What Makes for a Successful CFO in a PE-backed Healthcare Business?

The role of the CFO is changing. Once focused primarily on the company’s financial standing and planning for future resource needs, the position has evolved to include decisions around the business’s structure, strategy and culture, while maintaining the organization’s financial health. 

Our recently published CFO Compensation Study unearthed the key drivers behind the recruitment and retention of Healthcare CFOs. To better understand how this is playing out across private equity-backed healthcare businesses, Andrew Henry, Managing Partner at JM Search, recently sat down with Addam Marcotte, Managing Principal with FMG Leading. Addam works closely with investor-backed healthcare organizations, coaching and guiding CFOs through this evolution in real time. Here are some of the insights from the conversation: 

Andrew: Whether a CFO is new to the role, organization, or simply has never worked for a PE-backed company before, the dynamic facing chief financial officers in healthcare today is challenging and requires CFOs to prioritize their responsibilities in new ways. Some CFOs, particularly first-time CFOs, may have a tendency to over-index on the financial aspects of the role, but a truly outstanding CFO must not only have a strong command of the financials but also the organization’s operations, people, leadership, strategy, and culture.  

In your work, what are you hearing that CEOs look for as a key characteristic in a new CFO? 

Addam: Thinking more strategically as a CFO is probably the number one request that most CEOs have of a new CFO. CEOs really need that partnership and the CFO is often one of the few critical voices in the overall strategic direction of the company. The challenge can be in transitioning from a tactical to a strategic mindset, developing a long-term vision and planning oriented skill set.  

Andrew: Absolutely. Mastering the numbers is table stakes for today’s CFOs, but what we’ve seen really sets successful candidates apart is having a deep understanding of the business’s operations, solid relationships inside the organization, and a strong hand in shaping how the company’s finances and culture intersect. PE-backed companies escalate all of these demands, running at a pace that can require a CFO to accelerate their mindset and adjust their approach to work.  

Addam, in your work, what have you seen as the key skill that PE-backed CFOs in particular need to bring to the equation? 

Addam: If a CFO is unable to present accurate, defensible reports and budget numbers, they’re going to lose a private equity firm’s confidence very quickly. But, one factor that is often overlooked is building a strong and cordial relationship with the Board. The Board is there to be helpful, even though they might pressure a CFO’s thinking in ways that can feel a little bit antagonistic. In reality they’re there to help; that’s their job. Coming in on your heels and on the defensive versus ready for a partnering conversation with the board can end up really setting a CFO back or unfortunately limit their tenure very rapidly. 

Andrew: That’s a great insight.  

Now, let’s explore what makes an effective investor-backed CFO. Experience tells us that those who end up in the CFO position often come from a number of different backgrounds, including traditional accounting, investment banking, financial planning and analysis (FP&A) roles, etc. Each of those varying foundations can color a CFO’s approach to the role and have far-reaching implications for their effectiveness in the role. We’ve found that an individual’s training, background, and experiences forms a sort of “muscle memory” that they will leverage throughout the course of their career.  

Addam, from your purview, what else is critical for making an effective investor-backed CFO? 

Addam: You see a range of tactical to strategic skills as they relate to the background and the training that a CFO has had. Those who have a Controller background will likely excel at financial compliance reporting, while those coming from FP&A might have a great analytical mind and be able to understand connections among data and reporting and how different factors connect together. Seeing the broader strategic picture and understanding how to build a long-term vision for an organization can be a strength of those with a corporate development or M&A background, as they are often able to see pitfalls and opportunities more clearly than others who have not grown up executing that process. 

Andrew: Certainly. I’d also add that CFOs are functionally different from CEOs and other executives. Typically, CFOs have a broader exposure into how the business is performing financially and will lean into that knowledge – financially, culturally, and operationally – as their go-to instinct for decision-making. 

Addam: Yes – in many ways, the CFO is the safety net for the CEO and the two of them must have a symbiotic relationship. They depend on each other very deeply. A CFO who chooses to see their role as purely the financial police will probably have a limited runway in the C-suite versus a strategic CFO who can help their CEO realize and accomplish their strategic vision. In that case, they will be seen as much more of a valuable human capital player in the organization. 

Andrew: Completely – we’ve seen that before.  

Moving towards the topic of CFO retention – as we learned from surveying more than 100 healthcare CFOs on their salary and compensation trends, retention remains a key concern for business leaders across the healthcare ecosystem. This is no surprise given that more than 60% of middle market healthcare CFOs said that they have explored opportunities outside of their current employer in the last six months.  

In your view, what are some considerations for retaining a high-performing CFO? 

Addam: CFOs often need to feel intellectually challenged to stay engaged with their role. If a new opportunity is the only way that they feel that they can achieve that, they might look to jump to a new company regardless of how comfortable they are financially. Finance can in some ways be very narrowly focused; once someone has become a high performer and achieved a certain level of maturity within their career, they’re going to want to stay challenged. 

Andrew: I think the lesson for CEOs and Boards here is to continue thinking about how to expand the role of the CFO and find new opportunities to keep them engaged. These opportunities can look like additional operational responsibilities, expanding access to M&A or growth activities, or deepening their experience within the organization’s operations. This is particularly prescient in today’s working environment, as more and more C-suite executives express interest in hybrid and fully remote work environments.  

In fact, according to our study, work environment flexibility is very important to experienced CFOs with proven transaction experience. Among experienced CFOs, or those who have completed two or more transactions, 76% are currently working in either a remote or hybrid work environment, with just 24% in-office, which indicates the importance of workplace flexibility for retaining CFOs. 

Addam: Absolutely. Throw out the concept of ‘where does the CFO live and work’ and replace it with visibility, relationships, and culture. CFOs who are excellent at building relationships within the organization and are able to stay deeply connected with everything that’s going on can have a critical role in shaping the culture of the company. There is an old expression, ‘show me where you spend your money and I’ll tell you what’s important to you.’ That is true in organizations as well, and the CFO can guide that by building relationships and having a strong understanding of what’s going on in the business. That’s the critical factor, whether it happens virtually, on a hybrid basis, or in person. 

Andrew: Definitely. Well, Addam, this has been a great conversation. Thank you very much for your time today! 

The CFO role is expanding into new functional areas and producing greater organizational impact than ever before. For both first-time CFOs as well as those new to the PE-backed ecosystem, success will depend on their ability to not only build connections across the organization but also deepen their expertise in all aspects of the business. Only then will CFOs be able to connect the financial and strategic opportunities to realize their full potential in driving the business. 

For more information about our recently published Chief Financial Officer (CFO) Compensation Study, please visit our website to download the Executive Summary.