFO of McDonald's Corp. in 1982, a position he held until being promoted to senior executive vice president in 1990. While on the inside track for becoming CEO, Greenberg was given operating assignments in the field and also worked as a regional manager. Shortly after that, he was promoted to vice chairman. 

Similarly, after serving two years as CFO at Sears, Roebuck & Co, Alan Lacy managed two major divisions at Sears between 1997 and 2000 before being promoted to CEO. (He had previously been in senior finance positions at Kraft Foods Inc. and Phillip Morris Inc.) His experience managing the two divisions - Sears Credit and the company's services division, which includes service contracts and response marketing - gave him a solid foundation to act swiftly and decisively as CEO. Within eight months of becoming CEO, Lacy was widely praised for making swift decisions on a number of key fronts, including: the closure of 83 underperforming Sears hardware stores and National Tire and Battery stores; the announcement of a hiring freeze; and elimination of some of the company's "hard" product lines, such as appliances and home improvement products. 

Courting the Board
Lastly, CFOs should get experience serving on a board of directors, preferably with their own company, but also with other companies. Failing that, he or she still needs to learn to cultivate ties with board members. At Delta Airlines in the late 1980s, former CFO Thomas Roeck Jr. was considered a protege of then-CEO Ronald Allen. Their skills complemented each other: Roeck was seen as a financial whiz, and Allen had come up through personnel and was said to excel at the "soft" issues of running the company. 

When their relationship began to sour, it was unclear who would survive, especially after Allen allegedly hired a search firm to replace Roeck. But over the years, Roeck had won the trust of the board, both because of his substantive presentations on complex financial topics and his candid approach. The result? The board voted to let CEO Allen go and keep Roeck. Although Roeck subsequently left Delta to become CEO of an Atlanta health care company, the lesson is the same: Close board relations and active board participation are key to a CFO's future. 

Those that have successfully moved from CFO to CEO have demonstrated an ability to go beyond the methodical decision-making process learned in their years in finance without compromising the quality of that decision-making. They are unafraid to take risks, and have used sharp leadership and communications skills to build consensus and motivate diverse constituencies. They have also taken steps in their own professional development to put themselves in line for the top spot, including working in as many disciplines within the company as possible, seeking out line management experience and participating on boards of directors. Armed with such a background, most CFOs on their way to the top should be able to navigate to that ultimate destination. 

Paul Favaro is a managing partner in the Chicago office of Marakon Associates (www. marakon.com), an international strategy consulting firm focused on managing for value. He can be reached at pfavaro@marakon.com.