The once distinct roles of corporate and private equity chief financial officers are now unifying as pressure mounts for accelerated transformation, says Adam Akbar, managing director of Bronzegate Executive Search.
“As published in “The Times” Future CFO series” by Adam Akbar.
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.