Accordion Survey Reveals Portfolio Company CFOs Are Not Living Up To Sponsor Expectations

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• USA - English

NEW YORK, Jan. 13, 2022 /PRNewswire-PRWeb/ -- Portfolio company CFOs are not living up to PE firm expectations, and PE-backed CFOs know it, according to The State of The PE Sponsor-CFO Relationship Survey Report, released today by Accordion, a private equity-focused financial and technology consulting firm.

The survey, which polled 100 PE Sponsors and 100 PE-backed CFOs, examined the sponsor-finance dynamic across three critical dimensions:

•     Measuring the Business: Collecting clean data to inform insights
•     Managing the Business: Turning clean data into analysis and then into insights to make informed business decisions
•     Scaling the Business: Utilizing value levers to help the business transform to achieve strong growth and returns in a PE-backed environment

In doing so, the survey revealed PE firms' perception of their CFOs across each dimension of their role. It also explored how the changing nature of data, reporting, KPIs, measurement tools, and transformation initiatives has impacted the dynamic between finance and firms. Key findings include:

•     81% of sponsors say their portfolio company CFOs are not completely living up to their "measure the business" expectations (collecting clean data to inform insights). The same percentage of CFOs agree.
•     91% of sponsors say their portfolio company CFOs are not meeting their "manage the business" expectations (turning clean data into insights). CFOs agreed in the exact same numbers.
•     87% of sponsors say their portfolio company CFOs are not fully living up to their "scale the business" expectations (utilizing value levers to help the business transform). 79% of CFOs concur.
•     87% of portfolio company CFOs are concerned about job security – a 21% increase from 2019 survey findings.
•     43% of portfolio company CFOs are not working with their preferred model of PE firm – a 14% increase from 2019 survey findings.

Read the complete survey

Major Survey Themes:
Survey findings indicate that PE-backed CFO performance has proven underwhelming in all three areas of the function: measure, manage, and scale.

While PE teams ultimately want a strategically-inclined, transformative CFO, the current market disruption has made even the very basics of the job that much more important and that much more difficult.

CFOs are struggling just to collect clean data and turn insights into informed business decisions. The reasons behind these measure and management issues include: disparate technology systems; poor system integration; the mythology surrounding cost and implementation requirements for creating a more ideal tech stack; reporting inertia that no longer tracks to meaningful KPIs; a talent shortage with respect to finance tech proficiency; and the insatiable sponsor need for real-time data, uninformed by now irrelevant historical trends.

Said Nick Leopard, Accordion CEO, "The COVID economy hasn't fundamentally changed the hard work at the core of being a PE-backed-CFO. Rather, it has exposed and exacerbated long-existing issues. For years, finance has struggled to gather clean data given disparate systems and a lack of integration. The pandemic-influenced marketplace intensified this issue. A hyper-evolving marketplace also highlighted finance's inability to harmonize financial and operational data and present strategic findings to sponsors. Moreover, it not only exposed a foundational technology problem at the root of measure and manage deficiencies, it revealed a critical people problem, as well. CFOs are fundamentally under-resourced as it relates to executives who understand the nuances of existing systems, can identify the critical gaps, and can extract and reconcile data from multiple sources."

Measure the Business:
Measuring the business is defined as collecting clean data to inform insights. More specifically, it is collecting accurate data, having the systems integration capabilities to produce reports in a timely manner, and having the appropriate KPIs to understand the data. Eighty-one percent of sponsors say their portfolio company CFOs are not completely living up to their "measure the business" expectations. The same percentage (81%) of CFOs agree. Reasons for underperformance include:

System Inadequacy & Reporting Infrequency: Sponsors say the type of reporting systems CFOs are using are inappropriate and inadequate to meet reporting needs. They also believe finance teams are using the systems ineffectively. CFOs say the problem isn't the systems themselves, it's the cadence, or rather, the infrequency with which they are reporting financial statements and KPIs.

Under-Resourced Finance Teams: While 100% of sponsors and 99% of CFOs feel the finance team is under-resourced, they disagree on where and how: Sponsors say finance teams are most under-resourced in FP&A and least under-resourced in procurement. CFOs feel the most under-resourced in procurement – indicating a significant disconnect in sponsors' perception of finance teams' resources.

Manage the Business:
Managing the business is defined as turning clean data into analysis and then into insights to make informed business decisions. Ninety-one percent of sponsors say their portfolio company CFOs are not meeting their "manage the business" expectations. CFOs agreed in the exact same numbers (91%). Reasons for underperformance include:

Inability to Turn Clean Data into Insights: Sponsors say CFOs are not completely effective at turning clean data into insights (89%). CFOs say the same thing, with 12% admitting that they're not at all effective at turning clean data into insights.

Finance Team Prioritization: Managing the business means understanding the key areas on which the finance department must focus. Sponsors say CFOs should focus on technology enablement, improving working capital, and cost reduction – in that order. CFOs say technology enablement is not one of their key focus areas. Instead, they are more focused on optimizing capital structure and entering new geographies.

Scale the Business:
Scaling the business is defined as utilizing value levers to help the business transform to achieve strong growth and returns in a PE-backed environment. Eighty-seven percent of sponsors say their portfolio company CFOs are not fully living up to their "scale the business" expectations. Seventy-nine percent of CFOs concur. Reasons for underperformance include:

Disconnect on Transformational Initiatives on which Finance Must Focus: Sponsors say CFOs should prioritize finance process optimization first. CFOs rank process optimization last on their list of priorities. Instead, they prioritize profitability improvement.

Not Meeting Pandemic Needs: Sponsors say it is more important for their CFOs to be transformational CFOs now then it was prior to the pandemic (75%). CFOs overwhelmingly agree (80%). This alignment underscores the transformational necessities of the moment.

CFO Types, Job Security, and Preferred PE Firms
There is a disconnect around who CFOs are and what PE firms would like them to be. This survey has identified three main types of CFOs:
1.    The Controller CFO (Sponsors want this and think they have this in-seat)
2.    The Strategic CFO (CFOs think their PE firms most want them to be this)
3.    The Transformative CFO (CFOs think of themselves as this)

Survey Analysis on What The CFO Disconnect Really Means:
The PE preference for controller CFOs may seem contrary to other findings which indicate that PE firms currently place a priority on transformation, but it's not. Measuring the business is table stakes, but critical table stakes. The COVID economy has made this part of the CFO role more important, but also significantly harder. As a result, CFOs are not currently performing table stakes tasks up to sponsor expectations. For that reason, PE firms want to first ensure they have a CFO who can do the fundamentals effectively, before they look to find the ultimate transformative CFO they really need to scale the business.

That critical point is reinforced in another finding. PE firms consider their current CFO's biggest weakness to be measuring the business. This indicates a need to get the foundational requirements of the role perfected, before tackling its more growth-oriented functions.CFOs agree that measuring the business is the hardest part of their work, underscoring the fact that the explosion of data and economic volatility has made a table stakes part of their job far less routine than it used to be.

CFO's inability to meet sponsor expectations is likely why their job insecurity has significantly increased: Ninety-six percent of sponsors believe that their CFOs are concerned about their job. Eighty-seven percent of PE-backed CFOs are more concerned about job security post-PE deal; that's a 21% increase from 2019 survey findings.

Survey Analysis on What Increasing Job Insecurity Really Means:
The overwhelming statistic and substantive two-year increase underscores the fact that the PE-backed CFO role is more difficult than it's ever been. It also suggests that CFOs recognize they're not performing even the foundational "measure" and "manage" aspects of the role up to sponsor expectations.

There is also a disconnect in terms of PE operating models. There are two distinct types of PE firms: investor firms that allow management to drive strategy, and operator firms that are more involved in managerial decisions. Forty-three percent of CFOs are not working with their preferred PE firm model - an increase of 14% from 2019.

Survey Analysis on What The Model Disconnect Really Means:
It's not just sponsors who are disappointed in their CFOs; CFOs are also disappointed in their sponsors. CFOs know they need more help shepherding the company through crisis and volatility. However, despite CFOs wanting deepened operational guidance from their sponsors, few believe they're actually getting it.

Added Accordion President, Atul Aggarwal: "The question is: Is this a moment-in-time issue that is the result of massive pandemic-related disruption? Or, is this state of discontent the new normal? The key to preventing the latter is to address the root issues of measurement requirements and misfires. That means doing three critical things. First, it means encouraging an open dialogue between sponsors and CFOs. Second, it means supporting CFOs with the right technology infrastructure and resources. Third, it means providing sponsors with the meaningful real-time insights they require. These three solutions can mitigate the kind of CFO underperformance that will inevitably lead to more CFO unemployment. These are also the bare minimum requirements needed for sponsors to put their CFOs in a position to succeed."

Aggarwal concludes: "And CFO success is absolutely critical – not only so that they can effectively measure, manage, and scale the business, but so that all stakeholders can benefit from their proficiency at doing so in order to realize maximum return on investment."

About Accordion:
Accordion is a private equity-focused financial and technology consulting firm. Rooted in a heritage of serving the office of the CFO, Accordion works at the intersection of sponsors and management teams to maximize value. The firm's services span the entire CFO function – including operational and technical accounting, strategic financial planning and analysis, CFO-related technology, transaction execution, public company readiness, interim leadership, and following its 2021 acquisition of Mackinac Partners, now include turnaround and restructuring solutions for the broader private capital markets. Across all of Accordion's services, clients are supported by deep expertise in CFO-specific technology and finance-led transformations. Accordion is headquartered in New York with nine offices in Boston, Charlotte, Chicago, Dallas, Detroit, Los Angeles, San Francisco, and South Florida. http://www.accordion.com

Survey Methodology:
The State of the PE Sponsor-CFO Relationship survey was conducted by Accordion, in conjunction with Wakefield Research, among 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. The CFO and PE sponsor samples were collected between August 31 and September 13, 2021, using an email invitation and an online survey. The results of any sample are subject to sampling variation. The magnitude of the variation is measurable and is affected by the number of interviews and the level of the percentages expressing the results. For the interviews conducted in this particular study, the chances are 95 in 100 that a survey result does not vary, plus or minus, by more than 9.8 percentage points from the result that would be obtained if interviews had been conducted with all persons in the universe represented by the sample.

Media Contact

Carrie Kalish, GKC for Accordion, +1 9176573155, [email protected]

SOURCE Accordion