Denise Kingsmill: Can FDs run the show?

Finance directors are seen as micro-managers who lack leadership skills (think Gordon Brown). So how can they get to be CEOs?

by Denise Kingsmill
Last Updated: 30 Sep 2010

The received wisdom is that finance directors rarely make a successful transition to the position of CEO. Gordon Brown's disastrous showing in the General Election last month would suggest that this perception applies as much to politics as to business.

After years of hankering and plotting to become PM, Brown completely failed to engage with the electorate when eventually the job was handed to him on a plate.

Despite having been the best and longest serving chancellor of modern times and having been instrumental in saving the western financial system (at least by the reckoning of many overseas commentators), he lacked the skills for the top job. Over-focused on detail, he tended to micro-manage. Never a people person, he surrounded himself with a coterie of acolytes who would not gainsay him. Above all, he could not connect with his 'customers', the electorate who in the end punished him in the polls for these failings.

Okay, perhaps this is just bad grace on my part as a Labour peer, still fulminating after electoral defeat. However, it has set me musing on the business parallels.

Certainly it is rare for a CFO to become a CEO. A quick analysis of FTSE100 CEOs demonstrates that only 20% have made the transition, and usually within the same organisation. Only one person has made it from group CFO to CEO in another FTSE100 company: Mick Davis, who moved from being CFO of BHP Billiton to CEO of Xstrata. Interestingly, of the others, eight moved from CFO to another role within the company before becoming CEO. For example, Ian Livingston was a divisional CEO at BT before becoming overall boss; while Paul Pindar, formerly FD of Capita, spent seven years as group MD before becoming CEO in 1998.

The recent reporting of the high-profile departure of Marks & Spencer's FD Ian Dyson to run his own show at Punch Taverns omitted to mention he was also M&S's highly regarded COO. The point being that for many finance directors, it is necessary to obtain broader managerial experience if they are to be seen as CEO material.

Perceived as lacking in creativity and strategic vision or as control freaks, FDs wanting to move beyond the confines of the numbers role have struggled to be taken seriously as candidates for the top job. Too often the FD is seen as the chief bean counter, more preoccupied with ticking boxes than anything else.

After the governance crisis in the early 2000s following the collapse of Enron and Arthur Andersen, and with the introduction of Sarbanes-Oxley, companies became more concerned with regulation and governance. The finance role lost much of its commercial focus, and FDs came to be seen as blockers rather than enablers.

The huge growth of banking and financial services also lured away graduates who might otherwise have gone into accountancy and become the next cadre of FDs. Instead, they joined private equity, hedge funds or became investment advisors. After the decline in attractiveness of the banking profession in the past few years, the accountancy profession is regaining its cachet and PwC is now the biggest recruiter of graduates in the UK.

While not all FDs are cut out to be CEOs, their experience can be valuable for board roles. In the UK, accountants are seen as primary advisors to business and a financial background is common among NEDs. This is not generally the case in the US where a legal qualification is thought to be more useful, possibly because of the higher litigation risk in the US where shareholder actions are much more common. Certainly, while the FD is almost always on the board of a UK plc, this is usually not the case in the US. An MBA is a more desirable business qualification than an ACA.

Some head-hunters believe FDs make much better chairmen than CEOs. Less egotistical and frequently closer to the board than many CEOs, they are used to influencing rather than leading. They are often seen as 'organisational shock absorbers', as one FD described the role. Highly sensitive to shareholder value and masters of the numbers, FDs usually have excellent contacts in the City. This can be extremely useful for the chairman role in mergers, takeovers and fund-raising. Cited as among the best in the FTSE100 are David Tyler of Sainsbury's and Philip Hampton of RBS, both former FDs, neither of whom was made CEO before moving to significant and high-profile chairman roles.

The transition from FD to CEO has significant financial benefits. When Gordon Brown moved from No 11 to No 10, he received a pay increase of around £51,000, taking his salary from £136,677 to £187,611 - a rise of 37%. This differential is tiny compared with the pay increase a finance director in the private sector could expect following promotion to CEO. According to research from the Hay Group of remuneration consultants in 2007, top FD positions frequently command annual salaries of £500,000. However, a promotion from FD to CEO would likely net a pay rise of more than 80% and when potential bonuses are taken into account this could be much more.

CFO to CEO promotions seem to be on the increase, perhaps because of the upheaval many companies are experiencing in the aftermath of the financial crisis. A safe pair of hands on the tiller is to be welcomed in turbulent times.

But we should not forget that Gordon Brown was not the only Scottish FD promoted beyond his competence. No prizes for guessing the name of the other one.

- Baroness Kingsmill CBE has been a non-executive director of various private and public boards. She is a non-executive director of British Airways and Korn/Ferry International.

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