The corporate CFO: transformation and alignment with private equity

Bronze­gate Exec­u­tive Search recent­ly under­took com­pre­hen­sive research into the FTSE 100 chief finan­cial offi­cer com­mu­ni­ty, exam­in­ing the back­grounds and routes into the role of the incum­bents.

While a rel­a­tive lack of diver­si­ty and a bias towards char­tered account­ing qual­i­fi­ca­tions remains a fea­ture, a notable sta­tis­tic is that almost half of cur­rent chief finan­cial offi­cers across the FTSE 100 have been pro­mot­ed from with­in their organ­i­sa­tion.

Although we can spec­u­late about the rea­sons behind such a large pro­por­tion of inter­nal pro­mo­tions, one key obser­va­tion is the chang­ing role of the chief finan­cial offi­cer with­in large cor­po­rates.

Many cor­po­rates have increas­ing­ly faced a chal­lenge to grow through a com­bi­na­tion of reced­ing inter­na­tion­al expan­sion oppor­tu­ni­ties, lim­it­ed acqui­si­tion tar­gets and mature core mar­kets. The resul­tant empha­sis for many large organ­i­sa­tions in the mod­ern era has been a focus on cost-base ratio­nal­i­sa­tion and improv­ing earn­ings before inter­est and tax or EBIT per­for­mance through effi­cien­cy mea­sures, includ­ing whole­sale trans­for­ma­tion.

Finance has been at the fore­front of such organ­i­sa­tion­al change and the role of the finance func­tion has increas­ing­ly been to opti­mise the cost-base while help­ing deliv­er a more effec­tive oper­at­ing mod­el. Con­se­quent­ly, while list­ed com­pa­ny chief finan­cial offi­cers have to remain expert with investor rela­tions and for­ward plan­ning, the require­ment for the con­tem­po­rary cor­po­rate finance chief is that they also act as change agents capa­ble of reshap­ing the glob­al finance func­tion, devel­op­ing the role of finance as a val­ue-add func­tion, and hav­ing the oper­a­tional insight and aware­ness to help move an organ­i­sa­tion to a lean­er, more effi­cient state.

With­in pri­vate equi­ty and increas­ing­ly now with­in the cor­po­rate world, the empha­sis is on effec­tive trans­for­ma­tion at an accel­er­at­ed pace

It is unsur­pris­ing, there­fore, that so many of the cur­rent FTSE 100 chief finan­cial offi­cer com­mu­ni­ty are indi­vid­u­als who have worked exten­sive­ly across the busi­ness pre­vi­ous­ly before being pro­mot­ed to the role inter­nal­ly.

As an organ­i­sa­tion that works to appoint finance lead­ers across both the cor­po­rate world and pri­vate equi­ty, we have not­ed a grow­ing align­ment between the agen­das of both the cor­po­rate and pri­vate equi­ty chief finan­cial offi­cer.

With­in pri­vate equi­ty and increas­ing­ly now with­in the cor­po­rate world, the empha­sis is on effec­tive trans­for­ma­tion at an accel­er­at­ed pace. Where­as a pri­vate equi­ty firm would look to affect change with­in a port­fo­lio com­pa­ny with­in the first two to three years – change that a cor­po­rate might typ­i­cal­ly have under­tak­en over a five to ten-year peri­od – now both seg­ments of the wider busi­ness world are more aligned.

The empha­sis across a large pro­por­tion of cor­po­rates has been an emu­la­tion of the time­frames of pri­vate equi­ty towards fast, direct and impact­ful change whether it is through bet­ter process, reduced head­count or effec­tive man­age­ment of cost. Chief finan­cial offi­cers across the cor­po­rate world are now under real time-pres­sure to deliv­er change.

Jere­my Rick­man, for­mer­ly a leader of finance chief search at Rus­sell Reynolds and a board mem­ber at Bronze­gate advis­es: “In the past, the most strik­ing changes of empha­sis for a CFO when mak­ing the tran­si­tion from a cor­po­rate role to a pri­vate equi­ty CFO role were the increased pace of change, man­ag­ing high lev­els of debt and a sig­nif­i­cant­ly increased focus on cash flow.

“Over the past nine years since the glob­al bank­ing cri­sis, cor­po­rates have been forced to dri­ve a trans­for­ma­tion­al change agen­da to sur­vive and the role of the cor­po­rate CFO has become more focused on those crit­i­cal areas of focus to pri­vate equi­ty such that the tran­si­tion into pri­vate equi­ty is some­what sim­pler.”

While there will always be sig­nif­i­cant dif­fer­ences in the oper­at­ing mod­els and strate­gic agen­das of pri­vate  equi­ty and list­ed cor­po­rates, it is not just the pace of change that is blur­ring the lines between the roles of their respec­tive chief finan­cial offi­cers, but a num­ber of oth­er key fac­tors.

Trans­for­ma­tion is now more holis­tic with finance trans­for­ma­tion often hand in glove with whole­sale organ­i­sa­tion­al restruc­ture. Chief finan­cial offi­cers are increas­ing­ly part of a wider reshap­ing of a group both oper­a­tional­ly and in terms of the company’s mar­ket posi­tion­ing. This uni­fied approach to change across almost all aspects of an organ­i­sa­tion is now increas­ing­ly aligned to pri­vate equi­ty.

For more infor­ma­tion on Bronze­gate Exec­u­tive Search, please e‑mail me at adamakbar@bronzegate.co.uk