CFO vs CEO: 7 Key Differences to Understand
It is easy to hear the terms CEO and CFO and assume that these two roles are the same or interchangeable. However, there are many differences between the two.
The Roles Explained in Short
CEOs and CFOs both serve important roles within an organization and it is crucial to understand their differences. Each role serves a different purpose as described below:
- CEO: The CEO is the face or “head” of a company. They are responsible for making all decisions on behalf of the company. They can also be called the “president” or “founder.”
- CFO: The CFO is responsible for making decisions regarding the company’s finances and growth.
7 Key Differences Between a CFO and CEO
In short, the differences between CEOs and CFOs can be found in their overall scope and responsibility in an organization. The remainder of this article discusses seven key differences between the two roles to better any aspiring executive’s understanding.
1) Primary Responsibilities: Finance vs Overall Strategy
CEOs and CFOs both have varying responsibilities and their roles require them to operate within different scopes. The difference in their roles also defines their primary focus as part of the organization.
CEOs serve as the “figurehead” of their company. They are typically the founder and have built the organization from their own vision. CEOs represent the company to the public, stakeholders, and a board of directors. They determine the direction the company will take.
CFOs oversee the company’s finances. They manage the financial planning, budgeting, reporting, and accounting aspects of the company. They also ensure that the company’s finances meet regulatory requirements and ensure compliance with government regulations.
2) Decision Making Authority
CEOs and CFOs both have decision-making authority. However, the scope and spectrum of their authority varies according to their respective roles.
For instance, CEOs make decisions for the company that affect its long-term growth and profit margin. They also make decisions with regard to mergers, acquisitions, partnerships, and other major investments. The CEO steers the company in their desired direction and then the CFO steps in.
The CFO is responsible for making financial decisions that align with the company vision. They make decisions regarding allocation of capital, investments, and financial strategy. They ensure financial stability and provide advice on the financial implications that some decisions may have on the business.
3) Reporting Structure
The reporting structure of an organization can also be described as the “chain of command.” The reporting structure defines who reports to whom in the company.
The CFO reports to the CEO and offers financial insights and recommendations for strategic decision-making. The CFO ties all of the financial aspects of the company into a nice package and delivers it to the CEO.
The CEO reports to their company’s board of directors. CEOs are ultimately responsible for the company’s growth, performance, and governance.
4) Qualifications and Background
While qualifications and background are not the only markers of an effective leader, they do matter tremendously. A leader’s experience level in their field of work dictates the decisions they make for the company and the reasons they make them.
CEOs typically exhibit the following skills: extensive leadership experience, vision, and strategic thinking skills. CEOs must have a vision for their company and the leadership experience to run the business successfully. Strategic thinking skills are also critical in their role since they often have to think outside of the box to effectively solve problems. Many CEOs have business degrees, which is a great starting point.
Furthermore, CFOs require a leadership skill set that focuses on the financial aspects of the company. CFOs are required to have financial expertise and knowledge, analytical skills, and a deep understanding of the regulatory requirements necessary for running and overseeing a company or business. Learn more about how to become a CFO.
5) Leadership and Team Management
With different leaders, there are different personalities, which also means there are different leadership styles that exist within a company. Leadership style refers to the manner in which individuals in different leadership positions guide and influence their teams and companies. CEOs and CFOs may naturally vary in their leadership styles due to their different focuses.
CEOs are responsible for setting the tone of corporate values and culture. They are responsible for inspiring and motivating their employees to reach company goals. CEOs should be strong leaders, highly self-motivated, and willing to assist where needed in order to maintain a strong company culture.
On the other hand, CFOs focus on the financial stewardship of the company. It is necessary for them to ensure that employees are maintaining the company’s financial values and goals. They collaborate with other company executives to ensure that their financial strategies align with the business objectives in place.
6) Skills and Expertise
CEOs and CFOs are both required to have certain skills and expertise in their respective areas. Below will discuss the skills necessary for each role.
Since CEOs are the head and face of the company, they are required to have a broad range of skills to be effective leaders. They are the visionary leaders of the company. CEOs require skills and expertise such as:
- Leadership
- Strategic thinking
- Industry knowledge
- A background in sales, marketing, or operations
- Ability to guide and inspire the entire organization
CFOs are also required to have specific skills and expertise. Since they steer the company’s finances, they need the following to successfully fulfill their role:
- Strong attention to detail
- Ability to communicate complex financial information
- Strong analytical skills
- Expertise in finance, accounting, economics, and risk management
7) External Representation
External representation refers to whom the business executive interacts with outside of the company. CEOs are public facing and most often interact directly with the community around them. CFOs are most likely to interact with other financial institutions.
As the face of the company, CEOs represent the company to the media and other industries. They are more focused on the public relations aspects of the company. They are likely to be found in the community at promotional events and speaking with stakeholders.
On the other hand, CFOs represent the company to other financial institutions. They interact most directly with financial investors, analysts, and external regulatory bodies.
How The CEO and CFO Interact
Collaboration between CEOs and CFOs in a company is crucial for company-wide success. The two roles work closely with each other and it is important that they maintain open and effective communication to align strategies and navigate problems effectively. Strong collaboration between the CEO and CFO is paramount for company success as each role brings unique strengths to the table. Open communication can lead to seamless decision-making for the company and improve organizational performance.
Conclusion
To conclude, CEOs and CFOs both serve critical but very different roles within a company. A successful company needs both roles to operate smoothly. CEOs and CFOs differ in their leadership style and scope as well as their interaction with external and internal relations. CEOs focus primarily on company culture and vision and interact with the public on a relational level. CFOs on the other hand steward the company’s finances and interact externally with investors and other regulatory bodies.
As an aspiring executive, it is very important to understand the difference between the two roles and how they work in the corporate world. If you’re ready to take the next step and deepen your expertise, consider Crummer’s Executive MBA Program. This graduate program equips you with the strategic, financial, and leadership skills necessary to secure C-suite positions and thrive at the highest levels of corporate leadership.