Thriving in Private Equity (and what it takes to be a successful PE CFO)

CFOs operating in private equity environments are sometimes considered a ‘breed apart’ from their PLC counterparts. It’s historically been known as a demanding arena, with many investors replacing 1 out of every 2 CFOs within 18 months of investment. Add into the mix the current challenges of the Fourth Industrial Revolution and the Covid-19 pandemic, and there is a potent combination of pressures and opportunities to make the role feel even more challenging. As the role of CFO continues to evolve from the traditional financial steward to the multi-faceted strategist and planner, PE CFOs have an ever-shortening window to build credibility with their investors.

Some PE firms will tell you that previous PE experience is a nice-to-have and others insist on it as a prerequisite. Certainly, a CFO who has previously worked for a PE-backed company will be intrinsically familiar with operating in a leveraged environment, maintaining a relentless focus on cash flow, driving operational excellence, communicating with a private equity board, and knowing what information is needed and when.

This said, there are a lot of excellent CFOs out there who don’t have a background in PE but are well suited to it. On balance, investors could benefit from broadening the lens further to identify candidates with the right mindset and attributes required for success, rather than using ‘previous experience’ as a filter. Amongst our clients, many of whom are CFOs who have operated in both a PLC and PE environment, the feeling is often that the jump from PLC to PE is less significant than investors perceive.

In this context, what is it that makes a successful PE CFO, if experience is not essential?

Champions of Technology and Automation

Embracing technology to deliver valuable management information to enhance decision-making is essential in any PE environment. PE CFOs increasingly need to be digital evangelists with a good understanding of advanced digital technologies such as the Internet of Things (IoT), Artificial Intelligence (AI) and distributed ledger technology (DLT). The faster CFOs can make the switch to intelligent finance, the sooner they can free themselves from routine tasks to concentrate more on commercial and strategic matters, adding value where it counts.

Drivers of Change

While a turnaround situation will require a more surgical approach, all PE CFOs need to facilitate company growth and evolution in new and different ways. Consequently, the successful PE CFO will have a building mentality and align the team appropriately to drive major change management initiatives, bringing a willingness to challenge existing ideas and facilitate continuous improvement.

Expert Stakeholder Managers

Successfully driving change requires the CFO to influence the firm’s decision-making process, drawing upon not only his or her functional expertise, but also demonstrated leadership, initiative, and collaboration. The ability to build relationships across the organisation, challenge where required and position finance as a true business partner will enable the CFO to provide effective decision support. Externally, the CFO will align with stakeholders to communicate clear, accurate and timely financial information.

Key Contributors to Strategy

It is essential that PE CFOs can collaborate with their CEO as a strategic thought partner, aligning around a shared vision for the organisation and shaping the finance strategy to support the company’s business objectives. The strategic CFO is creative and capable of thinking broadly about business issues to contribute to the bigger picture.

High Performance Orientation

What will really distinguish one CFOs ultimate performance from that of another are his or her leadership competencies. First among these is performance orientation, which is, not coincidentally, one of the central business priorities of PE investors. This competency is characterised by a high sense of urgency, a strong bias for rapid change and continuous improvement.

An Ability for Nurturing Talent

To thrive, CFOs need a first-class finance function and an optimal team to support them with the evolution of the role. As the head of the finance function, the successful PE CFO is a strong team leader and people manager, with a proven track record of building high-performance finance teams and driving accountability for achieving measurable shareholder value. This requires PE CFO to assess and develop the best internal talent and attract and retain the best available external talent.

The role of the PE backed CFO in the future will be all-encompassing and more demanding due to the number of hats they will need to wear. As a key contributor to strategy, enhanced by predictive technology, the future CFO will continue to be increasingly central to decision making, as a collaborative partner to the CEO. Technological advancements and automation will continue to enable CFOs to free themselves from traditional finance responsibilities to concentrate more on partnering with the PE owners in achieving their goal of maximising value on exit. Consequently, the role of the PE backed CFO in the future will continue to get broader, more technology-driven and increasingly demanding, requiring a balance of the hard and soft skills outlined above. Not every CFO will be able to bring about the level of change required, but for those able to adapt and evolve, the opportunities will be significant and the role more rewarding than ever.

If you would like to learn more about this topic  or discuss a particular requirement, please contact Wayne Poulton at / 07483 015 592  for an initial confidential discussion.