Five Critical Attributes of a Successful Private Equity CFO

As the economy emerges from the COVID-19 cocoon, private equity firms are taking flight.

The uncertainties of 2020 caused many PE firms, and investors in general, to take a conservative approach to investing until markets stabilized. Now, we are seeing private equity firms deploying capital at record-setting rates, and the need for key executives to effectively lead these companies is vital. Financial leaders who have weathered the past year’s pandemic-challenged business environment—and know how to power forward—are in high demand.

At JM Search, we have seen a 50% increase in demand for financial executive positions over last year. As a firm, CFO searches make up roughly a quarter of our overall work, with 85% of our total searches being for private equity backed companies. The need for top talent in this position has never been in higher demand and the market is incredibly competitive.

Based on the successful CFO searches we have completed year-to-date, and the conversations we are having daily with our CEO and private equity clients, we have found five critical attributes that are paramount for a successful CFO in a private equity backed business.

Telescopic

Critical to success in the middle market is a CFO’s telescopic agility. That is the ability to function at a high-level while being able to dive deep into the details and be hands on when necessary. The telescopic CFO can see both the forest and the trees—key to sizing up the big picture and understanding all the minutia that adds up to that picture.

We often discuss middle market opportunities with individuals presently working within larger organizations. The high-end requirements of the CFO role—developing financial strategy, managing risks and revenue—come naturally to those who are working at a high level within a large, global organization. It’s in the low-end requirements—creating key performance indicators, working with operations on process improvement, assuring financials are in order—where some individuals are challenged.

We look for those CFOs who have shown their ability to see, and do, the high and low-end requirements.

Strategic

In the past, the CFO role was perceived to be more “rearview mirror” versus “front windshield” in the way that the major requirements of the role involved closing the books, ascertaining accurate financials, and so on. Today, CFOs are doing much more than maintaining the financials. The role requires being able to leverage financial insight and knowledge to help senior leaders identify opportunities and see the future.

This strategic acumen is a trait both developed and innate. Those with less of the innate ability gain in their strategic acumen through trial and error, life lessons, and mentoring. It’s become a top requirement for today’s middle market CFO to possess the ability to anticipate and lead the way in making decisions that affect the future.

To make good business projections, the effective CFO gauges where the company is, and where it has been, to know where it is going. It’s like having a detailed atlas, GPS, and drone for a well-strategized journey.

Communication

The ability to effectively communicate information, thoughts, and ideas clearly and frequently has become a key criterion for CFOs in a private equity setting. Companies are operating at rapid speeds, and the ability to make good decisions requires organizations to gain insightful information from their finance teams.

Effective CFOs are establishing great lines of communication internally to ensure collaboration across the organization to gain insights to be strategically impactful to the organization. They typically have the most thorough understanding of the financial impact of any decisions and need to be skilled at nurturing relationships with other functions. If versed in both logical and abstract thinking, a CFO can be highly effective at informing company leaders to the roadmap for future successes.

For private equity sponsors, the CFO is the conduit to understanding what is going on inside the portfolio company. Effective communication is paramount in this partnership in order to effect change.

Sophistication

Successful financial leaders today must embody a heightened level of skills and experience to thrive in a rapidly changing world. They must have the confidence to lead through challenging circumstances, maintaining focus on sound fundamentals but with an eye on continuous improvement. Today, more than ever, the need to act quickly and intelligently is critical, particularly in today’s environment.

The pandemic transformed the way we interact, learn, work, and do business. As the world and economy nearly halted, pressure to go forward catalyzed creative measures. CFOs with elevated skills sets and experiences are critical for the role going forward. Coming out of the global pandemic, organizations are seeking key executives that have proven they can navigate times of uncertainty and instability as no organization wants to be caught flat footed the next time we face a global crisis.

We look for this sophistication in those who are smart, nimble, can think like an investor, create value, and can think a bit out of the box to move forward and affect change.

Partner Mentality

Internal relationship development is important and thrive best when all parties feel valued. Executive teams with a partnership mentality are more strongly engaged and therefore perform better, which leads to longer-term success. Trust and transparency, particularly when executives are making big decisions, are paramount. The partnership between a CFO, CEO, and private equity sponsor is crucial and a key factor in driving engagement and strong cultures in portfolio companies.

Finding the Diamond Middle Market CFO

Investing in middle market companies calls for taking stock in a financial leader who has these five pivotal attributes. But how can these characteristics be identified?

Testing and heightened interviewing techniques are playing a critical role in helping organizations appropriately assess candidates for the CFO role. We also encourage early and extensive reference checking against these particular attributes to ensure candidates have the right experience sets that match, or exceed, the needs of the private equity sponsor. In this new post pandemic world, it is essential that organizations obtain views from a variety of sources to truly understand how a leader has not only demonstrated success in the past, but also is well positioned to successfully navigate different types of market landscapes in the future.