A strong working dynamic between the CFO and CEO is crucial for bolstering confidence among employees, boards and stakeholders and leads to better decision-making and more effective problem-solving.
But although the majority of CFOs (81%) give their CEO high marks for overall effectiveness, less than half (49%) of CFOs say they have a “very strong” relationship with their CEOs, according to a survey by executive recruitment firm Russell Reynolds.
The CFO-CEO power dynamic is evolving
The CFO is sometimes considered second in command to the CEO but there are signs that this C-suite power dynamic is changing. Both boards and investors are placing more confidence in their finance chiefs, who have become an increasingly dependable source of analysis and calm in troubled times – a trend that is reflected in the growing number of CFOs becoming CEOs.
But as they gain more clout, the roles of the CFO and CEO are blurring. In some situations, finance executives are even usurping their chief executives. Investors now rank CFO competency as the second-most important factor for investment decisions, behind market expansion opportunities, according to a survey by finance platform OneStream. Meanwhile, CEO competency ranks seventh.
“Expectations for CFOs have grown significantly,” says Bill Koefoed, CFO at Onestream. “Amid ongoing economic challenges, such as inflation, rising interest rates and the evolving regulatory environment, business leaders and investors are looking more closely at their CFOs.”
Even chief executives are relying more heavily on their finance chiefs. Most CEOs (67%) believe an organisation’s failure or success rests squarely on the shoulders of their CFO, according to the same Onestream survey.
However, Koefoed believes that, despite the growing influence of the CFO, they are still there “first and foremost” to support the CEO. Organisations still need a CEO to set the vision and keep the business on track, while the CFO is there to be a strategic partner and to anticipate what is coming, he explains. “If anything, there is even more pressure to collaborate. This is where you get the most productive relationships.”
Finding a rhythm and building trust
To strengthen collaboration and build rapport, Jason Byrne, CEO of consultancy firm Sullivan & Stanley, believes both leaders need to be aligned on growth, risk and financial priorities. For example, he says: “When differences in interest over short and long-term performance metrics arise, consider a dual-metric that satisfies both. This provides shorter quick-wins, which are often a CEO’s focus, in a sustainable, longer-term context.”
Similarly, it is important to consider the differences in risk appetite. For instance, a CFO could manage a CEO’s eagerness to enter an emerging market by proposing a phased entry, balancing a bold opportunity with smaller financial risk.
For CFOs, Byrne also recommends tailoring presentations to the CEO’s style, which will typically highlight key points over exhaustive detail, and advises CFOs break complex problems down into smaller ideas.
It can be particularly difficult to navigate this relationship when the CEO has previously been a CFO – a dynamic that is becoming increasingly common in the C-suite. Former finance leaders can struggle to relinquish control of their previous financial duties. This was the case for David Selby, former CFO and current CEO at Resident Advisor, an online music publication and ticketing site. He took on the new role in 2021, but admits: “I’ve still not figured out those boundaries yet. I struggle to delegate and probably cover too much of that financial space.”
Selby believes it takes the right person to inspire the required level of trust. “As a CEO I need to be able to take my hands off the wheel a bit and think about future goals,” he says.
Ultimately, a trusted relationship can only be fostered over time, by working together and getting to know each other’s strengths, weaknesses, goals, concerns and style.
But while chemistry is important, it should not be relied upon. Koefoed says: “If a CEO walks into a management meeting and asks for last week’s sales figure, and both the head of sales and the CFO have different numbers, they’re going to be hugely frustrated. They rely on their CFO to not only know the numbers but to make sure everyone is aligned on them.”
Conflict is inevitable — learn to take advantage of it
The CEO-CFO relationship can be fraught, according to Charlotte Lowe, partner in the disputes resolution team at law firm Knights. “A strong CEO will be focused on growth and is willing to take risks to achieve it. A CFO tends to focus on limiting risk and complying with their financial obligations,” she says. “Those differences can naturally lead to conflict.”
The key to avoiding or resolving conflict is open communication and strong governance, she stresses. This includes shareholders agreements, defined responsibilities and a clear decision-making process to enable challenges to be tested in a safe environment. “Prompt action is also crucial. At the first sign of disagreement, implement a pre-agreed resolution process to resolve conflict quickly, giving other key stakeholders a determining voice.”
But conflict is not always bad for business. Healthy debate can lead to better decisions and new ideas. CEOs rely on their finance chief to challenge their vision, raise potential issues and hold them accountable. Even board members see this tension as valuable and serves as a sign that both leaders are doing their jobs.
Ensuring difficult conversations are still constructive is a difficult skill to develop, according to Michael Watkins, co-founder of leadership coaching firm Genesis Advisers. He advises executives to leave their ego at the door, pick your battles wisely and stick to facts rather than emotions. This will help to clarify priorities and strengthen alignment, rather than aggravate the situation.
“When dealing with a difficult or over-expectant CEO it is important for the CFO to set clear boundaries and communicate financial realities with candour and clarity,” Watkins adds. “Rather than yield to pressure, arm yourself with principles and facts. Set clear boundaries and communicate financial realities that are grounded in rigorous analysis.”
There’s no clear blueprint for success. The right CFO-CEO dynamic will vary significantly by industry, company size and growth stage. But, like any good relationship, trust, communication and adaptability are vital.
