How do you measure CFO performance? It’s a simple question, but one that doesn’t often come with a hard and fast answer. This quarter, our team, Director, Murray Fox, Associate Director, Mark Scollay, Consultant, James Foley, and Advisory Consultant, Jana Botha, spoke with private equity firms, C-suite individuals and CFOs, to see what CFO ‘success’ really looks like and how performance can be measured effectively.
Now more than ever for funds need a C-suite team and board members – both at the private equity level and portfolio company level – that can perform and add value. Currently, the CFO seat appears to be the most unstable – albeit one of the most strategically vital – positions in the C-Suite with average tenure only lasting an average of three and a half years.
In our previous paper, “Unlocking success: Building strong CFO-private equity partnerships for the future,” James Foley, took a deep dive into the skills CFOs need to perform, and how boards and C-suite can appoint new CFOs and support them. However, to ensure someone’s success, and that of a company, expectations and frameworks need to be implemented.
At Cripps Leadership Advisors, we’re often asked to appoint new CFOs for a range of reasons include:
- Life cycle – the company has gone through a new transition which requires a new set of skills
- Dynamics – there is a clash of personalities
- Investor pressure and education – investors want returns and if there’s underperformance, it’s often set at the CFOs feet. Oftentimes, there’s a lack of CFO and stakeholder relationship management.
- Change of scope – 20 years ago, a CFO wouldn’t have been expected to undertake ESG, cybersecurity, stakeholder management, but now they are. The role itself has changed and how success is measured needs to as well.
But what does excellence look like?
When appointing a CFO, the role cannot be appointed in a vacuum, the strategic value of this role needs to be recognised alongside the company ambitions, group dynamics and what approach they want the CFO to take. This acts as the first part of the foundation for excellence.
The second part is about asking the right questions – not just as part of the interview process with the prospective candidate – but what the C-suite team and board ask themselves when it comes to defining the CFO role, responsibilities and how these fits with the wider business goals and ambitions. Once this has been determined, clear KPIs need to be defined with a succinct framework for measuring success. It’s here that many firms struggle, leaving many to go on how they feel about the person or how they think they’ve been doing in the last few months and not taking into account the whole year or business picture. As we know, how we ‘feel’ today could change tomorrow, next week, next year, and fall into our own personal biases.
As part of our latest white paper, “More than the numbers: Redefining CFO excellence in portfolio companies,” our team look at how to tackle these questions, what else C-suite and boards should be asking and how to measure success in our customisable scorecard.
Download the white paper and the ‘Scorecard for CFO success,’ for more information and insights.
