COOs Win Out Over CFOs... Pretty Much All the Time

COOs are being promoted to company leadership in the vast majority of corporate shakeups as they continue to gain a “managerial” advantage over CFOs, according to a new study.

More than 75 percent of newly appointed CEOs are former COOs within their companies, while only approximately 10 percent of the new CEOs are former CFOs, according to research released by the Hanken School of Economics.

The study analyzed a sample of 1185 recent CEO appointments and discovered that executives with business line and operating responsibilities had a clear advantage over CFOs' accounting and finance acumen.

“[Dominance] of internal COOs over internal CFOs may be attributed to a closer hierarchical ranking and a longer company tenure that could reflect their accumulated managerial abilities and work experience,” the research, authored by doctoral student Yamin Xie, states. “An explanation of the relatively low showing for former CFOs, both internally and externally, may relate to the fact that CFOs are believed to possess less general knowledge and therefore are ranked lower for selection than former COOs.”

The research states that 76.8 percent of the CEO appointments studied resulted in the promotion of the COO to the top spot. The next likely candidate was an internal CFO (12.1 percent), followed by an external CEO (6.9 percent), external COO (3.3 percent), and external CFO (0.93 percent).

So in what instances will an internal CFO be promoted to CEO? In short: when things are good and the board wants keep it going.

“[The] board prefers the internal CFO when both relative operating and stock market performance are good, and when industry stock performance is good,” the paper states. “The CFO’s promotion might be a reward for the firm’s outstanding financial performance.”