Study shows ambitious finance execs need to network, broaden skillset

Large publicly listed companies continue to eliminate the COO position, a development that has important implications for the responsibilities and career paths of CFOs.

Just 35% of Fortune 500 and S&P 500 companies employed a COO last year, according to executive search firm Crist|Kolder Associates’ Volatility Report 2013. That was down from 39% in 2012 and is the lowest percentage since at least 2000, when 48% of companies in the survey had a COO. The Volatility Report is a twice-a-year study that measures the turnover of C-suite executives in the US’s largest public companies.

Crist|Kolder Managing Director Josh Crist says more firms are saving money by eliminating the position and handing off its duties to other posts, including CFOs. That has contributed to a broader trend in which the CFO position has become increasingly important in recent years.

“CFOs have gradually morphed into being the right-hand man of the CEO,” said John Graham, a finance professor at Duke University’s Fuqua School of Business.

The decline of the COO in many organisations has important implications for the career trajectory of aspiring CFOs. Ambitious finance execs now need to better understand everything from strategy to supply chains, Crist says. That gives them a better chance at becoming CEOs themselves one day but also requires that finance execs obtain broader experience by serving time in other parts of the company.

Crist advises that young finance execs ask their bosses for stints in areas such as investor relations, treasury or operations finance. “If you are linear in trajectory, that hurts you almost,” he said.

Hiring from the outside

Finance execs who want a shot at becoming a CFO one day also would be wise to keep their eyes open for opportunities outside their own firm.

Forty-five per cent of Fortune 500 and S&P 500 CFOs in 2013 were recruited from outside the company, according to the report. By contrast, the percentages of outside hires for CEOs and COOs were much lower, at 33% and 18%, respectively.

Such a large difference isn’t just a one-year anomaly. Since 1995, 40% of CFOs at Fortune 500 and S&P 500 companies were hired externally. That compares to historical external hire averages of 21% for CEOs and 15% for COOs since 1995.

Why are external CFO candidates chosen so much more often than external CEO candidates? Companies with strong succession planning often are already grooming internal candidates for the CEO spot, helping to keep the outside hire rate lower.

But new CEOs often put together their own executive team upon ascending to the top job. Their selections factor in C-suite politics – including the possibility that an existing CFO may be upset over having been passed over for the CEO job. The result is that companies often end up hiring a new CFO from outside the company, Crist explained.

The workplace honeymoon typically doesn’t last as long for external hires to the CFO post as it does for internal hires. Internally promoted CFOs had an average tenure of 6.02 years, compared with 4.73 years for external hires, according to the report. 

Other findings from the study, which covered 668 companies and contained data through December 31st 2013, include:

• Almost 44% of the sitting CFOs had held a CFO or controller job immediately prior to taking their current position.
• Eighty-three per cent of the CFOs received an undergraduate degree in business. Of those, nearly 40% majored in accounting.
• CEO hires with CFO experience rose to 22% in 2013, up from 13% in 2012.

—Chris Baysden (cbaysden@aicpa.org) is a CGMA Magazine senior editor.