Cowen Partners conducts more CFO searches a month than most executive search firms do all year. Because of this, we have put together what we believe is the ultimate guide to hiring a Chief Financial Officer. Designed for CEO’s, we outline the major issues encountered by an organization when hiring a CFO.
Cowen Partners is a national executive search and consulting firm. Our clients are both small and large, publicly traded, pre-IPO, private, and non-profit organizations. Clients are typically $50 million to multi-billion dollar revenue Fortune 1000 companies or have assets between $500 million to $15 billion. Successful placements span the entire C-Suite and include VP and Director level leadership roles.
There’s a CFO crisis in the global economy. According to a 2015 study published by KPMG, 2/3 of surveyed CEOs believe that CFOs will increase in their significance over the next three years (which, incidentally, they have). Yet, 1/3 of those CEOs feel that their CFO is not up to the challenge. Now, this might not sound like news- CEOs putting pressure on CFOs is certainly not an unprecedented 21st century phenomenon- but it’s not just the CEOs of the world demanding more of Chief Financial Officers. It’s everyone.
There was a time when the role of the CFO was grounded in risk aversion and crisis management. They were the ones maximizing company resources, monitoring cash flow, and tempering the large-scale visions of more creative executives to ensure longevity and stability. In 2020, however, the scope of a CFOs role is radically different. CFOs are now getting wrangled into more public-facing responsibilities, developing equal partnerships wit CEOs, and taking an active role in day-to-day operational management according to longterm strategic policy.
Why? Because companies who don’t lean on their CFOs fall flat.
The massive shift in responsibility stems from an unpredictable economic landscape. The terrain of our global marketplace is indeed changing at an accelerated rate, not in the least because of COVID-19 and its monumental financial disruption. Growth and longevity for businesses demand greater financial risk. The marketplace is much more volatile, and technology has globalized every industry out there, which deepens, expands, and complicates market niches and competition. The entrance of advanced technology, among other factors, has created a need for what KPMG has coined, “the Renaissance CFO.”
What does this modern, 21st century CFO look like? They bring much more creativity, communication, and technological skillsets to the table. CFOs are no longer just accountants. They are a partner to the CEO, a vocal leader of an organization, and an action-based executive within the context of a company’s structure. What was once the highlight of a CFO’s resume – extensive financial management and accounting experience – is now a minimum requirement to take on a CFO role. In fact, a strong accounting and ERP system management background holds no guarantees.
There is an evolution taking place. While CFOs with ERP experience have been in demand for a long time, ERP experience is now a prerequisite, not unlike an accounting or finance degree. Many of the CFOs we are placing are inheriting ERP selection and implementation initiatives at their new companies as part of their company’s data automation, analytics, and forecasting goals.
Technology has permeated every facet of commerce and generated increased opportunities for gains and losses. It determines everything from advertising and marketing to sales to internal operations, and it has the potential to make or break a company. Today’s unpredictable technology-driven market means that companies need to constantly cultivate stronger connections between departments that result in more strategic and organized operations. CFOs play an integral role in cohesive company management.
Even more importantly, CEOs are looking for someone who understands how to leverage technology to improve data analysis, strategy development, risk management, and communication within departments. They want to see a CFO to bring a wealth of both financial and non-financial expertise, innate creativity, and technological prowess to the table. They expect CFOs to use their abilities to implement meaningful, data-driven, and company-wide initiatives.
Additionally, CEOs need CFOs that understand the global, changing market. They want CFOs that can use their understanding of emerging markets and new industry players to adapt and modify company strategy at a moment’s notice. Flexibility, creativity, and craftiness are three of the most in-demand soft skillsets to bring to a CFO role in 2020. Albeit a far cry from the isolated financial expertise of traditional CFOs, these abilities are crucial when it comes to crisis management and successful growth strategy. You can have decades of diverse financial management experience and get nowhere near a CFO office in today’s economic climate because it won’t mean anything without the ability to modify it in the face of new competitors.
CFOs face the enormous task of acting as a bridge between daily operations, long-term strategy, and financial goals. The role of a CFO is no longer about signing off on expenses and monitoring budgetary concerns. Rather, the modern CFO has to look at their company’s cash flow, analyze it with effective and cutting-edge technologies, and work collaboratively with other executives to develop short-term and long-term plans that safeguard a company’s assets without compromising on a CEO’s vision. A CFO of 2020 needs to embody the detail-oriented and data-driven CFO of the past while embracing the volatility and international nature of today’s 21st-century markets.
While the task of becoming a modern CFO may seem daunting, the role has never been more exciting, engaging, or unlimited in its potential to make a tangible impact on company growth and performance.
Many chief financial officers (CFOs) are excited by the opportunity to lead a private equity portfolio company’s financials. The position looks good on a resume, often comes with a certain prestige and monetary bump; however, many CFOs do not realize what it takes to be successful at a private equity backed company. According to a 2019 survey, the turnover rate for private equity (PE) CFOs is greater than 80 percent. A majority of these exits take place within the first two years of a PE firm acquiring a company. CFOs are not meeting expectations or understanding their role in driving value. When this happens, PE firms don’t see the results they expected and contact me, an executive recruiter, to find a new CFO candidate.
Private equity environments are very demanding, and it can be difficult for the CFO to know which skills need to be honed and which pitfalls to avoid. To make the transition to a PE backed company a little easier, below are four pieces of advice private equity operating partners and executives want CFOs to know.
Communicate openly with your Operating Partner or PE executives
The role of a private equity operating partner (OP) can vary greatly between PE firms and their portfolio companies. In many cases, CFOs don’t fully understand what the OP has to offer, and that is why it is important for the CFO to have open communications with their operating partner. Ask your OP what resources are available so that you can have a full understanding of the tools at your disposal.
CFOs should also not be afraid to occasionally push back when OPs or other PE executives make a request. For example, if a requested financial report is going to take an inordinate amount of time and resources to compile, it is OK to ask why the numbers are needed and find out what the PE firm is trying to accomplish. Explain to the executives what it will take to provide what they requested so everyone is on the same page about the resources being dedicated to the task. Time and energy may be better spent completing other work, especially when what they want can be included in a regular report.
Keep your messaging consistent
As the CFO of a private equity backed company, you should be working closely with the company CEO to deliver consistent financial reporting and data analytics to the PE firm. It is surprisingly common for CFOs and CEOs to miscommunicate or to carelessly deliver divergent information to their private equity investors. Inconsistent information and communication do not inspire confidence. A successful CFO is able to work with the CEO to produce clear, consistent information that accurately reflects the state of the business sometimes on a weekly basis.
Strategically invest in technology
Due to the stringent financial reporting requirements of PE firms, staying up to date on the latest technology trends is important for increasing efficiency and staying relevant in a rapidly advancing industry. According to a 2019 survey by Deloitte, 82 percent of PE investors believe automation and technology are going to have a major impact on finance functions over the next 10 years. A successful PE CFO will make strategic investments in technology to enhance processes. Ideally, these investments will eventually cut labor costs and create a more efficient workflow within the PE portfolio company.
As a private equity CFO, you must start embracing technology. Old school financial reporting methods are being replaced by automation and as the CFO, you must be the one leading those changes. If technological advancements are not part of your strategic plan for the portfolio company, you need to pivot to start including them.
Private equity CFOs wear a lot of hats
As a private equity CFO, you must be flexible and wear many different hats. Before a business is acquired by a PE firm, a CFO might be perfectly fine filling the role of accountant. After a business is acquired, however, this is no longer the case. A PE CFO has to know how to strategically scale the business. Oftentimes, the duties the CFO previously held are increased exponentially to accommodate the rapid growth a PE firm demands.
Succeeding as a PE CFO
A typical PE experienced CFO will naturally oversee finances, but also may play a role in human resources, operations, supply chain management and negotiations, legal, information technology, and in some cases, real estate. A lot of CFOs inherited through an acquisition do not know how to adapt to these new duties required by the PE firm. That is part of the reason why CFO turnover is so high. You must realize a PE CFO role has higher expectations and you must quickly grow accordingly to match your new duties.
Ultimately, a strategic CFO is forward-thinking and has a personal and professional growth mindset. Your role as a PE-backed CFO might be evolving into a more complex and challenging position, but it can also be the most fulfilling job opportunity of your career. If you remember the four messages above and work hard to bridge the skills gap, you will be more likely to succeed in your new role as a PE CFO.
There is no doubt that a Chief Financial Officer (CFO) is one of the most valuable assets of a company. Be it a blue-chip company or a small business, every entity needs a skilled person to take care of its financials. Although startups and small businesses frequently can’t afford to hire a CFO, they still need some level of qualified financial help from an expert; someone who is experienced in accounting and finance and can manage cash flow, profit margins, debt, and the overall financial performance of the business.
Mid to large-sized businesses may already have a CFO, but what do they do if their business is going through a financial crunch? What if the CFO isn’t skilled enough to help you navigate the rough waters? Worst of all, what if the CFO gives notice during a rough season? It’s simple: you can hire an interim CFO or a part-time CFO (also known as fractional CFO), but first, you need to understand the difference between the two.
As the term suggests, interim CFOs are finance experts who temporarily fill in the role of a permanent CFO when the company is in the process of hiring a new one. Interim CFOs are usually brought on to work full-time for one to three months only (six months in rare cases). They overlook and manage the financials of the company in the gap between the last CFO’s departure and the arrival of a new one, and may also help companies during a financial crunch or other major change such as an ERP implementation.
On the other hand, fractional CFOs provide financial services to a company on a part-time basis, almost like a vacation timeshare. This means that they will work for you for only a few days every week and have the liberty to provide the same services to other companies simultaneously. Usually, small and mid-size businesses hire fractional CFOs because they are operating on a small-scale, and thus, they don’t require full-time professional CFO assistance.
Let’s look at both of them in more depth to figure out which one your business needs.
Interim CFO: Full-time Assistance for A Short Period of Time
Interim CFOs don’t deal with startups and small businesses. They are usually appointed by middle market or large-sized organizations when they are facing challenges or undergoing leadership changes, such as financial disruptions or hiring of a new CFO.
Some companies may also hire an interim CFO when they feel that their current CFO doesn’t have the knowledge and experience to deal with systems implementation/integration or mergers/acquisitions. In such cases, an interim CFO is like an extra pair of eyes and arms that are there to guide and assist you through various processes, including the due-diligence phase when the company is being sold. By providing their valuable insight, they help the company owners and executives make more informed decisions that will increase the overall profitability of the company.
Since interim CFOs are hired for a specific purpose or project, their job is done after the engagement is finished. As mentioned above, the average duration of their job is between one to three months, after which you probably won’t hear from them again.
Fractional CFO: Part-time Assistance for A Long Period of Time
Usually, fractional CFOs are hired by small and medium-sized businesses when they are beginning to grow and get more traction. These startups or small businesses need more than a bookkeeper due to their sophistication, but are not yet ready for full time support due to their small operations scale.
While a bookkeeper can help with small tasks like recording transactions, a fractional CFO can begin tracking your financial activities, set up a proper accounting system, and provide you with valuable insight on your business’ financial performance. Depending on which growth stage your business is at, a fractional CFO can provide a range of services, including debt negotiations, building cash-flow models, and advising on capital-market investments.
Fractional CFOs can also help you in strategically reinvesting your profits to maximize your returns. In addition to this, if you need to raise capital for business growth, a fractional CFO can help you find potential investors, and can also draft all the necessary documents needed as proof for private equity or banks. Fractional CFOs usually work a few days a week, but they are available for as long as you need.
The Bottom Line
Depending on your company’s needs, either a full-time or fractional CFO may benefit your bottom line. The distinction between interim CFOs and fractional CFOs is quite clear: if your business is undergoing a change and needs a CFO temporarily to help take charge over the next 1-3 months then you should hire an interim CFO. However, if you need assistance with major financial decisions but not as often, then you should go for a fractional CFO. Find out what qualifications you should look for in a Chief Financial Officer (CFO) here.
Consulting Chief Financial Officers (CFOs) play an important role at private equity (PE) portfolio companies. An interim CFO can be strategically added to a company’s team to navigate a merger or acquisition, implement new systems, or serve as a critical stop gap between incoming and outgoing CFOs. According to a 2019 survey by Deloitte, the turnover rate for PE CFOs is greater than 80 percent, and finding a permanent CFO for a PE-backed company takes a lot of time and consideration. To avoid rushing the decision, a lot of private equity firms will hire a temporary or “interim CFO” who can come in and handle immediate needs. Of course, choosing an interim CFO is also an important decision, so it is wise to understand the unique circumstances under which an temporary CFO is engaged.
An interim CFO is brought in to a PE-backed company for a short period of time, typically one to three months. This means the temporary CFO has to hit the ground running when introduced to the PE-backed company. The ability to quickly adapt to business needs and tasks is an essential capability every temporary CFO should have.
Adaptability does not just come into play for completing work tasks, either. An interim CFO’s ability to adjust to a new setting can also be very useful when it comes to addressing company culture. The temporary CFO should be able to seamlessly adapt to working with various departments within the PE-backed company as well as understand best practices for interacting with the private equity board.
A key component of adaptability is interpersonal skills. Being able to effectively lead, communicate, and motivate team members is part of what makes an interim CFO successful. An interim CFO with a positive attitude and effective communication can integrate into an existing team a lot faster than someone who lacks the necessary interpersonal skills. Demonstrating effective communication also lends credibility to the temporary CFO’s ability to perform well for the new team.
Private equity leadership also benefits from an interim CFO’s interpersonal skills. Clear communication allows the interim CFO to interpret financial data in a clear, concise manner that will result in constructive interactions when reviewing financials.
One big mistake of many private equity firms when hiring an interim CFO for a portfolio company is looking for someone who has the same skill set as a full-time CFO. A temporary CFO should be hired to complete three main tasks or goals, and the skill set of this CFO will be dependent on the specific tasks that the PE-backed company needs to be completed. For instance, the company may need help with ERP system implementation or company restructuring. Often, an interim CFO is hired to fill the gap between the departure of the previous CFO and create a soft landing for the start date of the new CFO.
Since an interim CFO typically only stays with a company for up to three months, it is easy for the CFO to remain objective and avoid office politics. A neutral point of view regarding company processes and procedures is incredibly valuable. This objective viewpoint can clearly see which areas can use improvement and where cuts need to be made. An interim CFO should be able to identify areas for financial improvement, as well as a major investment within the PE portfolio company. Even when the feedback is negative, an interim CFO should have the confidence and impartiality to honestly assess and comment on the state of the portfolio company.
Consulting CFOs might not have the same type of experience as the permanent CFO you seek, but they still have a high level of expertise, usually in a consulting capacity. Ideally, the temporary CFO will have an MBA in finance as well as five to 10 years of executive-level experience. A promising temporary CFO will also be able to demonstrate past experience leading financial or accounting functions of sizable companies. An interim CFO might not need to have the same experience as a permanent CFO, but they should still be an extremely competent professional familiar with the financial reporting and performance demands of private equity.
The right interim CFO for your portfolio company can make a huge difference in a short amount of time. Whether you need someone to help during a business acquisition, to implement new systems management procedures, or to just temporarily fill the gap between permanent CFOs, an interim CFO is a good investment for your private equity-backed company.
The Wall Street Journal published a list of the five highest-paid CFO’s late last year. The list cited high power executives, including Safra Catz at Oracle Corp. ($108.3 million), Ruth M. Porat at Alphabet Inc. ($47.3 million), Luca Maestri at Apple Inc. ($26.5 million), Michael Fleisher at Wayfair Inc. ($23.6 million), and John P. Nallen at 21st Century Fox Inc. ($20.8 million). These numbers are a far cry from the national average CFO salary. According to Payscale, the average CFO will receive a salary of $133,000.00.
Regardless of the total dollar amount, however, we must delineate salary from total compensation. As the complexities of company management expand, so too do the kinds of rewards. Total compensation is an umbrella term that encompasses both a base salary as well as additional benefits, bonuses, stock shares (in publicly traded companies), and perks.
Cash bonuses are often commission-based or tied to specific performance benchmarks while perks come in the form of golden handcuffs or golden parachutes, which incentivize an executive to stay for a particular amount of time or guarantee them financial compensation upon the end of their tenure respectively. General Electric’s Carolina Dybeck Happe holds an $8 million golden handcuff agreement the conglomerate and Stanley O’Neal, Merrill Lynch’s former CEO, famously pocketed $161.5 million from his golden parachute agreement.
How do you develop a competitive and compelling CFO compensation package that will bring the best, most qualified talent to your company? The team here at Cowen Partners Executive Search will breakdown the most essential, key factors to consider:
Location, location, location.
The age-old real estate saying holds true in the case of understanding and allocating CFO compensation. While CFO paychecks are inexorably intertwined with the broader company structure, current financial status, and trajectory, geographic location makes a tangible impact on their salary- just as it does for any other company employee. The regional differences in the cost of living and economic opportunity correlate to CFO salary.
To put this into context, a CFO in Keya Paha, Nebraska, can expect the lowest CFO salary in the country at $284,250 and a compensation package totaling $354,259. An average CFO in San Francisco, however, needs nearly double that salary to live and work. The average San Francisco CFO salary rises in proportion with the cost of living and comes in at $451,070 with total compensation of $724,006.
The price variations based on geographic location may or may not decrease as we resume commerce in a post-pandemic world. Twitter CEO Jack Dorsey announced that he’s letting employees work from home forever, even after COVID-19 is eradicated. These kinds of financial-saving decisions might close the regional pay gaps in CFO compensation packages, should they be adopted by other organizations. Cowen Executive Partners stays abreast of developments like these and evolves our CFO consulting services to accommodate shifts in the market.
Beyond physical location, each company has a unique approach to financial structure, commerce, success, work ethic, and values. We take all of these ideas into consideration when matching CFOs to open positions, but the financial structure is the second major determinant of a CFO’s compensation.
While salary.com cites the median base salary of a CFO in the United States as $362,030, and the median total compensation package (including bonus, healthcare, and retirement) as $506,386, each CFO is compensated differently depending on the company in question. Non-profits, private companies, and public companies all compensate their executives differently and in proportion to their previous and potential earnings.
According to CFO.com, the average cash compensation for a CFO in a private company with less than $20MM in annual revenue is $194,354. For companies with $21-$99MM in yearly revenue, CFOs make an average of $237,983 in base salary. Tack on benefits and bonuses, and you can expect to shell out somewhere between $225,000-$275,000, depending on business size.
The CFO job description, though different across industries, generally contains these key requirements, responsibilities, and credentials.
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Here are the best questions to ask when interviewing CFO candidates. We’ve broken them down by category, so you can unpack the key details you need to know about different candidates’ history, qualifications, ability to “fit” with the company, and more.
Cowen Partners is a leading CFO Search Firm and has a strong record of identifying and recruiting Chief Financial Officers for public, private, and non-profit organizations. Contact us if you would like to discuss recruiting an exceptional CFO for your company.