When a company is acquired, with the goal to ultimately flip the business for a profit, new decision-makers may make substantive changes. These changes can cause friction and create imbalances in the power dynamics of leadership. CFO turnover, already the highest among the C-Suite, may be increasing at these companies because of this dynamic, new data suggests.
According to Accordion's State of the PE Sponsor and CFO Relationship Report, private equity (PE) firms are increasing the pressure on CFOs of the companies they purchase. More than nine in 10 (91%) of CFOs whose company is PE-backed worry about their job security amid the changes implemented by new ownership groups.
KPIs and the CFO Role
Key performance indicators (KPIs) and their importance are a significant discrepancy between CFOs and PE sponsors. As data has been a highly important tool for both CFOs and PE firms alike, a lack of cohesion on how to approach and apply data to decision-making can be troubling for companies looking to make wide-scale changes.
When asked if KPIs were effective in understanding data, PE sponsors were much less likely to say ‘yes’ compared with their CFO counterparts. Accordion research shows 82% of CFOs said KPIs were effective, while only 60% of PE sponsors said the same. Sponsors themselves appear torn on how to approach the metric, with 55% of them telling surveyors that CFOs report too few KPIs, and 48% saying CFOs report too many KPIs.
Regardless of whether the issue lies in having too few or too many metrics, sponsors seem to have issues with how their CFOs are gathering, processing, and implementing their KPIs. Over a third (34%) said CFOs aren't reporting financial statements of the right KPIs promptly. The same amount also said they're not getting the granularity required for operational data.
Despite their issues, none of the PE sponsors blamed the inadequacy of the systems the CFOs are using, which is drastically different from years prior. In 2021, when this survey was previously taken, 75% of sponsors said their data development systems were inadequate or underperforming.
Roles, Goals, and Growth
When it comes to the broader duties of a CFO, findings suggest some PE sponsors and CFOs have different ideas of what those duties should be. A third (33%) of sponsors believe CFOs should have a role in scaling the business and driving enterprise-wide transformation. Less than a quarter (22%) of CFOs said the same.
Alignment on what's best for the business between CFOs and PE sponsors, despite their differing ideas on many other things, is surprisingly in line. CFOs and their sponsors agree on the importance of focusing on optimizing capital structure (45% and 41%, respectively), accounting or SEC reporting (44% and 46%, respectively), and entering new geographies (34% for both).
When accounting for growth, the largest ranges of disagreement between CFOs and their sponsors were in technology enablement (46% and 38%, respectively), cost reduction (45% and 28%, respectively), and M&A (24% and 43%, respectively).
Finance leaders seem much more confident in the accuracy of their data. Findings show that a large majority (92%) of CFOs say the data they use is both clean and reliable. Sponsors, although mostly agreeing with that sentiment, do so at a far lower rate. Only 65% of sponsors said the same.
Since 2021, sponsor sentiment on data has stayed consistent. But for CFOs, it's increased greatly. While sponsor confidence dropped three percentage points, CFO confidence in their data has shot up 31% in two years.
Despite their feelings about data, PE sponsors aren't very motivated by the use of that data by their CFOs. Less than a fifth (17%) said they believe their CFOs do extremely well at turning data and analysis into insights.
The State of the PE Sponsor & CFO Relationship survey included responses from 200 total participants including 100 private equity (PE) sponsors (senior executives) and 100 chief financial officers (CFOs) at private equity-backed companies with $50 million or more in annual revenue.