FORTUNE 500 CEO SUCCESSION PLANNING

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Over the last few years, I have handled a significant number of Chief Financial Officer searches in diverse in-

dustries, for both private and public companies, large and small. As boards of directors look at CEO succession

planning, many of them want their CFOs to be part of the process and this means grooming the internal CFO or

identifying an outside candidate with the ability to compete for the top job.

In the course of conducting these searches, I have spoken with the CEOs, CFOs, HROs and board members of

Fortune 500 companies about their approach to CEO succession to gain insight into the requirements of this

key leadership role and what financial officers should do to prepare.

Many CFOs I have met in the course of my work also believe that the next step in their careers should be the

CEO role. But do they have the right personal and professional competencies for the role? Can a driver of per-

formance, “the corporate cop”, rise above the detail-driven beat to become the visionary of the company?

CFO LANDSCAPE

THEN & NOW

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The landscape for CFOs continues to change. Ten years ago, companies wanted a strategist, perhaps a dealmak-

er, as their CFO. Five years ago, with the passage of Sarbanes-Oxley, companies looked to recruit CFOs with

strong functional accounting skills, ideally with a Big Four background. As we work our way though the worst

economic environment in the last 40 years, companies now require more — a great leader and communicator

with strong strategy skills and the ability to drive performance. They want an individual who can rise up in the

organization and be a solid contender for the CEO spot.

While there are a fair number of CFOs who have made the transition, it is often a difficult one in terms of the

differing functional skills and individual competencies suited to each role. Among Fortune 500 CEOs, 62 indi-

viduals, about 15 percent, assumed this role after having served as CFO of their companies. However, the

vast majority of CEOs who rose from being CFO have done so after a long tenure at their companies during

which they developed the organizational knowledge and corporate support necessary to attain the top role. Most

of these have served as either COO/President or Divisional leader after being CFO and before becoming CEO.

In fact, only four out of the group of 62 were recruited from outside their companies into the CFO position and

then directly into the CEO role. This excludes several CFOs who were recruited from the outside directly into a

CEO role either from a CFO role — such as Darren Jackson, former CFO of Best Buy, who was tapped to be

CEO of Advanced Auto Parts — or another operating role — such as Mike White, brought in as CEO of Di-

recTV after serving as CFO and later Head of International at PepsiCo.

CFO FORTUNE 500 CEO

REVIEW & OUTLOOK

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While board directors may feel more comfortable having a cost-containment expert at the helm in rough waters,

it is not necessarily the case that today’s challenging economic environment has driven the move to CEO by

CFOs. More likely, it is the changing role of the CEO that has made the position better suited to candidates who

have been CFOs. While leadership and strategic vision are still key competencies for CEOs, equally important

is how they interact with the board and investors. CFOs will have substantial experience in three of these areas:

strategy, investors and experience with the board of directors. They have an advantage in competing for the top

job against executives coming out of operating roles, for example, who haven’t dealt with investors or had

much “face time” with the board.

However, the current economic conditions have given the CFOs who have made the switch some additional

time to learn their jobs and demonstrate an impact on the organization. The current market conditions have

made it difficult for any company to grow their revenues. Many of these new CEOs have had to learn their

sales and marketing organizations and the lack of pressure to grow their revenues immediately has provided

more time to learn before performance becomes a requirement.

In general, it appears that this trend will continue and even accelerate in the future. First, new CFOs being re-

cruited tend to fall in a group that has the longer term potential to be CEO. They are more strategic and fit the

business partner requirement that is in ever greater demand by the market. In addition, CEOs and boards of di-

rectors are actively preparing CFOs to become CEOs by moving them into operating roles or other senior staff

roles that not only will prepare them for the top job but also inculcate the support they’ll need from both the

board and the broader organization. During the past several years, the following companies, among many oth-

ers, have placed their CFOs into other positions as part of internal succession planning and people development

processes: Amgen, Baxter, Conoco, Gilead, Intel, Kellogg, MasterCard, Nextrea, Office Depot, Southern, and

Stanley Black & Decker.

Are there industries that make a better platform for the move from CFO to CEO? The distribution of CEOs who

have been CFOs of their companies is spread across many industries but there is a concentration in industrial,

consumer-facing and natural resources companies.

CFO CEO CAREER TREND

WHAT THE NUMBERS SHOW

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A deeper dive into how 62 CFOs became Fortune 500 CEOs...

Promoted directly from CFO to CEO 36%

Recruited from outside to CFO role 30%

Average length and direction of their career paths...

Company tenure before becoming CEO 16 years

Operating roles (post-CFO) 33%

Senior staff roles (pre-CEO) 33%

Company tenure as CFO 4.5 years

Company tenure before becoming CFO 8 years

Analytical roles (pre-CFO) 66%

By Industry

Industrial

Consumer

Natural Resources

Transportation

Utility / Power

16

10

9

7

6

Services

Financial Services

Telecommunications

Media & Entertainment

Real Estate

5

4

3

1

1

Theoretically, high velocity, logistically intensive, low-gross margin businesses would seem to be bet-

ter platforms for CFOs to make the leap to CEO. These businesses more often play to the “sweet spot”

of CFOs in being less branded, execution- and cost-focused businesses where strategic direction is less

consumer-driven and potentially more about turnarounds, JV’s, and acquisitions. In reality, the market

has offered us several high-profile examples of consumer products companies — Hershey’s, Pepsi Co.

and Sara Lee — whose CEOs previously had served as CFOs. However, the number one connector of

this concentration is that these are capital-intensive industries. The industry analysis captures no repre-

sentatives from business services, health care or technology.

CFO FORTUNE 500 CEO

HOW HAVE THEY PERFORMED?

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Do CFOs turned CEOs produce a better return for shareholders? There are clearly many factors that influence

share prices, including: previous performance and investor expectations, competitive factors and external mar-

ket conditions. That said, on average, this group of CFOs has performed well in the role during the last 18

months, with the majority of their companies outperforming the S&P 500 index.

Industrial

John Surma (US Steel Corporation)

Charles Szews (Oshkosh Corporation)

James Wainscott (AK Steel Holding Corp.)

Tom Linebarger (Cummins Inc.)

Matt Simoncini (Lear Corp.)

Wes Bush (Northrop Grumman)

Michael Thaman (Owens Corning)

Kevin Marsh (SCANA Corp.)

Chris Kubasik (Lockheed Martin)

Stephen Roell (Johnson Controls)

Timothy Wadhams (Masco)

David Hannah (Reliance Steel & Aluminum Co.)

Brian MacDonald (Sunoco)

Rich Kramer (Goodyear Tire & Rubber)

John Faraci (International Paper Co.)

Doug Oberhelman (Caterpillar Inc.)

Utility/Power Companies

Ben Fowke (Xcel Energy)

Tom Fanning (Southern Co.)

Lewis Hay (NextEra Energy)

Theodore Craver (Edison International)

Joseph Rigby (Pepco)

David McClanahan (CenterPoint Energy)

Natural Resources

Gregory Ebel (Spectra Energy Corporation)

Richard O’Brien (Newmont Mining Corp)

Richard Adkerson (Freeport-McMoRan Copper & Gold)

Dave Lesar (Halliburton)

Michael Jennings (Fontier Oil Corp)

Stephen Chazen (Occidental Petroleum)

James Mulva (ConocoPhillips)

Jim Rogers (Eastman Chemical)

John Watson (Chevron)

Media and Entertainment

Gracia Martore (Gannett)

Telecommunications

Randall Stephenson (AT&T)

Michael Strianese (L-3 Communications Holdings)

Glen Post (CenturyLink)

Real Estate

Ed Walter (Host Hotels & Resorts)

Services

John Wren (Omnicom Group)

George Scanlon (Fidelity National Financial)

David Steiner (Waste Management Inc.)

Thomas Quinlan (RR Donnelley)

William DeLaney (Sysco)

Financial Services

Thomas Watjen (Unum Group)

Al Lord (SLM Corporation)

Robert Pollock (Assurant Inc.)

David Cordani (Cigna)

Transportation

John Wiehoff (CH Robinson Worldwide)

Tom Horton (AMR Corp.)

Scott Davis (UnitedParcel Service)

Doug Parker (US Airways)

Gary Kelly (Southwest Airlines)

Michael Ward (CSX Corp)

Ron Nelson (Avis Budget Group)

Consumer

Robert Niblock (Lowe’s Companies)

Louis Camilleri (Philip Morris international)

Jim Murren (MGM Resorts International)

Indra Nooyi (PepsiCo)

Clarence Otis (Darden Restaurants)

Emanuel Chirico (PVH Corp.)

John Standley (Rite Aid)

Marcel Smits (Sara Lee)

Larry Pope (Smithfield Foods)

John Bryant (Kellogg)

STRAIGHT FROM THE SOURCE

HOW TO MAKE THE LEAP TO CEO

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In a wide range of interviews we have conducted with CEOs, board members and the senior management of

organizations whose CEO came up the finance ranks, we consistently found that the following requirements

and personal competencies characterize this career path:

1. Focus on People

As CFOs make the move to the CEO role, many of them find that the more important part of the transition

is about the power of people, not just the use of great analytical abilities. They have to change their way of

motivating people as they are no longer necessarily interacting with high caliber, self-motivated MBA’s;

they have a front line in the organization that requires different leadership skills and most CFOs don’t have

experience with this group of employees. Many found that they had to moderate their expectations.

“I focused heavily on the sales and marketing organizations as I needed to learn that area. Because of

this focus, they began to stand out in their organization and began to shine.”

“Frankly, I spent little time with my old finance team and they felt a bit left out, but I had to focus on

other areas for the good of the company.”

“I had to learn to become much more patient, give people space and just shut up and listen.”

“I moved very quickly to make some organizational changes. I didn’t wait for six months to change

some reporting lines and to fire a direct report. I needed the organization to understand what I valued

and that I wouldn’t tolerate individuals who didn’t have the best interests of the organization front and

center.”

2. Focus on Growth

In order for CFOs to be taken seriously as candidates for CEO by the broader organization, they had to fo-

cus on growing the top line. They had spent much of their careers managing the middle of the P&L, but in

order to get to the top job they had to become about growth.

“I had to get out into the field and meet with our customers. I had to better understand our business

from a different perspective.”

“I took on more responsibility and that included a geographic P&L. By showing the organization that I

could live within ‘my rules’ and still grow the top line and hit the bottom line number, I gained credi-

bility that allowed the organization to create some pull for me into the top job.”

“I had worked a great deal on the supply chain and I knew that side of the business but until I interact-

ed with customers and tried to grow our business the organization hadn’t accepted me as a broader

leader.”

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3. Interpersonal Skills

The CEO is a leader of the broader organization and he or she has to interact in a different way than the

CFO.

“Listening to others became an important part of what I did. I had to save my opinion for the end.

Otherwise, I couldn’t get a range of opinions from the team. Once they heard mine, they tended to

line up behind it.”

4. Communicating with the Street and Board of Directors

In today’s environment, the CEO is required to spend a great deal of time on corporate governance issues,

managing board members and representing the company with the Street. As noted earlier, CFOs have an

advantage in this area given the range of their responsibilities. They are key participants on conference

calls, answer investor questions, represent the company at industry gatherings and often attend all board

meetings.

KEY TAKEAWAYS

CFO SUCCESSION TO CEO

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Are you a CFO who aspires to the corner office? Or a stakeholder invested in grooming your CFO for the top

job? Either way, it’s essential to realize that the successful CFO candidate for CEO needs to have a series of

preparative experiences that will not form a linear path upwards through the organization. The following con-

siderations should be part of your planning process:

1. Get Out Into the Business

Build experience with customers and the front line of the organization. You have to understand what your

customers are really thinking about in terms of your products and/or service offerings. For example, as-

sume additional responsibilities including some account coverage or geographic P&L management.

2. Put the Finance House in Order

If the CFO is going to engage in other activities — such as focusing more on the top line, customer and the

front line of the organization — someone else has to make sure that the finance organization is operating at

a high level. This means that your people have to be strong, your processes have to be working, and you

have groomed your backfill. Of course, once you have made the leap, “You have to resist the urge to just

be a super CFO vs. CEO…and let the CFO do his or her job!”

3. Prepare for Higher Stakes and Greater Personal Demands

You “need to have a balanced life and make sure that your personal house is in order before you take the

step…[T]he job can be lonely and you have to understand that most people who deal with you will have an

agenda.” The pressure that you feel as CEO is different, the level of responsibility is great and this is why

many strong CFOs don’t aspire to be the CEO of their organizations.

4. Cultivate “Big Picture” Thinking

Another way to gain a fuller perspective is to join a board of directors that will allow you to observe and

learn from another CEO. In addition, you will have a vantage point on that organization that will be differ-

ent than your current one and should enable you to think at a higher level that is not confined by daily exe-

cution requirements.

5. Anticipate and Align Top Executive Support

For any organization looking at the CFO as the future CEO, it is prudent to consider ways it needs to bol-

ster areas in which the candidate is lacking substantial experience or knowledge. This might include devel-

oping a COO role that provides support to the CEO in sales and marketing, for example. A strong human

resources side to the organization is also essential, and the CFO should appreciate how this function can

really help him or her understand how the organization feels and thinks, how he or she is perceived and

what operational changes are needed for the health of the enterprise.

SUMMARY

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While it is possible “to kill two birds with one stone” by attracting a strong CFO with the leadership potential

to head the company in a few years, an organization is best served by recruiting a world-class financial officer

and helping him or her to develop a holistic view of the organization over time rather than taking a sling-shot

approach to the CEO spot. The organization needs to plan the transition, with a well-orchestrated advance

strategy played out in ample time prior to making the final move.

Chris Langhoff is managing partner of CCL Search LLC - The Financial Officer Practice.

As Managing Partner, Chris brings a unique perspective to the recruitment of financial officers. With more

than 20 years of experience as both a financial officer and executive recruiter, he understands the role for

which he is recruiting and can communicate effectively to both candidates and clients on many levels during

the search process. His industry experience includes the Consumer, Retail, Financial Services and Professional

Services sectors.

As a human capital expert, Chris has been both a Chief Human Capital Officer for an alternative investment

management firm and was a Managing Director at Russell Reynolds Associates. In terms of his financial back-

ground, Chris was the Chief Financial Officer of Waterworks, a luxury specialty retailer. There, his primary

focus was to drive business results and develop a strong relationship with the company’s private equity owner-

ship. Prior to Waterworks, Chris spent more than 12 years in various senior finance roles at PepsiCo, his last

role as Treasurer and Head of Investor Relations for Pepsi Bottling Group. During his PepsiCo career, he was

a member of the team that successfully executed the IPO of Pepsi Bottling Group. He also worked in operating

finance roles for both Frito-Lay and PepsiCo Food Systems. Chris began his career as an associate in the Equi-

ty Derivatives Group at Goldman Sachs.

Chris received his B.A. degree from Vassar College and his M.B.A. degree from Harvard Business School.

About the Author

ABOUT THE FIRM

CCL Search LLC – The Financial Officer Practice is an independent executive retained search firm that is dedi-

cated to the recruitment of CFOs and their direct reports.

Leading corporations engage CCL Search to gain a competitive edge in the marketplace. The kind of ad-

vantage you get when you hire a specialist. A specialist that provides a unique insight into people. An insight

that will save you time and money identifying, assessing and recruiting the right talent for your firm. Offering

large-company capabilities and best practices with the focus that only a boutique can provide clients.

CCL Search LLC is a retained executive search firm, trusted by leading financial services and corporate institu-

tions to handle their strategic financial officer hiring needs. CCL’s leadership team has served public and pri-

vate companies in the consumer/retail, financial services, real estate, hospitality, healthcare, industrial, and

power and energy sectors, both as business executives and as executive search recruiters.

As recruiters with similar professional backgrounds to the clients we serve, we offer a dual-perspective that sets

us apart from our competitors. We understand your needs better than anyone because we’ve been clients our-

selves. We welcome the opportunity to discuss how we can help improve the performance of your business or

investment by partnering with you in winning the war for talent in the recruitment of financial officers.

www.ccl-search.com | 646-783-1435 | clanghoff@ccl-search.com