Ceos shape strategies, cast visions and make final decisions, they also consult with their CFOs who aid in identifying acquisition targets, conduct due diligence, arrange financing and engage in post deal execution. Research from Harvard Business Review shows that there is an optimal CEO-CFO combination that increases successful business operations. This formula consists of  optimistic CEOs tempered by pessimistic CFOs.

It is often said that opposites attract. The optimism of the passionate, dreaming, goal facilitating CEOs who tend to discount the facts require the pessimistic, sensitive to hard data, goal inhibiting information from CFOs who tend to be much more critical and vigilant in their efforts to avoid short and long term catastrophes.

The two personalities have been shown to be aligned with the roles of CEOs and CFOs. CEOs are prone to be optimistic and risk takers, where CFOs are keen on analyzing, scrutinizing and weighing in on due diligence while mitigating potential risks throughout the organization. CFOs can be compared to the weathermen that the pilots rely on when landing their aircrafts through a tropical storm, or rocky point of descent. While the CEO looks at the big picture of the organization to know where they are going and why the CFO will help the CEO navigate the risks and roadblocks. Former Facebook CFO David Ebersman said in a 2015 interview, “As CFO at a larger company, one of the things I felt responsible for doing was to be a bit of a pessimistic: to think about what could go wrong with the investments we were making, and to make sure someone was challenging every dollar we were spending in the business.”

In a study by Harvard Business Review the influence of CEO-CFO pairs at 2,356 US firms were studied and their impact on firm performance. The study focused on the level of optimism and pessimism that the pair brought into M&A decisions. Throughout transcripts of conference calls and meetings executive optimism and pessimism was analyzed through the use of positive or negative words. Words consisted of “achieve,” “assure,” “benefit,” “successful,” “overlook,” “penalize,” “prevent,” and “unavoidable.”  The optimism of CEOs was measured as the difference between CEO’s use of positive words and negative words, and CFO pessimism was calculated as the difference between CFOs’ use of negative words and positive words. 

The data in the study revealed that CEOs typically used more positive and optimistic words than CFOs, and CFOs used more negative words and were more pessimistic. Furthermore the more optimistic a firm’s CEO-CFO pair correlated with lower ROA a year after M&A. Models revealed that when CEO-CFO relative optimism was low (when a low-optimism CEO was paired with a high-pessimism CFO), ROA increased by 4.7% when the number of M&As experienced the same level of increase. 

The presence of pessimistic CFOs, optimistic CEOs undertake fewer acquisitions, and are less likely to undertake bad acquisitions. There is an optimal pairing of an optimistic CEO who has a large tendency to take risks and a pessimistic CFO who is conservative and prudent to alert the CEO to potential pitfalls through enlightening data and roadmaps. 

One must take into account that each firm has its operational environment which plays a role on how things are carried out. Recent volatile markets have shown that CEOS are more likely to consult CFOs in times of uncertainty . A dynamic environment enhances the positive relationship between CEOs and CFOs and the overall growth of a firm. The dynamic markets firms are navigating today will influence how optimistic CEOs are and how pessimistic CFOs are in return, under the current circumstances will weigh on firms decisions and future performance.

Success in today’s marketplace requires a healthy balance of not only visionaries and optimism, but teams that are well balanced where pessimism and prudence are welcome as one size does not fit all. Veritas Management Group suggests that executives benefit from diversity which has been shown to contribute to higher profits and better morale. The role of a CFO and its data driven insights contribute to a winning management team.