What makes a great private equity CFO?

At the end of last year, Nurole asked “What makes a great PE CFO?”. We surveyed our CFO members plus a number of private equity investors, and invited them to a networking breakfast where we discussed how these two groups can work better together during the life of an investment. Here’s what we learned:

Finding good PE CFOs is difficult - there is a finite pool

There is a lot of good CFO talent out there who don’t have a background in private equity, so it’s worth broadening the lens; investors are compounding the issue by being too focused on hiring CFOs with prior PE experience, rather than on their potential as a CFO. The consensus around the table from seasoned PE CFOs was that investors are too focused on finding a CFO with prior PE experience, rather than someone with the right mindset and potential. Those who had operated in both a PLC and PE environment felt that the jump from PLC to PE was less significant than investors seem to think.

‘Hard’ skills are vital...

Everyone agrees on the ideal skill set for a PE CFO: they have to be a commercial and strategic thinker but also need to be a master of detail, business KPIs and the custodian of finances for any business. However, much of what is traditionally considered as the CFO responsibility around data can be handled by a strong Finance Director, leaving the CFO to be more strategic.

...but so are the ‘soft’ skills

PE investors are sometimes guilty of overlooking the significance of emotional intelligence when hiring a CFO. More thought needs to be given to how to test at the interview stage: PE investors are often top decile with business analytics but not always so strong with management assessment. Typically, they forget that one of the critical roles of a CFO is managing and motivating a team. 

Communication is key

Both investors and CFOs agree that communication was a major area for improvement on both sides, especially early on in an investment to ensure clarity of objectives and interests at the start of any investment or new relationship.

Supporting CFOs aids value creation

A partnership approach can produce better results than an adversarial one; some CFOs reported strained relations with some of the investor team (often more junior members of the team who sometimes want to prove they are “the smartest person in the room”) and a lack of empathy, despite ultimately working towards the same goals. Some CFOs addressed this by inviting a member of the investor into the organisation as a secondee to build rapport.

Additionally, investor partners tend to focus more on the CEO, leaving the junior members of their team to focus on the CFO relationship. PE CFOs would benefit from another senior figure who could be a critical friend, which would also offer a useful channel to address any concerns about the CEO, should they arise.

PE CFOs often lack the senior mentoring support given to PE CEOs. They are often the only person at the board table who has been through a transaction on the operational side before. PE Chairs with a General Management / Sales background rather than a finance background who is therefore naturally predisposed towards the CEO’s perspective. 

Getting the timing right is important

Bringing in the CFO at the right time can make all the difference to a smooth investment; a late hire can increase risk of misalignment of expectations and understanding.

One final question we asked was what CFOs and investors find most frustrating about the search process. Both groups answered “not enough choice”, for both roles and candidates. Nurole aims to bring an end to this frustration through its platform model, creating a better marketplace between candidates and roles.

With special thanks to our PE investor panel Thomas Railhac (Partner, Cinven), Andrew Priest (Director, Inflexion) and Jake Warman (Investment Manager, Sovereign Capital), and all our PE CFO guests.