CFOs Rise To CEOs As Companies Embrace M&A

More and more CFOs are becoming CEOs.

A surge in acquisitions, spinoffs and investor activism is preciptating a surge of financial chiefs taking the driver’s seat.

Most recently, Vodafone’s chief financial officer Nick Read will succeed long-term CEO Vittorio Colao as the telecoms group implements the acquisition of Liberty Global cable assets and addresses the pending merger with Idea Cellular in India.

But he’s not the only one. In February, Japan’s Sony tapped as CEO its finance and turnaround chief Kenichiro Yoshida. Nestle USA appointed CFO Steve Presley to succeed CEO Paul Grimwood.

“CFOs are a lot more likely to become CEOs when financial issues are particularly central to strategy, for example, turnarounds or M&A-oriented growth programs,” says Michael Birshan, a senior partner in McKinsey & Co’s London office. In the UK, over 70% of CFOs who became CEOs did so in those circumstances, McKinsey says. “We do expect this trend to continue,” Birshan adds. “Indeed, the increasing involvement of activist investors in many companies will further reinforce the importance of the financial lens.”

Investors such as Carl Icahn and Elliott Advisors have stepped up their influence in the boardrooms of companies such as Xerox, Bezeq Israel Telecom and Telecom Italia.

“Activist investors are becoming more prevalent, not just in the US, but also in the UK, continental Europe, and elsewhere,” says Birshan.

While research from McKinsey and Korn Ferry show that fewer than 15% of CEOs come from functional roles, CFOs’ expertise is valuable during critical transformations.

Russ Mould, investment director at UK online investment platform provider AJ Bell, says the rise of the CFO-to-CEO path originated in the financial crisis when companies needed more sober leaders.

“The analytical skills required of, and brought by, a capable CFO should mean that they are likely to be good at a dispassionate analysis of any corporate transaction and the potential downside as well as the upside,” Mould says.