CFO to CEO – Should the CFO take the helm during a crisis?

November 17th, 2020

CFO to CEO – Should the CFO take the helm during a crisis?

The archetypal CEO in Private Equity has strong domain knowledge, a growth mindset and leads a team to deliver a value creation journey towards a time-bounded liquidity event, whether it is internationalisation, digitalisation or M&A. Most CEOs who fit this archetype are at the helm when the business hits an iceberg.

But is the classic CEO the right leader of a Private Equity backed business during a crisis? Do they have the necessary skills, attributes and behavioural traits required to lead a PE backed business through times of significant economic distress and performance impairment, and make the corrective actions necessary to keep the business afloat? Or do we need to look at a different profile? One such as the prudent, cost-cutting, structured, pragmatic mindset typically found in the CFO for instance? To answer this question, we look at previous instances where the CEO was previously a CFO or had a finance background.

An interesting observation is that out of the current c3,400 Private Equity backed businesses in the UK, some sectors have always been ‘hotter’ than others for CFOs stepping up into CEO roles. This is very apparent over the last 10 years in Private Equity, as illustrated in the diagram below. Remarkably, Financial Services, Industrials and Information Technology account for over 60% of these appointments. Whereas conversely, for CEOs in Consumer Businesses, Real Estate, Utilities and Energy, the number of CFOs to CEOs are rare.

However, there are key moments in the business or macro-economic cycle, when the skills of the CFO in leadership roles come to the fore in running a business and have been in higher demand than others. It would appear, that in times of extreme business stress or performance impairment, the Private Equity house reverts to hiring-in those attributes more commonly found in CFOs than CEOs, to provide business stability. Mark Tomley, Head of the CFO search practice at Drax agrees: “In certain circumstances we have seen a number of CFOs in private equity backed businesses becoming the CEO; if the business strategy is severely impaired due to the crisis and becomes a distressed sale, then the required course of a CFO stepping up into the CEO role is really the most impactful change in this situation.”

During ‘business as usual’, 78% of CFO to CEO moves are internal.[i] However, outside ‘business as usual’, there may be several reasons why an external CEO or Chair with a finance background will be favoured. McKinsey[i] found that in over 70% of ‘non-businesses as usual’ cases this was because of a specific strategic event, such as a turnaround or M&A programme.

Richard Last is the former Group FD of Quadrant Group Plc, the former CEO of Lynx Group Plc and current Chair of several PLCs and Private Equity backed portfolio companies such as Gamma Group Plc and Tribal Group. He says: “There are times when a very sales-driven CEO doesn’t work, for example when sales growth is starting to slow, or a more rational, rather than gut feel, approach is required. At this point, you need a CEO who isn’t just going to cut costs but drive out inefficiencies from the business; a CEO with a finance background could be very good at this.”

Richard feels that his training at Coopers & Lybrand, and then being in a CFO role before becoming a CEO and now Chair, has allowed him to look at a business more holistically. He can stand back and question how a business can be successful given its current constraints, or even remodel the constraints to deliver the required return to shareholders. In his experience, he states: “You never get the ‘hockey stick’ sales projections from finance people, as business plans tend to be more structured and realistic.”

But back to the exam question – what about in a crisis? Covid for instance? The Covid pandemic has been the biggest crisis we will face in a generation, so is there any evidence of recent crises that we can look at to predict how the market will respond?

The Brexit Effect

On 29th March 2017, Theresa May invoked Article 50, officially starting the process for the UK to leave the EU. What followed was chaos, both in the political and economic landscape in the UK.

The way that Private Equity investors reacted to the market turmoil, and the need for fast financial stability in their portfolio businesses, was fascinating. In short, we saw an unprecedented uptick in the appointment of both Chairs and CEOs with a finance background.

However, by 19th March 2018, the UK and EU had reached an agreement on the key issues regarding Brexit; stability returned, and we saw a corresponding market correction, as the need for that specific CFO skill-set and the initial ‘knee jerk’ reaction had passed.


As we have now entered the second Covid lockdown in the UK, it’s a bit premature to see if the same trend will be repeated, but it certainly looks that way. What is interesting is that the uptick in CEO appointments has already taken place but, as of yet, not with the corresponding Chair appointments.

Defence vs Offence (or CFO vs CEO)

It’s clear from the above data, that in a crisis or turnaround situation, the obvious reaction from Private Equity is to appoint a CEO and Chair with financial DNA to stabilise the business. But how do you find the ‘right’ CEO or Chair to continue to run the business post-crisis, rather than just the ‘knee jerk’ reaction to hire someone who can cut costs. Can you find a leader who can do both? Well, we at Drax think we have the answer.

At Drax, we have a methodology for defining aspects of a role which statistically have the most impact in a time-bounded, value creation, private capital structure (AKA Private Equity). In short, we can predict the value that leaders bring to Private Equity backed businesses, with around 87% certainty.

Our methodology has three ‘hard’ criteria – Domain, Function and Situational – and one ‘soft’ criterion – Behaviour. These criteria allow us to look at what attributes would predict success, and in turn, extrapolate these attributes to leaders, regardless of their background and current job title. They can also predict those who can successfully make the transition and provide board complementarity, whilst having the ability to successfully address unseen economic macro issues (e.g., Covid, Brexit).


So, in times of crisis and given a very specific and execution-oriented strategy such as turnaround or M&A, we have seen the importance of the archetypal skills of the CFO coming to the fore. This is what we at Drax define behaviourally as Pragmatism and Execution, with the non-archetypal CFO-like behavioural traits of Curiosity and Agility, whilst essential for a CEO to drive strategic business growth, are less relevant during a crisis or turnaround.

In short, we are able to find the DNA of resilient leaders who can lead through a crisis and beyond. We can predict their propensity for success without having to ‘knee jerk’ and go from a bust to boom strategy of replacing the CEO with a CFO, and then back again when the storm passes.

Yes, we can actually test and reliably predict resilience propensity in a leader!

If you would like to hear more about how we at Drax are changing the way leadership in Private Equity is delivered, please get in touch, or follow us here.


[i] When should CFOs take the helm? | McKinsey

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