Six Strategies to Prepare a CFO to become a Good CEO

Can a CFO move on to become a good CEO? Can a CFO even become a CEO? Often CFOs are seen as being too technical and narrow to take over the strategic and non-technical aspects of a CEO’s job. And, in fact, at least in the US, although some CFOs do become CEOs, they only represent a small percentage of all CEO appointments, say 10-15%.

Differences between CEOs and CFOs

What are the differences between the requirements for a CEO and CFO? It’s obvious that one is usually seen as a technical job whereas a CEO usually requires being at least somewhat strategic, and having good management and interpersonal skills.

But financial professionals are usually chosen on the basis of their technical understanding and knowledge, not necessarily on management and interpersonal skills. In fact most CFOs are what we call “Discounters”. These are naturally focused on reducing costs and avoiding risk, particularly the risk of introducing new products and services.

It’s clear that this type of leader might be very good for tight cost management but not good for innovating or competing on any other grounds but cost. So this type of leader naturally is limited to only certain types of companies, namely those in trouble where the main focus is to significantly reduce costs.  Note that these differences are nothing to do with intelligence, ambition, drive, or education. The decisions of all executives are driven by unconscious cognitive biases. These executives are generally not aware of their biases.

The characteristics of CFOs we talk about are their own unconscious cognitive biases of which most leaders – not just CFOs but almost all executives – are not aware. So a CFO is not different to other executives in this regard. They just have a different set of vulnerabilities. But all executives have a characteristic type of behavioral vulnerability which leads to problems sooner or later.

The cognitive biases possessed by most CFOs favor safety, low costs, distrust of charisma and strong social skills, and discomfort with global thinking. It’s quite possible for a CFO to change his behavior. But this means that he has to become more self-aware about his vulnerabilities, and to increase his level of mental agility so that he does not become defensive and therefore incapable of behavioral change. CFOs that do this can become very good CEOs. If they don’t, then they will probably fail as CEOs, or never get to that position.

Business Acumen is not the same as Good Financial Qualifications

Almost all CFOs have good financial qualifications. They probably have an accounting or finance degree, or the equivalent of a CPA in the US. Maybe they have an MBA.

But you can’t assume that having high financial qualifications means that you have a high level of business acumen. It doesn’t matter if you have great qualifications if your behaviors are inappropriate for the particular circumstances you are in.

That is because generally you have unconscious cognitive biases that prevent you from making the right decisions, even if at a conscious level you might know what the right decision should be. What we know from the new disciplines of behavioral economics and behavioral finance is that knowing what is the right thing to do doesn’t necessarily or even usually mean that you actually do the right thing in a real life situation.

So in fact, many, if not most CFOs have good financial qualifications but don’t have high business acumen. By "business acumen” what we mean is the ability to be able to see the whole picture and to make the right decisions not just on the cost side but also on the revenue and gross margin side too.

That is, a good CFO must have the ability to be able to grow the company, not just cut costs. And that means some tolerance for the types of risk that result in great products and services which you can get a very high price for and which therefore yield a high gross margin relative to your competitors. Most CFOs can’t do that.

This is usually the main vulnerability of most CFOs and why so many CFOs can’t make it to a CEO position. We call this type of person a “one-trick pony”, that is a person who can do one thing really well, but isn’t able to do most things well at all. So a CFO might be good at turnarounds but if you need someone to grow the company, or reposition it strategically, many CFOs might not be able to do this.

There is an answer to do this. It’s either getting or improving self-awareness and mental agility. If a CFO can do this he can get past the trap of being a one-trick pony.

But many CFOs might not be able to do this on their own. Often they need coaching or mentoring to be able to identify their behavioral vulnerabilities and cognitive biases that are preventing them from making the right decisions and achieving a high level of business acumen and managerial capability at the level of CEO.

We also have to recognize that amongst senior executives, including CFOs, there is a range of mental agility. Most executives don’t have particularly high mental agility. CFOs with high mental agility, including will be more likely to want to receive coaching, simply because it represents a great learning experience for them. Executives with low mental agility will not want to be coached.

And we also have to recognize that having a professional qualification such as an accounting or finance degree can sometimes be a huge disadvantage. This is because it often tempts people to think that their technical expertise provides them with the right tools to address any task instead of realizing that often they might have to leave behind their financial training in order to make true advances in managerial understanding and vision.

Often in order to gain true mental agility you have to regard prior learning as something to be left behind so that you can advance to a higher level of understanding. Indeed, for many CFOs, moving forward to new types of behavior might be the only way they can learn enough to gain the necessary tools to become a CEO. For many CFOs doing this is something they might be afraid to do. If so, it’s unlikely they can ever get to a CEO position or, if they do, they will probably fail in it.

No Pain No Gain

It’s hard to change behavior because you have to move out of your comfort zone. Being assessed behaviorally to confront your vulnerabilities can sometimes be painful. But it’s precisely the pain that allows someone to make advances in their ability to address the challenges of a senior role such as CEO, or for that matter any other type of more senior general management role. The improved mental agility this brings is going to help a CFO not just in his professional role but also in his personal life too.

That’s why, if a CFO wants to increase their own level of mental agility, the best approach is to involve their staff too so that everyone gets involved and it becomes a team and company effort rather than just a private effort. A private effort will provide a framework for a CFO to change his behavior so that he can become a CEO.

However that private effort in itself won’t impact his team or the company. If everyone in a team or a company participates in this effort, then the behavioral change by many people will result in transformational change for the team and the company.

That’s really what a CFO should be trying to achieve; transformational change. If he can do that, he can definitely be a great CEO.

So what do you need to do to get prepared to be a good CEO? Read on.

Recommendations:

1.       Get Assessed Behaviorally To Identify Your  Business and Profitability Impact And Your Financial Behavioral Vulnerabilities In A CEO Role

Nope, we aren’t talking about doing the Myers-Briggs or a traditional personality or competency test here. You need to see how your leadership style links directly with business and financial outcomes. You need to know your own Financial Signature® (your level of business acumen) and your Leadership Cockpit® style (the business outcomes of your innate style).

2.       Identify The Correct Target Style in Measurable Business and Financial Terms For Your CEO Role

You will almost certainly need to change your leadership style to successfully perform in a CEO role. The Leadership Cockpit® shows you which style will meet the objectives of being a good CEO who achieves successful business outcomes.

3.       Simulate This Role With Counter-Factual Leadership Training And Using Behavioral Priming Techniques

Get a coach or leadership trainer to help you practice with one or two other desirable styles for your particular situation. To do this you will need to understand the technique of behavioral priming which will help you actualize the leadership style, instead of just thinking about it.

4.       Develop And Activate The Right Postural Signaling Techniques For Your Target Financial and Business Impact

There are subliminal ways of signaling your change to others which will significantly increase the effectiveness of your transition and the target business and financial impact. You need to learn about these, develop the right signaling process for your own particular situation, and develop a plan to put them into action. These signals must reflect your impact on business, not just interpersonal factors.

5.       Undergo Business Impact Coaching To Improve Behavioral Financial Agility in a CEO Role

None of this will work or work properly unless you can work on increasing your behavioral financial agility. A coach is the best way to do that, although if you have a switched-on partner, colleague or mentor, they might be able to fill this role. But remember, this agility ultimately must impact business metrics in a measurable way.

6.       Involve Your Team To Help Practice And Simulate These Approaches

To the maximum extent possible you should involve your team in some or all of these approaches. This will help signal your changes to them and provide you with a forum to practice and simulate the changes that you want to make. In addition it will help them develop their own leadership skills and performance which in turn will reinforce your own changes.