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Navigating Market Volatility And Recovery: The Importance Of A Strategic CFO

For PE-backed company CEOs, who are under constant pressure to deliver financial results quickly, a savvy finance chief is a must.



Editor’s Note: December 8, Chief Executive will host its first annual PE-Backed CEO summit online, with special keynote speaker Caryle Group founder David Rubenstein. Get yourself and your team ready for the year ahead. Learn More >

In private equity, the pressure is high for CFOs to deliver the numbers quickly and accurately with limited support. Responsibilities are also greater; CEOs rely on CFOs to be strategic business partners rather than merely capable accountants.


Because of these high demands, effective CFOs are hard to find. The Covid-19 pandemic has only heightened the need for strong financial leadership. The Atlanta Federal Reserve forecasts that economic activity in the second quarter of 2020 will drop by more than 50% in the U.S. — and some companies have already lost up to 75% of their revenues in just one quarter. Managing financial operations, scenario planning, and cash flow is imperative for business survival.


The role of the CFO remains mission-critical to push through continued uncertainty and prepare companies for a new reality. To recruit the right financial minds, PE leaders must refine their search criteria.


Here are three actions you can take to attract a strategic CFO for one of your portfolio companies:


1. Readjust outcomes.

It’s important to be clear about what success looks like for the CFO. In today’s rapidly evolving economy, this requires thinking beyond the usual, “Grow revenue and EBITDA by 25%.” Financial priorities likely have pivoted to free up cash, lean out operations or leverage debt. Whatever outcomes the CFO needs to achieve, be specific. A clear understanding of the challenges and opportunities of the situation will lead to a firmer grasp of who’s qualified to tackle the financial fallout of the pandemic. If the company needs someone particularly astute at assessing and managing risk during uncertain times, then you should target a capital markets-focused CFO.


2. Narrow the focus.

With goals established, get after the right talent based on personality and experience. Typically, there are three routes to the CFO seat. There’s the traditional accountant/controller path — the CPA-types who strive to ensure the financials are 100% accurate (an asset when businesses have low margins). Two other backgrounds are increasingly appealing for PE portfolio companies: business-focused CFOs and capital markets-focused CFOs.


Each background brings its unique expertise, and the right candidate depends on the state of the business — and the consequent requests of the new CFO. A business-focused candidate will excel at aligning strategy with execution and driving systems of accountability and outcomes. In contrast, a capital markets-focused candidate will help navigate complex capital structures and inorganic building. Be clear about which of these profiles fits the company and why. Then, narrow the candidate pool based on who has the right personality to respond to the current climate.


3. Shift your hiring strategies.

The hiring process has evolved as a result of Covid-19, with a greater focus on video. However, the CFO role is too important to hire without an in-person interview with the CEO — at a safe social distance, of course. What’s more, risk-averse candidates become more risk-averse in risky environments. This requires a search strategy where at least one senior member of the team can effectively tell the company story to the candidate.


While the selection aspect hasn’t dramatically shifted yet, a different approach might be necessary as companies navigate recovery and the effects of surging cases on the economy. For example, distressed companies might prefer someone with a strong accounting background to drive tighter controls.


The next year or two will be an uncertain time for all businesses — including PE portfolio companies. Be sure you have a strong, well-equipped CFO in place to help bring the company successfully through the recovery process. PE portfolio companies are resilient and, with the right people, will make it through this experience stronger.


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