The role of the private equity-backed CFO has never been more demanding.
Sponsors’ escalating appetite for data has led to increasingly strenuous reporting demands. Proliferation of the buy-and-build strategy has made integration expertise a common prerequisite for the role. Challenges facing modern IT and HR departments, which often fall under the CFO’s purview, continue to grow more complex. And while modern finance chiefs must be well-versed in accounting and finance, they also need the strategic savvy to act as a true partner to the CEO.
Among their many responsibilities, what do sponsors consider a PE-backed CFO’s most critical contribution to value creation?
A recent survey from Deloitte sought to answer that question by quizzing both PE professionals and portfolio company CFOs on the most effective ways CFOs can “drive improved operational performance in (a) business.”
- 94% of fund respondents chose “delivering valuable (management information) which can be used by the broader business.” Meanwhile, only 59% of portfolio company CFO respondents chose that option.
- 56% of portfolio company CFOs selected being a “strategist” who acts to “challenge/partner (with the) CEO,” while just 41% of PE fund respondents chose that option.
The results indicate sponsors believe a CFO’s contributions to strategic and operational decision-making should come via (or in concert with) a clarifying set of facts.
The lack of alignment in responses may help explain why 41% of surveyed PE fund respondents believe portfolio company CFOs “only partly” understand their role in driving value.
High-impact CFOs often embrace their role as organizational “enablers,” believing one of their primary functions is to empower the performance of their fellow leaders. At the heart of this orientation is the delivery of timely, accurate data coupled with the relational and communicative skills needed to generate buy-in and fuel prompt, data-driven decisions.
Private equity’s operating pace and change-oriented formula for value creation often leads to a barrage of quick decisions for portfolio company management teams. Rapid access to relevant data is essential to empowering decisive, insightful action. Real-time information has become a priority — portfolio companies who rely on monthly or even weekly reporting packages risk falling behind the competition. CFOs who leverage automation to quickly compile baseline data and employ advanced analytics to uncover highly targeted opportunities can truly transform an organization.
Yet, a CFO’s ability to compile and disseminate information is far less impactful if recipients struggle to understand its implications. To generate buy-in, CFOs must act as financial storytellers, consistently connecting important data to the broader narrative of the business.
“More than half of solving your problem is being able to communicate the answer,” says one SaaS CFO who has delivered several successful PE-backed exits. “You must be relational. Be a storyteller and a teacher within the organization — that’s what really differentiates great CFOs.”
Falcon provides C-suite talent solutions for middle market private equity firms across North America. Follow us on LinkedIn.