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Home / Project Management Articles and News / Optimistic CEO, Pessimistic CFO: Optimum Pairing?

Optimistic CEO, Pessimistic CFO: Optimum Pairing?

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Insead Professor Guoli Chen and College of Miami Professor Wei Shi have carried out some fascinating new research on mergers and acquisitions.  They examined the character of the connection between the CEO and CFO, and the way that impacts merger efficiency.   They studied 2,356 corporations between 2002 and 2013.  They found, not surprisingly, that the optimum pairing contains an optimistic CEO and a pessimistic CFO.  This is their description of the research
We culled transcripts of convention calls between 2002 and 2013 involving each the CEOs and CFOs, and measured the executives’ optimism and pessimism by analysing their use of optimistic and detrimental phrases. Optimistic phrases included “obtain”, “guarantee” and “profitable”; detrimental ones lined “flaw”, “penalise” and “unavoidable”. CEO optimism was calculated because the distinction between a CEO’s use of optimistic phrases and detrimental phrases, and CFO pessimism was calculated because the distinction between a CFO’s use of detrimental phrases and optimistic phrases.

Our information confirmed that CEOs usually used extra optimistic phrases and have been extra optimistic than CFOs. CFOs used extra detrimental phrases and have been extra pessimistic than CEOs. We then used the ratio of CEO optimism to CFO pessimism to derive what we name the CEO-CFO relative optimism. This worth is then matched with the agency’s variety of M&As and working efficiency, assessed in our research as return on property (ROA) a 12 months later.

We discovered that the extra optimistic a agency’s CEO-CFO pair was (high-optimism CEO with low-pessimism CFO), the extra M&Because it undertook. Excessive CEO-CFO optimism additionally correlated with decrease ROA a 12 months after M&As. Conversely, low CEO-CFO relative optimism was related to fewer M&As however increased ROA.
Does this imply {that a} pessimistic CFO is at all times a optimistic for organizations?  Not essentially.  I usually communicate to audiences of finance executives about taking part in the position of the satan’s advocate on the highest administration group.  CFOs usually embrace this position, looking for to poke holes in proposals and discover the potential flaws and dangers in any plan of action.  Such important pondering will be fairly useful at occasions.  Nonetheless, CFOs can take such conduct too far, after which satan’s advocacy not proves constructive.   The CFO can turn into “Dr. No” – at all times discovering causes to not strive new issues, and at all times arguing why a brand new concept will not work.   CFOs want to take care of a wholesome stability after they take a look at the draw back of recent concepts.  They need to be important, however they need to additionally ask:  How would possibly we make this proposal work?  What different choices may assist us obtain the identical objective?  How may we transfer ahead in a much less dangerous method?   They can not merely say no to every part.  They’ve to assist discover different methods to maneuver ahead if the proposed plan of action appears inadvisable.  For extra on play the satan’s advocate constructively, you can read my article here I even have a chapter devoted to this matter in Unlocking Creativity.  



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