By Nina Trentmann
Tackling operational issues such as procurement and corporate strategy likely helped Merck & Co. Chief Financial Officer Robert Davis acquire the skills needed for his promotion to the top spot.
The pharmaceuticals company Thursday named Mr. Davis, who has served as its CFO since 2014, as chief executive, effective July 1. Merck's current CEO, Kenneth Frazier, plans to retire after about 10 years in the role.
Mr. Davis, 54 years old, joins a relatively small group of CFOs who have ascended to the top spot. In 2020, about 6.6% of sitting CEOs at companies in the S&P 500 and Fortune 500 came from the finance chief position, in line with previous years, according to the Crist|Kolder Volatility Report that tracks executive moves.
Finance chiefs with ambitions for the CEO role need to demonstrate their experience managing issues beyond their company's balance sheet, said Peter Crist, chairman of Crist|Kolder Associates. "When you are expanding the remit of the CFO, you can see how the person performs with additional tasks," Mr. Crist said.
Mr. Davis, who has a law degree and a master's degree in business administration, finance and marketing, rose through the finance ranks at Eli Lilly & Co. and Baxter International Inc., where he became CFO in 2006. In 2010, Mr. Davis was hired as president of Baxter's medical products business, enabling him to pick up more management experience outside of finance.
He joined Merck as CFO in 2014, and in 2016 took on the task of managing the company's global support functions. Those include corporate business development and strategy, investor relations, information technology, procurement and real-estate operations, Merck said.
"Business development and strategy are the pieces that are really important to develop a forward-looking view," said Dale Rose, president at 3D Group, a consulting firm.
Responsibility for corporate strategy often also includes mergers and acquisitions, which will be crucial for Merck in the coming years, analysts said. Patent protection for cancer immunotherapy drug Keytruda, one of its main revenue drivers, will expire at the end of 2028, which could force the company to do some large-scale M&A, said Damien Conover, an analyst at Morningstar Research Services LLC.
"In an acquisitive company, a CFO who has been promoted to CEO can drive the M&A process with inside knowledge of the organization," said Hugh Shields, co-founder and principal at Shields Meneley Partners, a consulting firm.
Other companies in recent years also have handed their CFOs more tasks before elevating them to the top. Howard Hughes Corp., a Woodlands, Texas-based real-estate development company, gave then-CFO David O'Reilly the additional position of president in June. He became interim CEO in September and was named permanent CEO in December.
JPMorgan & Chase Co. in 2019 drafted then-CFO Marianne Lake to lead the bank's consumer lending business. Ms. Lake, one of several executives viewed as potential successors to CEO James Dimon, needed experience running a business line to be a contender for the top office, analysts said at the time.
Working closely with Merck's Mr. Frazier during his time as CFO likely provided Mr. Davis with insight on his attitude on leadership and his strategy. "The CFO often has unparalleled access to the CEO's thinking, and the two spend a great deal of time discussing options for the business," said Keith Goudy, a managing partner at Vantage Leadership Consulting. "This can give the CFO a leg up."
CFOs who become CEOs often have to adapt quickly and add certain skills to their toolbox -- for example, relationship building. "CEOs are responsible for identifying the relationships that they and the business need to be successful, yet this is often not an explicit part of the development of the CFO," Mr. Goudy said.
CFOs who are being promoted to the top role can face a number of other challenges and pitfalls, advisers and recruiters said.
Intel Corp. CEO Bob Swan, formerly the company's finance chief, was ousted last month after about two years in the role after the company in 2020 ceded the title as the U.S.'s most valuable semiconductor company to rival Nvidia Corp. and came under pressure from an activist investor.
"You are promoting someone who has never done this job before," said Mr. Rose. "It is a high risk, high stakes move."
Kristin Broughton contributed to this article.
Write to Nina Trentmann at Nina.Trentmann@wsj.com
(END) Dow Jones Newswires