Is a Background in Finance Necessary For a CEO?

By | November 22, 2018

CEO financial skills
A recent study completed by recruitment firm Robert Half found that 47% of CEOs on the ASX-200 this year have a background in finance.

Globally, while the portrait of the CEO is changing, it’s clear that – with close to one in two leaders holding a finance background – most senior executives benefit from a firm grasp of numbers and the bottom line.

Why is finance important for the role of CEO?

Today, the modern finance professional does far more than simply tally up income and balance sheets, or so goes the old, tired stereotype. Instead, the role of finance has evolved to analyse and report on the organisational health of their company. In this way, the role has instead evolved to a more strategic, advisory post.

The language of finance is the language of business. Making forward-looking decisions requires the ability to understand the financial reports that not only reveal the financial health of the company, but help leaders identify trends for growth and development. CEOs need to use this information to weigh potential risks against benefits. Having the financial acumen to understand and take advantage of key opportunities is crucial for today’s CEO.

Leadership is also more than just the bottom line

Of course, the role of CEO is not exclusive to the realm of finance. While finance makes for a good foundation, many CEOs come from very different backgrounds: sales and marketing make up a good proportion, and more and more scientists, engineers, and technology specialists are rising to the top.

Any successful career, regardless of the starting point, will build skills and experience that are especially beneficial for leadership roles: the ability to communicate clearly; the ability to use and adapt to technology; understanding the intricacies of a business and how it influences the bottom line; and the ability to understand risks and opportunities as they present themselves.

In fact, in a study by LinkedIn analysing 12,000 CEOs on the networking platform, the traits they all had in common was “the ability to handle complex problems, inspire others, and prove themselves at every stage of their career path.”

Traits of today’s CEO

Robert Half’s CEO Tracker has identified other important trends in executive leadership. A good example of this is international experience: 59% of the ASX-200 listed CEOs have worked overseas. In an incredibly globalised world, experience working abroad is an important way candidates can differentiate themselves. Being able to work cross-culturally, and being able to demonstrate success doing so, is more important than ever.

Similarly, diversity of experience is another area in which CEOs benefit. Having a broad range of experiences to draw from is beneficial in a business world in the midst of incredible disruption; according to the London Business School, this may be because having seen more, leaders can envisage many different possibilities, opportunities, or outcomes. And the data also supports this, with 35% of ASX-200 leaders being hired externally.

The flip side of this is the 65% of CEOs being hired internally. Tenure as CEO is an important consideration; while some industries and companies will benefit from an outsider’s perspective, others thrive under leaders that have a deep understanding of their business.

Which is preferable? Whether a company is looking for someone new, or to promote someone up the ranks, it is far more important that they are suited to the role specific to the company. More traditional fields – healthcare or finance, for example – tend to prefer candidates who have spent more time within the company, getting to know the way the business is run. Conversely, newer companies are much more open to hiring someone new.

At the end of the day, a financial background is certainly beneficial, but the role of CEO is about far more than just the numbers. Leadership takes communication, forward-thinking, adaptability, an understanding of the complexities inherent to business, and being able to rally people to the cause. While it is undeniable that many of today’s CEOs in Australia have a background in finance, equally important is acquiring the diverse skills a great leader needs.

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