Portfolio Company Success Pivots on the Agile CFO

Imagine this familiar scenario: As an investor, you scour your preferred sector for the ideal founder-led company with serious ROI potential. Inevitably, it’s a diamond-in-the-rough that lacks a sophisticated accounting staff and structure. You negotiate a beneficial deal and hire a permanent or interim CFO who’s experienced enough to turn all that potential into reality—and do it sooner rather than later.

Days into the job, while your new CFO surveys the landscape, business stops. And not just your business, but all business because of a worldwide pandemic. The original priorities for the incoming CFO immediately change, and the stakes inevitably rise to the ultimate degree—survival.

This now begs a crucial question every time you invest in a company: Have you hired a CFO who’s agile enough to navigate an existential crisis that could threaten 100% of your stake?

Why Are Agile CFOs in Such High Demand?

In March and April 2020, cash was the immediate priority as businesses figured out how to operate with all but essential employees at home. Everyone in the C-suite played their part, but organizations invariably relied heavily on the CFO to navigate these uncharted waters. As Financial Executives International (FEI) observes, COVID-19 validated the importance of CFOs as it simultaneously created “a new finance imperative: move at the speed of change.”

The particulars might have varied by business, but the need for agile CFOs who could pivot on the slimmest of dimes became universal.

Take the real-world story of Craig Levy, CPA, a veteran senior finance leader who specializes in serving as an interim CFO. In March 2020, he accepted a 16-week interim assignment to manage and improve a company’s finance function while the board and CEO searched for a permanent CFO to fill a recent vacancy. His primary directive: restore company credibility and help find a new lending partner.

Almost immediately, his routine engagement and original 100-day plan was superseded by the unforeseen circumstances of the pandemic’s early days. COVID-19 lockdowns caused business to drop precipitously from its pre-pandemic norm, meaning Craig was now on a life-saving mission—a completely different task than the one he was hired to do.

“We had to pivot within days,” he says. “I spent hours every day just trying to ensure we had enough liquidity to run the business.”

In two weeks, the business went from full employment to a situation that included layoffs, furloughs, and pay cuts. Craig had to allay the resulting employee fears, which took a coordinated communication effort on his part.

“You can’t do all that without telling people why and what the future looks like,” he stresses.

Meanwhile, Craig didn’t forget about the initial reason he was engaged. He dug into the accounting records to determine why the finance function had struggled before the pandemic to deliver credible and accurate financial reporting to the investors, the board, and the company’s bank. His efforts restored investor and lender confidence in the numbers needed to make critical decisions.

He wasn’t the only agile interim or permanent CFO who saved the day by managing this unprecedented crisis while moving a company forward. Others successfully pivoted, too. Now that company boards and investors have seen what can be done in the most challenging of times, everyone wants a CFO who can quickly pivot their company in any direction.

What Qualities Do Investors Need in a Post-Pandemic Agile CFO?

Many factors determine the CFO profile most suitable to your unique business environment. You should consider everything from the evolutionary stage of the portfolio company and its ownership structure to the management team and your investment thesis. In the end, you’ll likely select one of these CFO profiles: a strategist, a disciplined operator, or a finance expert.

Beyond your chosen profile, the ideal post-pandemic CFO should be agile enough to operate as follows:

  • Beyond the numbers: McKinsey notes “In the past, the CFO’s role was to allocate budget and then to ensure that the allocated funds were being used according to plan.” That role was already evolving, but COVID-19 accelerated the shift. The CFO’s job is no longer just about crunching numbers. It’s also about “helping colleagues to jointly optimize budget allocation.”
  • Open to new ideas: More than ever, CFOs need to think outside the box to find solutions to internal roadblocks and external economic, social, and environmental issues. Otherwise, these problems can derail your strategy, increase your risk, and decrease your potential return.
  • Capitalizing on technology: When it comes to mastering change, McKinsey says CFOs should “continue to experiment with new tools and technologies, digitize their own functions, and, with that experience, help spread digitization throughout the organization.”
  • Dual-minded: In the private equity world, CFOs need to regularly pivot between the financial and operational sides of the house, the latter of which typically needs massive transformation to support the investment thesis. McKinsey recommends that CFOs “also take a bigger role in executing transformations, beyond just traditional financial tasks.” After all, CFOs “control most of the key business levers that determine a transformation’s success.”
  • Anticipatory: Just months into the pandemic, Kearney noted that CFOs needed to remain forward-thinking despite the temptation to stay myopically focused on immediate problems. Of the most resilient CFOs, it said, they “are already considering where disruption will open up new business opportunities and preparing for the related investments.” The same is true today.

How to Detect Agility in Your Next CFO Search?

Investor expectations of today’s CFOs go well beyond their official job descriptions. You can’t assume a CFO candidate will be up to such a monumental task if you don’t account for things like agility in your executive search.

That’s why we recommend using a strategic hiring process to find the ideal CFO to drive your next investment or to shore up a struggling company already in your portfolio. Using a structured framework, you can include agility as a component of your candidate scorecard and incorporate it as part of your structured interview questions. This will increase confidence that the CFO you put in charge can handle whatever is thrown at them.

Need help executing your next CFO search? Contact Focus Search Partners today.

By Monica Foster and Heather Johnson, Managing Directors at Focus Search Partners