As businesses become more advanced and interdisciplinary, their CEOs are getting younger. While this sought-after position was once reserved for seasoned leaders with decades of experience climbing the corporate ladder one rung at a time, leadership consulting firm Spencer Stuart reported in 2022 that nearly one-third of newly appointed S&P 500 CEOs were under 50.

As emerging leaders enter the corporate world with less experience than their predecessors, expectations for their roles aren’t dipping—they’re rising to keep up with complexity. Newly minted CEOs must understand finance and economics at an intimate level, even if they lack hands-on experience, so they can:

• Seek out opportunities to balance high costs with long-term rewards and reduced risk
• Maximize shareholder value
• Identify and adapt accordingly to trends and problems
• Navigate inconsistencies in forecasts and respond to external factors
• Establish and work toward realistic goals

Answering big business questions and overcoming business challenges require a thorough understanding of financial mechanisms. In fact, for 25% of boards of directors, financial management is a top 5 skill they expect their CEOs to possess.

To optimize operations and drive profits, young CEOs must be able to cultivate long-term financial growth for their firms, even amid economic instability, inflation, and other sources of financial and market variability.

Why young CEOs may lack financial literacy

Cultivating financial success and results comes down to the right combination of education, inherent skills, and experience. While executives can take steps to further their education or acquire new skills, experience can’t be created or replaced. Young CEOs haven’t had time to develop financial expertise, understand how to benchmark progress through financial metrics like liquidity and revenue growth rate, or apply insights that only come as a result of doing the work.

Without this experience, young CEOs are often sailing in uncharted territory. Until now, they may have never experienced sustained periods of slow economic growth, navigated a global recession, or promoted business growth in a declining market. To compensate for this lack of proficiency, they may seek advice from people they work closely with, such as CFOs, accountants, or business managers, to make decisions that should rest solely in the hands of the CEO. This can lead to unintentionally uninformed decisions that have long-term ramifications.

Young CEOs bring their own advantages

But being a young CEO in this uncertain and competitive economic environment also brings unmatched advantages.

The traditional strategies of seasoned CEOs may be less effective in a world where business is more digital, more complex, and more global than it once was. Because young leaders don’t have the experience to fall back on, they may—in some cases—be better suited to help companies move forward as companies face disruptions that range from artificial intelligence and big data to hybrid work and ESG (environmental, social, and governance) initiatives.

To help companies tackle these challenges, young CEOs can bring new levels of moxie, enthusiasm, and diverse thinking—not to mention digital capabilities—to this critical leadership role. They may also be more willing to try new tactics and listen to different ideas.

Transforming from good to great

While they may bring fewer years of work to the role, research shows that the right young professional offers the talent, creativity, and leadership required to be a confident and resilient CEO.

In a 20-year study of 855 S&P 500 CEOs, those with more financial and business experience underperformed compared to their less-experienced counterparts. For example, first-time CEOs led their firms to higher market-adjusted total shareholder returns, with less stock price volatility, than leaders with years or decades of experience.

It’s also demonstrated that first-time CEOs also increase financial growth and operational effectiveness as they progress in their careers. In other words, sustained improvement is visible as they build momentum through the results they cultivate.

As young CEOs forge their paths and diversify the talent pipeline, they can fortify their financial literacy by turning to mentors and veteran leaders for wisdom and advice. Working closely with the C-suite, including the CFO, to learn more about their recommendations can help them improve financial literacy and understand the importance of long-term financial planning.

This article is for informational purposes only. Any views, thoughts, and opinions expressed herein are solely that of the writer and do not necessarily reflect the views and opinions of Valley National Bank.