Three Core Competencies Essential for CFOs: Operational Finance, Strategic Thinking, and Communication Skills

Recruiting experts point out that for those aspiring to become Chief Financial Officer (CFO), the most reliable way to attract the attention of the CEO and board of directors is to possess strategic thinking, excellent communication skills, and a hands-on background in operational finance.

The era of rising solely through the ranks of a corporate accounting department is fading, and this path may even become an obstacle to career development—because it can make a candidate's background appear too narrowly confined to the specific patterns of a previous employer. In contrast, candidates with backgrounds in public accounting or consulting have a natural advantage, as it signals to potential employers that they have mastered the technical core of accounting from the perspective of best practices.

"If a CFO spent the first four or five years of their career at a firm like KPMG, you know the numbers are reliable," said Peter Crist, Chairman of Crist|Kolder Associates. "You can trust the financial data you receive."

Diverse paths to leadership

One emerging path to the CFO role is an investment banking background. This path was almost unheard of in the past, but today about a quarter of CFOs start on the deal-making side of capital markets, with an even higher proportion in the technology sector.

"I think this is largely related to first-time founders who are extremely intelligent and want to find a partner who can match them strategically," said Rhoda Longhenry, a partner at True Search focused on technology. "Not all finance executives can do that."

Of the 53 software-as-a-service (SaaS) company CFOs covered by CFO Dive over the past year, nearly 30% started in investment banking. They typically either joined companies they had worked with or moved to companies in the industries they covered.

Lanny Baker, CFO of EventBrite, is a typical example. He began researching technology companies in the late 1980s, working at Donaldson, Lufkin & Jenrette, Morgan Stanley, and Salomon Brothers, before moving into the corporate world as finance chief at the online job site Monster. He subsequently held leadership roles at several well-known internet companies, including ZipRealty and Yelp.

"What really prepared me was my time on Wall Street," Baker said. "I had the opportunity to participate in Google's IPO and the merger of AOL and Time Warner."

Maynard Webb, a Silicon Valley veteran who served as COO during eBay's rise, is now a board member at Salesforce and Visa and formerly chairman of Yahoo!. He noted that CFO candidates with strong investment banking backgrounds but weaker operational and accounting skills may be attractive at the strategic level, but they must be candid about their shortcomings so others can fill the gaps.

"Do you have the operational capabilities truly needed to build the company?" he asked. "Hopefully this gets communicated during the interview process. You don't want to discover after hiring that this isn't their strength. Most CFOs have enough self-awareness to explain their weaknesses during interviews."

Public accounting is the broadest path

Outside the technology sector, an investment banking background as a path to the CFO role remains relatively uncommon. The most mainstream path is public accounting and consulting.

In CFO Dive's research, slightly less than half of CFOs, and exactly half of SaaS company CFOs, came from public accounting and consulting backgrounds. Additionally, at least three-quarters of such CFOs hold Certified Public Accountant (CPA) credentials or the UK equivalent of Chartered Accountant certification.(Research results at the end of the article)

Ken Stillwell, CFO of PegaSystems, took this path. Early in his career at PriceWaterhouseCoopers, he provided audit advisory services to clients, then merger and acquisition advice, with many of those clients located outside the United States.

"This really helped me gain exposure to companies of different sizes, different industries, and different international cultures," he said. "I believe it accelerated my growth in financial acumen."

Recruiting experts note that candidates with public accounting or consulting experience can emphasize the rigorous training they received in the latest and most comprehensive corporate compliance standards.

"It's like the Navy SEALs or Delta Force," said Shawn Cole, Managing Partner at Cowen Partners. "You know they're good at what they do."

Although the traditional path of rising through corporate finance departments is declining, developing skills in operational finance remains a key benchmark, and for many CEOs and boards, it is a requirement any candidate must meet.

"Operational finance skills are the key metric used by CEOs and boards," Crist said.

In CFO Dive's research, slightly more than a quarter of CFOs came from the traditional corporate finance path, about half the proportion of those from public accounting and consulting paths.

At Fortune 500 companies, operational finance experience is a prerequisite, ideally from another large company, said Tricia Clifford, an advisor in Spencer Stuart's financial officer practice.

"The most common path for public company CFOs is previously serving as a divisional finance director or deputy CFO," Clifford said, who co-authored a survey on the career paths of Fortune 500 CFOs. "About 80% of externally hired CFOs have this as their primary path. Next are FP&A, treasury, and accounting and control. This is a significant shift from the past when accounting and control were the primary foundation for public company CFOs."

To gain operational finance experience, Crist suggests seeking roles as a group or divisional finance director.

External experience is crucial

After operational finance skills, strategic vision is the next most important, recruiting experts note, and FP&A experience is a way to demonstrate this capability.

"Some CFOs may join a company directly after business school in an FP&A role," Crist said.

Anup Singh, CFO of Illumio, said his days working in FP&A were crucial to his career.

"My first milestone was deciding to move into FP&A," he said. "I did FP&A work at companies like 3Com and Excite@Home. That experience truly taught me how companies operate. You're in the business, interacting with customers, partners, and suppliers, understanding the tactical and strategic aspects of running the business, and managing the P&L."

The last of the three skills CEOs and boards want to see—communication ability—can be challenging for finance professionals, as their energy is often focused on honing their quantitative skills.

Marsha Smith, CFO of Siemens USA and Siemens Mobility, said the need to quickly improve her communication skills pushed her out of her comfort zone, but that experience became a turning point in her career.

She recalled a pivotal moment in 2004: her supervisor asked her to write a letter requiring a client to accept an expensive change order. "I thought, 'I don't know how to write a letter to a client,'" she said. "I'm a finance person; I know spreadsheets, I know calculations."

She sought help from colleagues in the company's legal and technical teams and ultimately succeeded in getting the client to agree to the change order.

"That was the start of my external experience," she said. "Monthly payments required coordination, and asking clients for additional funds required coordination. All of that prepared me for this role."

Today, as head of finance, she ensures her team members gain the valuable external experience she had, so they can grow into effective communicators.

She said this effort has paid off for her and her team members, and has also benefited Siemens. At a key meeting a few years ago, one of her team members outperformed competitors in a three-party deal thanks to excellent communication skills. Whenever clients requested changes to terms, her team members could immediately translate the request into an impact on pricing, while the competitors' finance staff could not.

"We realized how excellent our way of working is," said Smith, who has been at Siemens for 24 years. "Having our finance people learn contract terms, scope-of-work clauses, understand how to handle risk management, and how to communicate with external clients has proven to be an advantage."

Recruiting experts say the three skills employers want to see—operational finance, strategic agility, and communication fluency—are especially important today because, due to the pandemic's impact, CFOs are expected to retire at a faster pace than usual after leading their companies through the crisis.

"We're seeing a lot of surprises in this environment," Crist said. "In the next two or three years, we'll see a wave of unexpected retirements. People in their fifties and early sixties will say, 'You know, I've sat in this chair a long time; I'm going to retire early.' We think companies will need to have successors ready."

Webb said he tends to develop talent internally, promoting employees to the CFO position.

"In finance, more than most functions, the best situation is that you have a strong enough team and deep bench that you don't have to hire externally," he said. "I absolutely love seeing people grow in their careers. The most abundant resource we have is our own potential, and the more we work to develop it, the more we can do."

Alfred Lin, a partner at venture capital fund Sequoia Capital, said that if a candidate has the right skill set and the CEO is strong enough to navigate the environment, there is no reason a company shouldn't take a risk on a first-time CFO.

"If you have a CEO who can't build confidence with the investor community, then you need someone with two or three CFO stints of experience," Lin said, who is a major investor in Airbnb, DoorDash, and Instacart. "Other than that, I don't see much difference between first-time and second-time CFOs. If a CFO is just doing the same thing over again, even with experience, I wouldn't hire them."