The Leap From Financial Overseer to Top Strategic Thinker Can Be Difficult.
One day the finance chief, the next the leader of a global giant competing in all of the world’s big markets. Do the skills translate? Gerard Baker, interviews Indra Nooyi, Chairman and CEO of PepsiCo. It’s a huge leap—going from overseeing a company’s finances to steering the company itself. What do executives need to know when they make the leap from CFO to CEO? How should they prepare themselves?
Below are edited excerpts of their conversation.
MR. BAKER: The route from CFO to CEO seems to be becoming more common. You were one of the pioneers of this back in 2006, when you became CEO of PepsiCo. Why do you think it’s becoming more of a well-trodden route?
MS. NOOYI: I don’t know if it’s a well-trodden route, at this point. It could be, but it’s largely dependent on the kind of CFOs that we develop in the company.
The reason CFOs became considered for CEOs at all is because regulations, Sarbanes-Oxley, confused the hell out of boards and CEOs. And the world has become more complex. Transformations have to be done of companies.
MR. BAKER: It seems that a CFO’s role can be fundamentally different from a CEO’s role. There’s the obligation to be the superintendent of financial discipline, whereas the CEO’s role is more strategic. Should there be clearly defined, demarcated responsibilities there?
MS. NOOYI: People have often said being a CEO is like conducting a symphony orchestra. The problem is that CEOs don’t have music that’s given to them with a set structure. We have to make up music as we go along. In many ways, being a CEO is like leading a jazz orchestra. You improvise. Herein lies the problem. CFOs tend to be good at [a structured role, like playing in a traditional symphony], and [when CFOs become CEOs] you move to a jazz structure.
How do you do that? If CFOs expect somebody to give them a structure, and to play with a narrow set of rules, it’s hard to be a CEO. Early in a person’s career, you’ve got to say, “This person has potential. How do I get them to graduate to jazz?”
MR. BAKER: Is there a particular sort of experience building a CFO should follow, if this is what they want to do?
MS. NOOYI: You pick three or four people you think can be moved along and give them broad experiences. Not necessarily running a business, but put them in charge of big transformational projects or send them overseas. Give them experiences they would never have in the traditional CFO job and have them open their minds to all kinds of experiences, give them the ability to shape an agenda.
MR. BAKER: Isn’t there also a governance responsibility that CFOs have, which maybe puts them at odds with the CEO?
MS. NOOYI: Given how difficult the environment is, CFOs are getting more and more involved in strategic decisions. They have to be, because any decision a CEO makes has got financial consequences. Most CEOs I talk to look upon their CFO as a partner, and they’re bringing them into the process extremely early.
MR. BAKER: Tell me about what you think of the way systems work in different countries.
MS. NOOYI: We were doing investor meetings in the Pacific Rim. The questions they asked are about, “What’s your talent-development process? How do you think about strategy?” They’re much more about, “How is this company going to be successful well into the future?”
Then as you come over to Europe, very similar kind of dialogue, especially when you see the people in Germany or Switzerland.
And you cross the Atlantic, it’s always about, “How’s the quarter looking?” I’m not suggesting the answer should be one or the other. I think a focus on one, without the focus on the other, is a problem.
MR. BAKER: How do you bring that balance back?
MS. NOOYI: The first thing that one needs to do is just talk about this long-term envelope that you’re going to work under, which some companies have done. A second option is to marry quarterly guidance with some universally accepted scorecard, where we look at a bunch of metrics which talk about the health of the company. Today, we don’t have either. If we want iconic companies to succeed, to keep the economy strong, we’re going to have to do something.