The qualification that more often leads to the CFO corner office is a chartered accountant certification. However, in recent times, we’ve seen a large number of CFOs who hold MBA Finance degree, instead.
Sachin Rajan & Vinita Katara
The chief financial officer (CFO) is increasingly being viewed as a business leader rather than a functional head. The CFO’s role has evolved beyond book keeping to a holistic business and governance accountability, ensuring that the organisation is on track to achieving its short- and long-term goals. Beyond financial analysis and stewardship, a CFO is constantly faced with growing responsibilities and an evolving mandate, coercing her to move from behind the scenes to the front. Her role includes setting operational and commercial strategy, navigating the company safely through tighter credit markets, looking at capital allocation, debating with the CEO, dealing with external stakeholders and, at times, fronting shareholders’ meetings. Even in cases where a CFO does not hold board positions, she is increasingly called upon to provide expert advice to support boardroom decisions.
In India, the change in the role of a CFO is cut across both private and government sectors. While this is more apparent in BSE100 companies, it is also percolating to the mid-cap as well as unlisted organisations, where a CFO is required to be a sparring partner.
This shift provides senior financial executives the opportunity to develop not just as the potential CFO—the pinnacle of many financial executives’ careers—but in times to come as the CEO. However, such financial executives need to garner skills that enable them to deal with a dynamic regulatory environment, whilst fostering continued business growth. But what takes a CFO off the ground to reach the top financial position at India’s largest companies, and eventually into a business leader?
In a recent Russell Reynolds Associates analysis, we looked at the career paths of current CFOs at BSE100 companies. It revealed a complex roadmap. Over 60% of current BSE100 CFOs were promoted internally. Based on conversations with CEOs and board members, this is the direct result of successful succession planning, as well as a reflection of organisations preferring to “play safe” by giving the top seat to individuals who have the ability to “hit the ground running.”
Albeit for those that were hired externally, industry experience seems to be less of an issue than previous finance function leadership. For example, 81% of external CFO hires came from a different industry, while 54% were CFOs in their previous role. This may signal a desire for out-of-the-box thinking from a different industry to cater to the changing growth drivers of businesses today. Interestingly, a few years ago, when CFOs were hired externally, the focus was previous finance function leadership experience.
This has changed to complementary experiences to the current leadership team, such as different industry experience, international experience, etc. In a welcome news for outside candidates, the percentage of external CFO appointments in BSE100 companies grew 65% from 2014 to 2016.
No single degree leading to a CFO
When it comes to higher education, the qualification that more often leads to the CFO corner office is a chartered accountant certification. However, in recent times, there are a number of CFOs who have MBA Finance degree, instead. Our analysis of BSE100 suggested that 26% of CFOs hold an MBA—of which 15% have both MBA and CA, and 11% just an MBA. Interestingly, 49% hold just a CA, and 25% hold neither degree. Many Indian financial professionals pursue MBA to explore new career opportunities outside of finance, similarly those that remain in finance are less likely to pursue an MBA or a degree in management—these individuals usually add to their repertoire of qualifications by getting an additional certification as a cost accountant or company secretary.
On their way to the top, close to 50% of BSE100 CFOs took the traditional route, i.e. a divisional or regional finance leadership role, or a role in the corporate finance function as the leader of controllership. But there is an emerging trend of CFOs being rotated across other functions such as operations, supply chain, administration and marketing. There is significant evidence of companies exposing their high potential finance leadership talent to other functions so that they develop a holistic view of the business before taking on the CFO role. This diversity of experience may make CFOs more versatile and give them a broader perspective.
Clearly, CFOs are in a unique position, but they cannot be complacent about it. The skills demanded of tomorrow’s CFOs will continue to change as Indian and global economies evolve. However, CFOs should continue to develop a diverse set of experience for the increasingly strategic, cross-functional demands of the modern CFO. In times to come, some CFOs may look even further, to becoming the CEO.
Sachin Rajan is managing director, Vinita Katara is executive director, Russell Reynolds Associates, the executive search firm