One of the most interesting findings of BCG’s inaugural CEO Insomnia Index was that more than a quarter of CEOs identify their chief financial officer as the biggest senior management threat to their job security.
Combined with heightened board scrutiny, the research suggests that the most acute pressures CEOs face often come from stakeholders closest to home, even as longer-term risks tied to turnover receive less attention.
While boards ranked as the most stressful stakeholder group overall (despite high levels of reported alignment), CEOs of the largest companies covered in the study (those with US$5bn or more in revenue) ranked their senior leadership team as the biggest source of stress.
BCG observes that CFO’s proximity to board members – whom they routinely brief on financial performance, forecasts, capital allocation and risk – can earn them both credibility and influence that over time could position them as the natural heir apparent to the CEO.
Marco Schuchmann, Treasury Director at scientific instruments manufacturer Bruker refers to CFOs as the gatekeepers with respect to data. “They have insights into value creation and financial risks and as they know the detail they understand the pain points and where action is required to create value for the company,” he says.
On the other side, the CEO is in charge of developing how the company should plan sales and R&D. The CEO needs to have a long-term view on how to sustain the current business and prepare the company for the future and capex investments and M&A play a crucial role in this journey.
According to Schuchmann, the CFO is the best sparring partner in this process as financial data reveals whether value can be generated or at least what the overall impact will be to the company.
“The best value will be generated when the CFO and CEO work together and support each other,” he suggests. “If one person is too dominant, you have risks of hidden opportunities or negative value creation.”
Value creation is not solely the CEO’s burden – it is the CFO’s obligation too, agrees Gregory Rice, a BCG partner and director and co-lead of the firm’s shareholder advisory and activism effort, who also recommends CEOs form a real partnership with their CFO with clearly apportioned responsibilities.
“When both sign on to the value creation strategy with the board, if there is a shortfall it doesn’t land exclusively in the CEO’s lap,” he says.
The CFO needs a lot of content to make financial decisions, but he is not able to evaluate scientific or technological patents, adds Schuchmann.
“In industries where R&D and technological insight is not deeply required, the risk of the CFO threatening the position of the CEO is more imminent,” he says. “However, if the CFO is able to step out of control and risk thinking, they are naturally a good successor to the CEO.”
The BCG study was based on a survey of approximately 500 CEOs leading companies with revenues ranging from US$100m to more than US$5bn, combined with analysis of CEO turnover data across the S&P 1200.
