Highly skilled and ambitious finance chiefs have long been attracted to the dynamism of private equity. In fact, a lack of experience in the industry can be considered a major hindrance to a CFO’s career progression, according to recruitment experts.
“It’s no secret that hardworking and ambitious financial professionals aspire to be a private equity CFO. I’d be very surprised if a candidate stated that they didn’t want to end up there,” says Mike Mesrie, founder and director of executive search firm MDM Resourcing. “It’s long been regarded as the promised land where there’s great riches to be had.”
In recent months, private equity firms have been largely focused on driving value in their existing portfolios and navigating headwinds. The result has been not only fewer deals but a higher turnover of CFOs, says Adam Stolerman, managing partner and CFO at executive recruitment firm Triton Exec. As a result, “CFO hiring into PE-backed businesses has risen sharply from Q4 2023 and is showing no sign of slowing down.”
It’s not for the faint-hearted, but the potential rewards are significant
With a heightened focus on jump-starting stagnating portfolio performance, demand from private equity for CFOs with the unique skills needed to navigate today’s high inflation and rising interest rates is increasing. “As the need for a successful exit grows, portfolio businesses are being actively encouraged to replace their CFO,” Stolerman says. “We’ve seen an increase in CFO mandates over the last 6 months.”
Businesses are paying more than ever for top finance talent. And with private equity firms now on the lookout for new CFOs, many of whom are equally eager to join the elusive club, boards and CEOs need to know how to hold onto theirs.
Understanding the pull of private equity
Understanding the nuances of the CFO role in private equity can help businesses better understand the appeal of the job – and start implementing a more effective retention strategy.
While it may be tempting to assume that financial incentives are the main motivating force, there are other equally important factors at play.
The adrenaline rush of working towards an acquisition or a sale is stressful, but exciting. And the shorter stints typically spent in a portfolio company while working towards a deal close provides an end-date that many find refreshing.
“Working in this realm presents a unique opportunity where you feel like you can directly shape the trajectory of the organisation and make tangible, impactful changes,” says Catherina Butler, interim CFO at software business Aryza. “The potential to make an impact stretches far beyond financial metrics, encompassing strategic realignments, talent cultivation, organisational structures and operational efficiencies and processes. It’s not an arena for the faint-hearted, but for those willing to embrace it, the potential rewards are significant and the journey is exciting.”
From a cultural perspective, there is a lot less juggling of personalities and shareholder demands. CFOs will typically work with just one or two sponsors, communicating financial results, working through capital structure issues or M&A opportunities and generally speaking the common language of finance. “There is a sense of alignment that is often lacking in other businesses,” says Harry Hewson, managing director of executive recruitment firm Camino Search. “You’ve got a management team that are all working towards the same goal and are motivated to get to the next stage. Finance chiefs really love that.”
It might sound glamorous if it goes well, but a lot of the time it doesn’t
It also demands a different style of leadership. Private equity CFOs have fewer external-facing duties, which can appeal to executives who tend to be more introverted. They aren’t in the spotlight as much so they get to spend more time with their team, adding value to the business. “Basically doing parts of the job they enjoy the most,” says Hewson.
A private equity firm will usually hire a finance chief with a specific goal in mind; whether it is to help execute a complex carve-out or turn around a distressed company. Working in more challenging and niche areas allows CFOs to sharpen their skills and become an experts in their field. “This is something they may not get a chance to do in their current roles,” Hewson adds.
It’s easy to see the attraction of private equity: fast-paced, strong incentives, tax benefits and less public scrutiny. Admittedly, these aspects of the job are hard to compete with. But scratch the surface and a different reality emerges.
The survival rate of CFOs in private equity is notoriously low: most are replaced within 18 months of investment and those able to make it past that point still have an average tenure of 20% less than their listed counterparts, according to accounting firm EY.
“It might sound super glamorous if it goes well. But, realistically, a lot of the time it doesn’t,” Hewson says. There is an opportunity for businesses to use that to their advantage.
The most effective retention strategies
Competition from private equity may be tough, but there are steps that businesses can take to boost CFO retention and strengthen loyalty.
Recognition and tailored reward systems, including competitive salaries and bonuses are “a must” for retaining top financial talent, stresses Doug Baird, CEO at leadership consultancy New Street Consulting Group. More important still, he argues, is the need to design compensation packages that not only reward past performance but incentivise future success. “Offering equity participation through long-term incentive plans or growth schemes is becoming more common. These schemes help to instil a sense of ownership and belonging, giving CFOs a vested interest in the success of the company – and a strong incentive to stay.”
Sustainability and digital transformation are becoming increasingly decisive factors for CFOs when considering a position, Baird adds. “CFOs will be looking to see if a company’s values and missions are clearly aligned with them on this.”
Private equity has long been regarded as the promised land
In Mesrie’s view, CFOs typically become disengaged when they feel underappreciated. Public acknowledgments in company meetings can boost morale and emphasise the value of the CFO to the entire organisation. Equally important is a culture within the C-suite that promotes a collaborative environment through open and honest communication, Mesrie adds. “For CFOs to feel personally and professionally valued, they need to be made to feel part of the team.”
Given how closely they work together, special attention should be given to the relationship between the CEO and CFO, Mesrie stresses. “It needs to be a proper partnership where the CFO is listened to. An overbearing or irrational CEO will quickly leave any finance chief feeling disenchanted, pushing them out the door.”
“The life of a CFO can be a lonely one,” Hewson adds, so anything companies can do to provide additional support and stability is key. Learning and development programmes should be tailored to finance leaders’ individual goals, he says, while flexible working hours and the option to work remotely can help them to manage their demanding roles without sacrificing personal or family time. Hewson believes this could be where businesses have the upper hand over private equity firms which tend to be less amenable to flexible working.
Continue to invest in succession planning
While having a solid retention strategy in place can keep CFOs happy, motivated and away from circling private equity firms, it’s important to manage expectations about the extent to which they will help.
Hewson believes that continuous investment in a CFO succession plan is the most effective way to safeguard financial leadership in the long term.
And yet many businesses are failing to take it seriously: only 26% of UK companies stated that they have a succession plan in place for their C-suite, according to data published by recruitment firm Robert Half. A further 17% said they have an unofficial or informal plan, while the majority (57%) admitted that they do not have any succession plan at all.
This is even more surprising given that CFO turnover is at an all-time high. Over the last 12 months, 20% of FTSE 100 CFOs left their jobs, compared with 13% in 2019, according to data published by Russell Reynolds Associates.
Hewson sees it as a “huge missed opportunity” for businesses to identify, train and develop the next generation of CFOs. “Right now, there is a pool of diverse, young and talented finance professionals that are waiting to step up into CFO positions. They’re hungrier, more motivated and they’ve got a point to prove.”
An empty CFO chair in the C-suite puts businesses at tremendous risk of instability. A failure to plan properly for that possibility is not only putting the business in jeopardy, it is shutting the door on a cohort of new finance leaders.
Three ways to motivate your CFO
Get to know your CFO. Ask them how they want to work and what they want to achieve while at the company. Learning and development programs should be tailored to their specific career goals and interests. Offering the opportunity for further academic pursuits can also help to keep your CFO motivated and engaged.
Competitive compensation remains critical, but future trends suggest that longer-term incentive plans and growth shares are increasingly important – signalling the company’s investment in their CFO’s long-term wellbeing. Providing support for mental and physical health, such as access to wellness programs, mental health days and fitness memberships, can also help mitigate the stress associated with the job.
Invest time and effort in establishing a collaborative culture within the C-suite that is built on genuine, open communication. This can help CFOs form stronger relationships with other C-suite members, which is crucial for staying on track with spending and understanding different departmental goals.
Highly skilled and ambitious finance chiefs have long been attracted to the dynamism of private equity. In fact, a lack of experience in the industry can be considered a major hindrance to a CFO’s career progression, according to recruitment experts.
“It’s no secret that hardworking and ambitious financial professionals aspire to be a private equity CFO. I'd be very surprised if a candidate stated that they didn’t want to end up there,” says Mike Mesrie, founder and director of executive search firm MDM Resourcing. “It’s long been regarded as the promised land where there’s great riches to be had.”
In recent months, private equity firms have been largely focused on driving value in their existing portfolios and navigating headwinds. The result has been not only fewer deals but a higher turnover of CFOs, says Adam Stolerman, managing partner and CFO at executive recruitment firm Triton Exec. As a result, “CFO hiring into PE-backed businesses has risen sharply from Q4 2023 and is showing no sign of slowing down."
