At sister publication Private Equity International’s annual CFOs & COOs Forum 2019 in New York in January, we cornered two chief financial officers and convinced them to spill the beans on what their jobs are really like – on the condition of anonymity, of course. Here are their views on the role of the CFO in the private equity firm.
Which calls on your time do you resent?
Person A: I joke around with people that I came in as a CFO, and a year later I got the CCO title and called it a demotion, because it does take more time than you want it to take.
There’s a lot of stating the obvious, and it’s making sure you’re teetering between walking around with a big stick, but staying friendly with everybody at the same time. I would love for that to be less of my time.
I do enjoy the CFO and the strategic part of things, but the CCO part of it sometimes can overwhelm everything else.
Person B: What you resent is things that are in your area – maybe somebody in the team didn’t do something or is out, and you end up doing something more mundane. You just think ‘gee, I’d rather be doing more strategic things,’ but you end up spending a day on the mundane.
Where does the CFO role clash with ideas from the management team side?
Person A: I break it up into two. Definitely the coordination with the investment team folks.
We have dedicated business development folks, who do a great job but are, in their nature, aggressive in the way they’re trying to attract and grow assets under management and revenues for the business. That automatically puts me in the role of ‘bad cop.’ We have a very robust marketing review policy and procedure, and it’s hard to tell a natural-born marketer that he can’t say something the way he wants to say it.
There have been points of contention where I have to remind them that we are a regulated industry, and we can’t get in over our skis. Just because XYZ manager’s doing it doesn’t mean that we can do it.
I try to take a step out of my comfort zone and take a commercial view, they try to take a step out of their comfort zone and take a conservative view, and we end up meeting in the middle.
Person B: I don’t know that there’s idea clashes. For me, I think it’s always a matter of getting involved in things a little too late to affect them, for example, structuring the way a certain portfolio company is sold and saying ‘if you guys had brought me in two weeks ago when there was still room to make changes we could have wound up better with that.’ So not having, in some cases, the coordination, the communication, I think, would be my biggest [challenge].
What are the most significant challenges for you?
Person A: The more relevant I can be to senior management the better, in terms of strategic thinking and looking around the corner and so on.
You’re inherently trying to think of ways to do things a little bit differently, to try to expand the firm almost in a hybrid CFO/business development-type role, where you exchange notes with other counterparts, and you’re thinking, ‘that’s a great idea, but it would never work in our firm.’ And then you have to think about ‘how can I mold that?’ It’s the transition from the cost-center CFO to the value-adding CFO.
Person B: I lose a lot of sleep over cyber: balancing making it a user-friendly experience and enabling people to really do their work, versus the lockdown requirements and what would be the absolute best-world cybersecurity.
As a firm, we’re worried about whether each of our portfolio companies [is] properly set up for cyber. Years ago, you never saw a deal crater or be delayed because of a cyber-risk, unless it was really extreme. But now I think it’s far more common for strategics and larger firms to do a more detailed cyber review when they’re buying. So you’ve got the risk at sale.