Recruiting a Portfolio Company CFO: A Field Guide for Private Equity CEOs

OVERVIEW

The best CEOs build the best teams.  And selecting the right CFO is arguably the most important decision a CEO can make when building her/his team.

CFO roles in private equity-backed, middle market portfolio companies involve greater rigor, urgency and expectations compared to finance leadership roles across other asset classes. Private equity firms and their portfolio company leaders face greater demands from investors, and multiples remain historically high. These realities place unprecedented value on a management team’s ability to execute at the highest possible level.


Millions of investment dollars are at stake and incremental multiple of invested capital (MOIC) will be gained or lost on a deal based upon the quality of the management team, including the CFO.



The Degree of Difficulty for PE-Backed CFOs is Compounded By:

  • Leveraged Balance Sheets
  • Private Equity Demands
  • M&A Integrations
  • Extreme Urgency
  • Finite Resources
  • Financially-Savvy Boards
  • ERP Implementations/Upgrades
  • Demands for Forecasting & Analysis

Historically, many CEOs have settled for CFOs who, in retrospect, were more-or-less strategic controllers or tactical CFOs. Today, leading private equity funds are actively raising their standards on CFO hiring. However, and in spite of the increased focus on CFO recruitment and assessment, CFO hiring mistakes consistently outpace mistakes made on other management team hires.

The bottom line is that talented private equity-backed, portfolio company CFOs are in rare supply and can be difficult to assess. The price paid for an average or poor CFO hire can be steep.

Poor CFOs Can Mean:

  • Frustrated CEOs and Funds
  • Poor Visibility into Company Performance
  • Earnings Restatements
  • Audit Adjustments
  • Poor Forecasting/Visibility
  • Covenant Violations
  • Ineffective Integrations
  • Underutilized ERP Systems

WHITE PAPER: THE 7 DEFINING CHARACTERISTICS OF AN ELITE, PE-BACKED CFO


 Contact Us
For a complimentary copy of the
complete CFO Recruitment white paper
which includes:

  • The 7 characteristics to evaluate during your CFO search and selection process
  • The intangible traits that best predict portfolio company CFO success
  • Most frequent derailers of private equity CFOs
  • Compensation analysis including salary, bonus & options/equity
  • Vetting guidelines


ABOUT ROB HUXTABLE

Rob is the Founder & Principal of PrivateEquityCEO.com.  He is also Managing Partner of Integis which is the nation’s leading search firm focused exclusively on the private equity-backed, middle market.  He leads the firm’s CEO search practice.

Private Equity Still Cares About Career Stability

The following Wall Street Journal by Joann S. Lublin offers a premise that job-hopping executives no longer pay a penalty when interviewing for their next role.  http://www.wsj.com/articles/job-hopping-executives-no-longer-pay-penalty-1469545287


I couldn’t disagree more with respect to private equity.  PE standards on this issue, as with most topics, are far more rigorous than the broader corporate world.

Urgency vs Empathy for PE-Backed CEOs

OVERVIEW

A recent Harvard Business Review entry – The Mistakes PE Firms Make When They Pick CEOs for Portfolio Companies – suggests that the three most common CEO selection mistakes are:

  1. Mistaking quick thinking for systems thinking
  2. Not seeking CEOs who value talent development
  3. Believing CEOs who emphasize urgency are far better than those who stress empathy

Cultivating Mental Resiliency

“Mental resiliency is arguably the most critical trait of a world-class performer, and it should be nurtured continuously.”
– Josh Waitzkin

The Underlying Flaws in Wells Fargo’s Failed CEO

By now everyone is familiar with the epic leadership failure of Wells Fargo CEO John Stumpf.

It’s clear to all that the Stumpf’s failed leadership manifested itself in a lack of accountability and in an absence of courage.  When faced with an opportunity to respond heroically to a crisis, he sought the perceived safe harbor of high-priced PR consultants who advised a bob-and-weave approach for his congressional testimony.