Strategy & Corporate Finance Practice

Starting up as
a new CFO
Congratulations, you’ve made it—now hit the ground
running. Here are seven key mindsets and practices that
effective CFOs adopt from day one.
by Ankur Agrawal, Michael Birshan, Christian Grube, and Andy West

© Fanjianhua/Getty Images

January 2023
 It’s a long climb to chief financial officer—and budgets be if we weren’t defaulting to what we’ve
that’s just the easy part. Whether you’re the CFO done in the past?” And, “How likely are these
of a publicly traded corporation, a privately held projected scenarios, really?” Thinking critically isn’t
company, or a portfolio business, responsibilities just a matter of parsing data in a granular way; it
will look very different once you’re in the lead. requires addressing decision biases that can lead
To start, the number of functions reporting to to organizational inertia. Building a momentum
the CFO in a typical organization has increased case can provide a holistic view of how financial
steadily in recent years, from four in 2016 to statements and operating plans will be affected
more than six. Additionally, CFOs have reported if the company does nothing except move with
that they increasingly oversee digital initiatives prevailing headwinds and tailwinds. Some key
alongside traditional tasks such as budgeting, initiatives may require years of development, and
planning, and risk mitigation.1 Most important of all, most will require you to work closely with the CEO
CFOs are responsible for the human element of a and the board. But effective CFOs take an even
modern finance function—leading a large group of broader prospective. They look beyond the four
individuals and partnering with C-suite colleagues. walls of the organization to take stakeholders and
competitors into account.
Based on years of research and experience working
with new CFOs and seeing what works, we’ve The CFO of a healthcare-equipment company
identified seven key mindsets and practices that did just that when investing in key technologies:
new finance leaders can commit to right from the competitors were planning to meet consumers’
outset, to help jump-start and sustain long-term changing needs by bringing to market a technology
value creation. with functionality similar to the healthcare
company’s own. Rather than default to prior
1. Scope the challenge assumptions, the CFO used a market-momentum
A critical first step for new CFOs is to form an case—an eroding one given emerging competition,
independent, fact-based view of the resources, instead of a hockey-stick projection—to align the
support structures, and activities that support executive team on how much investment would
and fall short of creating value—and then quickly be needed, and when, to proactively counter the
gain agreement and follow through with C-suite competitors’ moves.
colleagues, business unit leaders, and the board
of directors about the assessment. Agreeing on 2. Adopt a bias for action
sources of value is easier said than done. Function A company can’t achieve or sustain a competitive
and business unit leaders will present lofty goals advantage by staying in place. Its competitors
and competing requests, all with the best of are on the move, and broader conditions, from
intentions. Effective CFOs recognize, however, that existential climate change to persistently high
leaders’ conclusions can be clouded by incomplete inflation, can destroy value even if a company
information and wish casting. It’s easy to assume meets every short-term target. Effective CFOs
that budgets are already at the right level, and strive relentlessly to identify levers that could
it’s typical that future results will be presented create more value for the competitive landscape
in the shape of a hockey stick.2 For CFOs, day that will be. They commit to innovation, engage
one is a unique chance to ask, “What would this in programmatic M&A, and make sure to allocate
company’s support structures and aggregating appropriate resources to digital and analytics, not

1
“The new CFO mandate: Prioritize, transform, repeat,” McKinsey, December 3, 2018.
2
Chris Bradley, Mart Hirt, and Sven Smit, “Strategy to beat the odds,” McKinsey Quarterly, February 13, 2018.

2 Starting up as a new CFO

just for their function but also for the company. help shape how internal and external stakeholders
Avoiding tough calls and continuously postponing frame their understanding of the company’s
a moment of truth, McKinsey research has found, capital allocation. Effective CFOs understand and
typically leads to the worst outcomes in terms of communicate that it’s a losing bet not to take risks.
total shareholder returns.3 Tough calls become In particular, many companies are too hesitant to
easier when the CFO can identify a practicable “test and learn” with small, speculative investments
path to funding the changes—such as improving and are content to leave their existing portfolios
physical sites or adapting supply chains. In the as is, to serially underperform. At the individual
past, our research has shown that most investors level, many executives fall into the trap of becoming
believe a willingness to make long-term changes sentimental about the businesses they’ve built or
(three years or more) is important, and only a small championed.5 An effective CFO makes sure that
share think consistently beating consensus for every business is on the table—and should always
earnings per share is important.4 Intrinsic investors be subject to “grow or go.”6
play the long game; they want CFOs to have a
well-defined strategic direction. It’s the CFO’s 4. Teach and translate
mandate to work with the management team to A large part of your role as CFO is to engage in frank
establish that direction quickly, as well as the risk dialogue with the CEO, the board, and the top team
profiles, incentives, and metrics that will reflect about the economics of the businesses, and to
performance beyond the immediate quarters. clearly explain the consequences of making various
One possibility, for example, is to introduce new trade-offs. This requires speaking in terms that can
ways to think about ROI for new technologies or be understood by all and avoiding financial jargon
process innovations—implementing stage gates to be sure that all of your C-suite peers grasp what
for funding, clear transformation targets, and you are saying. But beware of oversimplification.
contingency plans. It’s the CFO’s role to educate colleagues on what
the financial implications are for their businesses
3. Make space in your portfolio and functions. Effective CFOs share bad news with
for a few bold bets the CEO and the board early; it’s important to get
A bias for action should yield more than just a bunch their insights on how best to address the issues at
of incremental changes. Research consistently hand, and to provide them with different options
shows that companies are too risk averse. One of and conceivable paths forward. When things are
the biggest challenges that CFOs face in their new going well, it’s also essential to help everyone
role, for example, is assessing the value of digital understand what’s really behind the positive
and analytics opportunities—such as building a new performance: Was it skill, industry tailwinds, the
digital app or establishing an advanced analytics rules of accounting, or just luck? Investors also
capability—and understanding why some digital need clear communications—not just the high-
strategies succeed while others fail. CFOs also level numbers but also the details and dynamics
need to evaluate acquisitions to grow the business that really drive the business model. Sophisticated
or enter new markets, and separations to exit investors spend considerable time and effort to
businesses that no longer support the company’s understand the business and will see through any
strategy. As the CFO, you set the tone for how these discussion of strategy and performance that is
opportunities and bolder bets will be evaluated and rendered in sound bites. It’s critically important to

3
Sandra Andersen, Chris Bradley, Sri Swaminathan, and Andy West, “Why you’ve got to put your portfolio on the move,” McKinsey Quarterly,
July 22, 2020.
4
Tim Koller, Rishi Raj, and Abhishek Saxena, “Avoiding the consensus-earning trap,” McKinsey, January 1, 2013.
5
J. André de Barros Teixeira, Tim Koller, and Dan Lovallo, “Bias busters: Knowing when to kill a project,” McKinsey Quarterly, July 18, 2019.
6
Yuval Atsmon and Sven Smit, “Why it’s still a world of ‘grow or go,’” McKinsey Quarterly, October 1, 2015.

Starting up as a new CFO 3

 make clear connections for investors between the flexibility as part of their working model, they were
company’s strategy and performance. CFOs who able be more acquisitive through the crisis, as well.
are straightforward in presenting “performance Being proactive before and through the downturn
versus promises” build more credibility than those helped put their companies in the lead as the
who gloss over difficulties.7 economy recovered.8

5. Be proactive about risk 6. Think strategically about ESG

The only forecast you can make for sure is that Approaching environmental, social, and governance
your next earnings statement will be different. (ESG) should always begin with the company’s
Sometimes, it will differ by a lot. The possibility unique business model. At a minimum, your
of massive, systemic disruptions and risks are company can use ESG to more comprehensively
always lurking, and while no one can predict the consider ways to derisk the business. But beyond
future, it is essential to recognize the elements of risk, many companies rightly see ESG as a growth
your business that are most at stake should major play. McKinsey research shows that more than
disruptions arise. The CFO plays a central role 80 percent of C-suite leaders and investment
in helping organizations respond to immediate professionals expect ESG programs to contribute
crises—for example, developing scenarios, more shareholder value in five years than today.
monitoring and adjusting cash flows, and Many investors also indicate they would be willing
instituting a communications plan—and building up to pay a premium for strong ESG performance.9 As
organizational resilience for the long term. We’ve CFO, you can help business leaders understand
seen some CFOs adapt to the COVID-19 crisis by whether, how, and to what extent ESG-related
reimagining the business from a zero base and initiatives are connected to the company’s strategy.
holding back spending centrally to build flexibility A business-specific approach toward allocating
and optionality into their budgets. One healthcare resources to ESG can facilitate top-line growth,
company, for instance, quickly resized its sales reduce costs, minimize regulatory and legal
and marketing investments, given the decline in interventions, increase employee productivity, and
elective procedures as a result of the pandemic. optimize investments and capital expenditures.10
The finance team set up a stage gate whereby Effective CFOs also consider using new and
sales resources could be added back as demand emerging standards to report on the company’s
for elective procedures grew, as it did in the third ESG activities, such as alerting investors and
quarter of 2020. other key stakeholders to positive outcomes from
green initiatives and averting risks from misreading
McKinsey research shows that the companies
stakeholder priorities. One natural resources
that fared best during the 2008 financial crisis
firm, for example, was able to earn a 30 percent
were those that used a number of interventions to
price premium from its customers because its
balance out performance and position themselves
ESG initiatives have made it the most sustainable
for a strong recovery. The actions of these
producer of its commodity.
so-called resilients hold lessons for new CFOs
today. Effective CFOs cut costs (faster and deeper)
when signs of recession first emerged, but they 7. Pull together for talent
also continued to focus on growth through the Effective CFOs collaborate closely with their
down cycle. Because they had ensured investment colleagues, particularly their CEO and chief

7
Robert N. Palter, Werner Rehm, and Jonathan Shih, “Communicating with the right investors,” McKinsey Quarterly, April 1, 2008.
8
Martin Hirt, Kevin Laczkowski, and Mihir Mysore, “Bubbles pop, downturns stop,” McKinsey Quarterly, May 21, 2019.
9
“The ESG premium: New perspectives on value and performance,” McKinsey, February 12, 2020.
10
Witold Henisz, Tim Koller, and Robin Nuttall, “Five ways that ESG creates value,” McKinsey Quarterly, November 14, 2019.

4 Starting up as a new CFO

 human resources officer (CHRO), to allocate address specific finance challenges. While many of
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talented employees. One effective practice for traditional finance function, effective CFOs can turn
CFOs is to convene a central brain trust with the “aversion to tradition” into an advantage—for the
CEO and CHRO. The goal is to identify individuals employee and the organization. They experiment
and teams that drive business value, and to with agile operating models in the finance function
agree about the major investments in talent and and build a team of “all-around athletes” who can
capabilities required. Effective finance teams can bring financial expertise to other businesses and
also be talent factories. That goes beyond a core put their early careers on a faster track.11
team of finance professionals responsible for
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accounting and transactional processes; it includes
both “quants” (the data scientists, designers, Effective CFOs incorporate seven key mindsets
and data-visualization professionals who can and actions to prioritize value creation. They resist
help scour financial and operational data sets a setting for inaction or incrementalism and hit the
for critical business insights and value-creation ground running. After all, competitors won’t stop as
opportunities) and strategic problem solvers who the new CFO settles in.
can move easily among short-term projects to

Ankur Agrawal is a partner in McKinsey’s New York office, Michael Birshan is a senior partner in the London office, Christian
Grube is a partner in the Munich office, and Andy West is a senior partner in the Boston office.

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11
Ankur Agrawal, Kevin Carmody, Matthew Maloney, and Ishaan Seth, “Five insights for public company CFOs from private equity,” McKinsey,
November 15, 2022.

Starting up as a new CFO 5