This is not an easy time to be running California’s largest investor-owned utility. PG&E Corp. has only recently begun to recover from the biggest calamity of its corporate history: the 2000–2001 California energy crisis. That event, which featured soaring wholesale and retail energy prices, swiftly brought the company to its knees, forcing its two major subsidiaries into Chapter 11 and causing the parent to default on its loans and commercial paper.
The $11 billion company is regaining its health — its utility subsidiary, Pacific Gas and Electric, emerged from bankruptcy in 2004 and its share price is showing new life — but it still faces big challenges. These include fixing relationships with regulators, revamping company operations, and, crucially, figuring out how to avoid a similar disaster in the future.
To lead the company through this transition, PG&E’s board turned not to a star CEO from another company or to an operational specialist, but to its own CFO, Peter Darbee. In many ways, Darbee is a natural choice. The company’s current woes stem from a financial crisis, and Darbee understands the company’s finances as well as anyone. His career in finance — which includes stints at Goldman Sachs, AT&T, and Pacific Bell — has given him deep operational experience. Most important, he helped steer the company out of bankruptcy. “The issues I dealt with as CFO were among the top issues confronting the board,” he says. “They’ve seen me tested in battle.”
Darbee, who became president and CEO in January, is only one of many former CFOs who have landed in the corner suite in recent years. The list includes Lawrence W. Kellner of Continental Airlines, Robert Niblock of Lowe’s, and James Ziemer of Harley-Davidson. In fact, a CFO magazine review of CEO backgrounds found that 20 percent of Fortune 100 CEOs were once CFOs, up from 12 percent 10 years ago.
To be sure, not many finance chiefs step straight into the top job. According to the CFO Executive Board, only 12 percent of CFOs get promoted to CEO. Instead, finance executives often pass through operational roles before getting there (see “Where Do CFOs Go?” at the end of this article). Sometimes the reverse happens: an operational executive spends a couple of years as CFO on the way to CEO, as was the case for International Paper Co.’s John V. Faraci.
Either way, the change reflects a shift in what boards look for in a CEO: they are less interested in the swashbuckling executive of the 1990s and more apt to choose a trusted manager who shows the right blend of operational and financial expertise. With more CFOs gaining hands-on experience managing businesses, they have become contenders.
“We’ve seen a significant trend of CFOs becoming CEOs,” says Peter Crist, chairman of Crist Associates, a Chicago-based executive search firm. “Increasingly, boards look at a potential CEO and require real financial acumen. Ten years ago, board members looking at a succession sequence wouldn’t have even given the CFO a nod, but today they are definitely looking at him.”