Good morning.
Being a finance chief during uncertain economic times has its pressures. But private equity-backed company CFOs, it seems, live in perpetual fear of losing their jobs.
The State of the PE Sponsor and CFO Relationship, an annual report by Accordion, a private equity-focused financial and technology consulting firm, finds that 91% of PE-backed CFOs say that they are worried about job security after a private-equity investment in their company. This represents a 25% increase since Accordion first reported on the statistic in 2019.
“CFOs are always under a tremendous amount of pressure in a private equity-backed environment,” says Nick Leopard, founder and CEO of Accordion. But with the volatility in the market, interest rates, and sustained geopolitical conflict—“There is a lot of anxiety among CFOs,” Leopard says.
“There is a whole generation of CFOs out there now that have never experienced these novel fluctuations in the overall environment,” he explains. “A lot are questioning, ‘Do I have the right skill sets to be able to manage through such a unique environment right now?’”
And private equity "sponsors" (which is what private equity firms are often called) expect a lot out of the finance function of a portfolio company, Leopard adds.
Accordion’s survey of 100 PE sponsors and 100 PE-backed CFOs gauged the expectations of the CFO role and the extent to which finance chiefs meet those expectations. Both CFOs and sponsors believe that it is the finance chief's responsibility not just to scale the business, but to also have a strategic role in driving enterprise-wide transformation.
And the stakes are high. PE-backed CFOs have a short window of time to create change and manage through a value creation plan. In 4-6 years, "a CFO would need to create some real transformation,” Leopard says.
3 key findings
Three things stood out in the survey findings, Leopard says. “Private equity sponsors are expecting CFOs to be more multifaceted than they have been, historically,” he says. That means, thinking about and leading the strategy for cost reduction, technology enablement, M&A, and real transformation opportunities to improve the profitability of the company, he says.
Another finding is that sponsors and CFOs weren’t on the same page regarding dealmaking. Sponsors placed M&A at the top of the list. Meanwhile CFOs ranked it at the bottom. Similarly, CFOs are disproportionately focused on cost reduction relative to their sponsors.
And sponsors also have a different perspective on the reliability of the company’s data. Almost all CFOs (92%) think their data collection efforts are strong. But just 65% of sponsors agree.
As PE firms increasingly buy companies, they’re also poaching the best CEOs to lead them, and perhaps making unprepared CFOs feel the heat. In a recent article, my colleague Geoff Colvin explored how PE firms are disrupting the Fortune 500 CEO pipeline.
“The U.S. has 22,956 PE-owned portfolio companies, according to the Private Equity Info research firm, and each one needs a CEO,” Colvin writes. “PE firms choose from the entire global market of managerial talent and somehow entice high-performing leaders to leave prestigious companies to run outfits most people have never heard of. In the battle for CEO talent, PE firms are taking the fight to public companies. They’re hiring highly credentialed full-time recruiters to constantly scan the landscape for potential CEOs and other executives, not necessarily with a specific portfolio company in mind.”
However, for the standouts that are managing to thrive despite the macroeconomic challenges, “then I think the job security goes way up,” Leopard says.
Have a good weekend.
Sheryl Estrada
sheryl.estrada@fortune.com
