For five years until 2008, Tan Wee Seng was the chief financial officer of Li Ning Company, one of China’s leading sportswear companies. Today, he is:
- a non-executive director of another Chinese sportswear firm, Xtep, and of cosmetics enterprise SaSa International
- an independent director of ReneSola, which manufactures silicon wafers and solar modules, and of economy hotel chain 7 Days Group Holdings
- an independent non-executive director of Biostime, a maker of pediatric nutrition and baby care products
Who says there’s no real life after being finance chief?
Not Tan Wee Seng. Or Martin Cubbon, the former finance director of Swire Pacific who has been CEO of Swire Properties in Hong Kong since 2009. Or Indra Nooyi, president and CFO of Pepsico from 2001 to 2006, now chairwoman and CEO of the US multinational. Or Christophe de Margerie, CFO for the Middle East of Total from 1990 to 1995, now the French oil company’s chairman and CEO.
Not that all CFOs end up at the top. “Only 15% of 347 large-company CFOs in 2002 have become either CEO or CEO and chairman [today],” reports Gerard Dalbosco, Markets Leader and Oceania Area Managing Partner at Ernst & Young, which has just released a new study, CFO and Beyond: The Possibilities and Pathways Outside Finance.
In this study, just 13% of the 120 Asia Pacific CFOs surveyed say they aspire to become CEO.
But while most respondents see the CFO role as a destination in its own right, says Dalbosco, “there’s a number of [other] different paths that CFOs can take. They might want to work as CFO in a bigger organisation. They might be interested in working in a different sector to the one which they are working today.”
Indeed, 82% of the Ernst & Young respondents say they will consider another role, either part-time or full-time – including joining corporate, cultural and charity boards as independent directors – after they have fulfilled their goals as CFO.
Being on the Board
According to the firm’s desk research, 47% of 347 large-company CFOs worldwide concurrently hold non-executive director positions in other organisations, up from 36% in 2002. In Australia, 60% of large-company CFOs are also non-executive directors (compared with just 17% ten years ago); in China, the proportion is 33% (versus 10% in 2002).
The audit committee (36%) of another organisation is the most likely destination for these CFOs, but the number of those taking on a broader range of roles has also increased, notes the report. Seventeen percent are also non-executive chairmen (2002: 8%), another 17% is on the remuneration committee (10%) and 11% is on the nomination committee (same as in 2002).
“There are some good reasons for this,” says Dalbosco. “Because of the global financial crisis and the volatility that we’ve seen in global markets over the last five or six years, there are more boards that need people with strong financial capability and CFOs, of course, have terrific understanding of the numbers.”
Those particularly in demand are finance professionals with a broad CFO role. “If they’re involved in transactions, in fund-raising, in strategy development and so on, they bring a really broad range of capabilities to the board,” says Dalbosco. “Typically CFOs bring a lot of those skills to the table.”
But what’s in it for the CFO, who is already swamped by so many demands on his or her time? “Part-time and extracurricular roles can, if chosen wisely, bring a range of personal and professional benefits to the CFO,” Ernst & Young argues in the 2012 study. “These include a better understanding of boardroom dynamics, the cross-pollination of ideas and best practice, and exposure to a different corporate culture.”
The study respondents seem to agree. Asked what benefits they see from becoming a non-executive director, 75% cite the opportunity to gain general management or board level experience, 65% point to the opportunity to gain exposure to another company or industry and 62% are attracted to the opportunity to get a different perspective on running an organisation.
The idea of being a non-executive director appears to be particularly attractive to division CFOs. The Ernst & Young report quotes Michael Sen, CFO for the Healthcare Sector at Siemens, who observed that a divisional CFO in a large company does not deal with funding, whether debt or equity, because that’s the responsibility of the group CFO.
“By taking on a board directorship at a smaller company or sitting on the audit committee,” said Sen, “you gain exposure to those decisions and that can be useful experience for a future role in a group CFO position.” He didn’t say so, but the experience should also help boost your chances of becoming a CEO.
On to the Top
“You go on boards for three reasons,” the Ernst & Young report quotes Susan Stautberg, President of PartnerCom Corporation, which assembles and manages advisory boards for global companies. “The intellectual capital, which is what you learn; the social capital, which is who you meet; and the creative capital, which consists of the ideas and concepts that you can find out about and bring back to your own company.”
Ernst & Young also notes that, while most CFOs spend a lot of time engaging their company’s board, “often, it is only by sitting on the other side of the table that they understand fully the challenges and dynamics of the boardroom.” Dealing with a different set of management or board dynamics “helps CFOs develop soft skills critical to success,” says the report.
As well, the appointment can give the CFO an opportunity to demonstrate suitability for leadership beyond finance, something that 58% of the respondents in the Ernst & Young study cite as a benefit from becoming a non-executive director.
Ernst & Young also asked the respondents and 23 governance experts, academics and other CFOs the report writers interviewed about the aspects of the CFO role that finance chiefs should master in preparation to assuming the CEO role.
Two elements were highlighted as particularly crucial:
Ensuring business decisions are grounded in sound financial criteria. The would-be CEO “must take a commercial view in partnership with the business, provide robust but constructive challenge to stakeholders and possess a deep knowledge of the business, its products and services.”
Developing and defining the overall strategy. The would-be CEO must be able to “translate corporate goals into strategy, develop a workable execution plan, and be able to build trust, motivate and engage the workforce.”
Dalbosco says CFOs in Asia and elsewhere are increasingly regarded as CEO material because of the expansion in the breadth and depth of the CFO’s responsibilities. “The role has expanded to getting involved in funding, in large transactions, in the development and definition of the strategy for the organisation,” he notes. “Many CFOs today are externally focused; they do a lot of the PR and communications with markets and investors. The broader those skills, the more likely they are going to be able to take the next step.”
What the CFO Can Do
Whatever the post-CFO career path, the Ernst & Young report has a number of recommendations to help ease the transition. They include:
Take your time. The rule of thumb when looking to take on a non-executive position is to start looking 18 months after becoming a CFO. “It could take you up to a year before you find the role that is right, so that’s two-and-a-half years into your tenure, by which time you should be up and running,” the report quotes Richard Emerton of executive search firm Korn/Ferry.
Be aware of the commitment required. In the UK, the Walker Report on the banking sector recommends that non-executive directors should spend between 30 and 36 days on board work over the course of a year. That’s at the higher end of the two to five hours a week that 50% of the survey respondents say they can spare for a part-time role (38% say they can spare five to 10 hours a week).
Get buy-in from your CEO and the board. This may be easier than you think – 60% of the survey respondents say that other C-level executives in their organisation are very supportive of leadership team members taking on part-time roles. “If the company is interested in the career development of the CFO, they would see the benefit,” says Dalbosco. “But clearly they want to make sure that the time commitment and potential conflicts of interest are understood and managed.”
Resist the tendency to gravitate to the same sector. “A lot of CFOs think that this is company time they are using and, therefore, try to find a role that is directly linked to their main job,” David Grigson, Chairman of UK media group Trinity Mirror, told Ernst & Young. “This is a mistake, because this should be all about diversity.” Becoming a member of the audit committee is probably appropriate, but the chairmanship may present problems – “any subsequent financial difficulties or accounting irregularities could damage the CFO’s reputation and career prospects,” warns the report.
Know the sector that will be a good fit for a CFO-turned-CEO. “It is less common for CFOs to make the transition to CEO in industries that are very dependent on marketing or have a large public profile,” the Ernst & Young report points out. “In sectors such as consumer goods and retail, CEOs tend to come from a customer-facing background, perhaps having served as a chief marketing officer.” In general, the industries that are more open to CFOs becoming CEOs are the more heavily regulated ones, such as energy and financial services companies.
Be aware that some nomination committees and headhunters may have an outmoded image of the CFO. “There is often a perception that finance people are mainly concerned with blocking or making things difficult for those in the business,” says Total CEO and ex-CFO De Margerie. “This is unfair, but the reality is that CFOs who aspire to the CEO position need to challenge that perception.” In particular, a CFO may need to prove that he or she knows when to take risks.
“The business of the CFO is mitigating or eliminating risk,” says Dominique Thormann, who is Group CFO of Renault and CEO of RCI Banque, the carmaker’s captive sales finance unit. “But if you don’t take risks with your products, technologies or investments, then you aren’t going to produce a return.”
About the Author
Cesar Bacani is Editor-in-Chief of CFO Innovation.