Personal Finance

Who is becoming a CEO these days?

Firms look for CEOs who can develop a winning strategy. FILE PHOTO | NMG
Firms look for CEOs who can develop a winning strategy. FILE PHOTO | NMG 

Every professional hopes to start their career at low level and then grow through the ranks to occupy the corner officer.

The question then among the many professionals in the C-Suite or the executive team is who is likely to ascend to the CEO position or, a better question, who would make a great CEO?

Typically the executive team will mainly comprise a Chief Operating Officer (COO), Chief Human Resource Officer (CHRO), Chief Finance Officer (CFO), Chief Marketing Officer (CMO), Chief Strategy and Planning Officer (CSPO) and probably a few other functions such as Chief Engineer depending on the business and the industry it is in.

The aspiration of each of the members of the senior team is that they will succeed the CEO within their organisation or they will move to another business and perch at the top.

A recent survey by Forbes (2016) revealed that almost 70 per cent of the 29 chief executives appointed at the biggest 250 companies in the S&P 500 last year had been with their companies for at least a decade, and one-third had spent more than 25 years there.

“Overall, nearly 90 per cent of new CEOs were promoted from inside the company,” the report notes adding that 33 per cent of them had engineering undergraduate degrees while only 11 per cent are in business administration. 

However, the functional role that led to becoming a CEO was most commonly finance at 15 per cent, followed by general management at 9 per cent. 

It is worth noting that each of the roles in the C-Suite requires a set of critical technical skills as well as soft skills. According to renowned researcher, Dave Ulrich the next generation of CEOs will lean towards having a strong people inclination and diversity and cultural background. His research suggests that the Chief Human Resources Officers (CHROs) are more likely to take over the CEO’s function.

According to another survey by Forbes (2011), about 30 per cent of Fortune 500 CEOs spent the first few years of their careers developing a strong foundation in finance. This is by far the most common early experience of today’s CEOs.

As the second-largest constituent, CEOs who started out in sales and marketing roles account for about 20 per cent of the current big company CEO population.

The prevalence of CEOs with a strong financial background points to the fact that large companies prefer CEOs who can create value for the company and who understand the company’s financial drivers.

Typically, companies are looking for CEOs who can develop a strategy and understand the financial ramifications of business decisions. A foundation in finance is an important building block for a career.

However, only about five per cent of these CEOs were promoted directly from the role of CFO – more than half were appointed from the role of COO or President.

Though the prevalence of Fortune 500 CEOs with strong financial backgrounds underlines the importance of developing financial acumen, above all, companies value a strong operator.

My experience is that the technical background of a CEO is important to his or her understanding of the business but the moment he or she takes over the office, his technical background starts to take a back seat immediately and he or she starts to become a generalist who must appreciate every aspect of the business from a very strategic level.

This of course does not mean that the CEO starts learning everything pertaining to every technical area but he or she must increase their knowledge levels to a point where they can ask the right questions, access situations, form informed judgements and make prudent and strategic decisions.

The question as to who is best suited to take the CEO position is also dependant on other factors such as leadership and management style, character, ability to connect with teams and of course strategy and business acumen, among other aspects. All these factors as seen during interviews may reside in any professional regardless of their technical or professional background.

The call for senior teams who aspire to be the next CEOs is to enhance not only their business appreciation beyond their technical area both in terms of day-to-day work experience and input but also in terms of knowledge and skill.

A course in business management for example will help an engineer appreciate general fundamentals of a business and increase the chances of top leadership. In this regard, it is noteworthy that KIM offers such fundamental and practical training for professionals.