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What does it take to make the grade as CEO? Recent promotions in financial services provide some clues.
Eila Rana, CFO Europe Magazine
March 3, 2008
When Philip Moore, former group finance director of Friends Provident — a £7.7 billion (€10.2 billion) UK life insurer, took over as CEO in early 2007, he quickly moved to make his mark with a bid for Resolution, a rival UK company. The proposed merger — announced last July — would have created an £8.6 billion group called Friends Financial. By October, the deal was in tatters after Standard Life and Pearl Assurance launched competing bids for Resolution. Moore resigned in November after intense pressure from shareholders, who were unhappy that he had allowed the merger to collapse.
Mike Biggs, who was promoted from group finance director to CEO at Resolution at around the same time as Moore, emerged unscathed. At one point, the local press reported that institutional shareholders at Friends Provident were seeking to hire Biggs to replace Moore. But Biggs has remained at the £5.2 billion company to see through its acquisition by Pearl. Having done that, he is due to step down at the end of April.
Why do some CFOs perform better than others when they step up to the CEO role? Observers, from headhunters to analysts, agree that the transition from CFO to CEO is not always a natural one. Suzzane Wood, head of the finance officers' practice at Heidrick & Struggles, a recruitment firm, says CFOs have the technical skills to be CEOs but they often struggle to master the commercial and communication aspects of the job. She can always spot CFOs who have all three skills because they're the ones who want to move on quickly and not spend too much time in finance.
A McKinsey study bears this out. Of the CFOs in the UK's FTSE 250 companies who moved to CEO between 2000 and 2006, more than two-thirds had at some point worked outside finance. Less than half had been promoted directly from the CFO position.
Although Resolution's Biggs went directly from CFO to CEO, he did have operational experience. For example, in 1995, he became general manager of insurer Norwich Union's international operations and in 2000, following the merger between Norwich Union and CGU, he was appointed group executive director of CGNU's UK general insurance business. Moore, by contrast, had held only finance-related posts since leaving PricewaterhouseCoopers in 1998, after a nine-year stint with the accountancy firm.
Tim Young, an analyst at Collins Stewart, reckons Biggs's success lies in his broad experience. He has a "solid grasp of the financial conditions and strategy of the firm, and the relationship between strategy and financial management," he says. "He is also at the leading edge of the financial and capital management of life-insurance companies." He also has the ability to help investors understand how value is being created and "he was quite resolute in pointing out to people how various parts of the business should be valued and were being undervalued in the marketplace," says Young.
Moore's CEO stint was markedly different. Young claims he underestimated shareholders' expectations in terms of timescales for implementing strategy and delivering returns. One of Moore's lowest points came last April when he had to backtrack on ambitious growth targets after his finance director, Jim Smart, raised concerns about a lack of cash to fund that growth. "To have misjudged the capital position with regard to that programme was pretty unforgivable," says Young. However, he adds, "there was nothing wrong with Philip Moore as a finance director. I don't think he had the capabilities that were really required of a deal-maker in the FTSE arena."
There are CFOs who have shown it is possible to make a successful transition without any commercial experience. For example, Peter Sands, CEO of Standard Chartered since 2006, was promoted from the group finance director role. Before that, he was a consultant with McKinsey.
Another exception is Andrew Moss, who stepped up from CFO to chief executive at Aviva, a £45.4 billion UK insurer, last July. After training as a chartered accountant at Coopers & Lybrand (now PricewaterhouseCoopers), Moss held senior finance roles at HSBC and Lloyd's of London before joining Aviva as group finance director in 2004. He has had a good run as CEO, keeping investors on side last month when he announced a 2007 turnover of £31.6 billion, a 22% increase on the previous year and above analysts' expectations.
As soon as his promotion was announced, Moss recalls how he sought advice from Aviva's chairman and other non-executive directors on how to prepare for the transition. He also worked with an executive coach, who helped him identify areas to focus on. "I also spent time thinking through my vision for the company — where I wanted us to be in five years, how I visualised my legacy and so on," says Moss. That led to "One Aviva, twice the value," a programme to help the company deliver operational efficiency. He also set targets for annual cost savings of £350m by the end of 2009, and sales growth of its long-term savings business in the UK at a rate at least as fast as the market and in Europe by an average of at least 10% a year between now and 2010.
The transition work didn't stop once Moss had moved into the CEO's office. Along with visits to various business units and functions other than finance, he also consulted outside organisations — including Insead, a business school — to get another perspective on the company. "All of this helped me to flesh out my vision," he says.
Moss's transition strategy has paid off, but he may find he's at the end of the honeymoon soon. Collins Stewart's Young says that while Moss hasn't done very much wrong, Aviva's share price has fallen from 741 pence when he took over in July 2007 to 568 pence last month. Shareholders will start to put pressure on Moss to reverse that.
But that, after all, is what a CEO is there for. Does Moss have any advice for aspiring CEOs in finance departments? His answer is to get out and understand the business; get quality feedback on how you are viewed; work out a personal-development plan; and find people who will champion you, whether that be the chairman or other non-executive directors. Most important, "keep focused on your day job. Don't drop the ball because you're too busy aspiring to be CEO."
Eila Rana is senior editor at CFO Europe.