Spotlight: The Evolving CFO Role and What Has Changed
August 22, 2022 – With a focus on helping PE and VC backed healthcare organizations, Tim Russell, managing partner of The Tolan Group, oversees the business development and recruitment activities for private equity and venture capital clients. Using market demographic data, Mr. Russell consults clients on candidate dynamics, compensation arrangement, and hiring probability. Using data driven analysis, Mr. Russell is able to provide real time intel as to what is needed for completing a search assignment expeditiously with candidate retention as a byproduct. Mr. Russell recently shared his views on the current state of recruiting for financial executives with Hunt Scanlon Media.
Tim, what are you seeing with your firm’s clients in regard to senior finance executives?
Our firm’s primary focus is on the healthcare sector but having recruited for clients in other industries, the CFO role is by far the most requested position our recruiters are asked to fill. A close second to that is the role of controller. In a solid third place the role of VP of M&A is a commonly requested hiring need as well. These positions have been identified as being more of a strategy team appointment rather than just an operational/accounting position. Gone are the days when CFOs and controllers operated in obscurity behind the scenes. Though financial accounting and resource management remains a top to-do list item for these folks, providing insight into growth strategy, cost reduction, and increased market share remains part of the expectations of newly hired CFOs and controllers. With the complexity of the healthcare environment, there are several levers that need to be pulled for finance executives that work within that sector as opposed to more traditional non-healthcare-oriented companies. Notwithstanding, both CFO and controller jobs have morphed into more of a “hands on,” visible type of role vs. a conference room, meeting participant exclusively.
How has the recruitment for these executives changed?
The dynamics of hiring senior executives is changing regardless of sector. The traditional job descriptions of CEOs, COOs and CFOs have changed over the last couple years. In recent times, each C-suite role had a very definitive operational component. CEOs were seen as visionaries and public relations spokespeople for the organizations they served. COOs were tasked with keeping an eye on all operational and functional duties of the organization. Having middle manager direct reports, they were tasked with operational improvement, efficiency and profitability. The CFO has traditionally been tasked with keeping an eye on overhead expenses, vendor relationships, cost cutting measures, and reporting on profitability and accounting metrics. All three of those roles are still essential in any organization, but the job description of each role has changed considerably in recent times. All are now more a part of the strategy/leadership team and not just a part of the executive team roster. In the finance sector in particular, there’s been a huge influx of technology that has taken a lot of the manual nature of the accounting practice out of the equation. One would think that accounting practices that were once manual that are now made easier by technology would make the chief financial officer role even more streamlined. Arguably, the CFO role has become more complex. It’s now necessary that the CFO has a working knowledge of all of the technology that’s implemented for such things as revenue cycle management, bill collection, reporting, and inventory controls. Though technology can streamline a lot of manual effort, there still needs to be someone who has a working knowledge of the process so as to maintain efficiency in accomplishing the end goal once the technology is implemented. It’s often the CFO who is tasked with understanding all the moving parts involved with a financial system integration or update.
Explain the CFO’s role today.
Along with being technologically savvy, today’s CFOs are being asked to roll up their sleeves and be more visible then in the past. Gone are the days when the CFO is relegated to their office spending time with spreadsheets and columns of data in order to present at the upcoming leadership or board meeting. Though still a necessary part of the job, other things such as operational tasks are also coming on to the plate of today’s CFOs. CFOs are more visible to other departments than they have been in the past. It’s becoming important that the CFO has direct access to middle managers and other functional lines in order to understand and manage the trek towards growth goals and overall company objectives. The CFO has always had a direct line relationship to the CEO but their involvement in operational duties requires that they be more interactive with other stakeholders within the organization that before may have had a different reporting structure. Other corporate commitments such as ESG and DEI also fall into the chief financial officer’s orbit. Many limited partners or investors are mandating certain requirements in these areas before they will invest or commit to sizable capital contribution. The CFO is often asked to account for company policy and commitment in such issues. Being aware of the importance of these issues is no longer just the responsibility of the HR office but now even today’s CFO shares responsibility in managing and communicating the components centered around these initiatives at the company. Today’s CFO is much more “utilitarian” than unidimensional as in times past.
What challenges does the financial services sector face and what do you see moving forward?
A few challenges exist in the financial services sector when talking about hiring top level executives. It’s a universal dynamic right now that there are many more open positions than there are top-tier talent available to fill these positions. Identifying not just the core competency of finance but identifying ideal leadership skills are challenges in the financial services sector.
As noted in a previous paragraph, those that desire to reside in the office with a closed door focusing on spreadsheets and financial reporting are not nearly as sought after as those who are visible executives speaking to the overall whole of the company and not just the individual lane of the financial responsibilities. Leadership and overall business management is essential these days…not just a “nice to have” characteristic in the CFO. It’s important that today’s finance executive have the skill of people management and not just data management and spreadsheet prowess. Along with leadership acumen, today’s CFO faces the ongoing improvement and updates of the technology within finance. As systems improve and become faster, more exclusive and detailed, one can get whiplash trying to keep up with changes and announced upgrades. CFOs need a certain level of understanding about the way their organization’s software works as well as being able to maximize its output for company good. As with any technology, there is much more that a program is capable of and trying to learn it (and implement it) can be a major time commitment. Not unlike that of a short-term certification training class, just as the CFO masters the technology…a new and improved upgrade is announced. Technology is advancing so fast that today’s finance executives have their hands full just trying to keep up with the changes.
How has the CFO role changed in recent years?
Not unlike the role of a CEO, the role of a CFO has morphed considerably in recent years. The job description change became most apparent on the heels of the national shutdown two years ago. During that crisis, executives in the C-Suite were tasked with the unpleasant job of managing through uncertain times. With a focus on working with PE firms, our private equity clients went into survival mode maintaining profitability in the best way possible. Deal teams were focusing more on stability and portco management than dry powder deployment in acquisitions. From a recruiting standpoint, we’re seeing where the CFO is being part of the interview process of new hires. CFOs are introduced to the interview process earlier and more frequently than in previous times. Not only are they part of the interview to determine the affordability of an incoming team member, but also they get to weigh in on the new hire’s understanding and ability to acclimate to the team and company culture. Even if an incoming finance team member won’t have a direct line of reporting to the CFO, the CFO is being asked to be part of the screening process of prospective new hires in order to gauge their ability to do the job and also to ascertain how they will work with the finance team members. So again, though more of a human resources responsibility, today’s CFO even has input on these issues.
Discuss an executive’s journey to leading the top finance role for an organization.
The journey to the role of a CEO is largely predicated on the size of the organization. Being largely immersed in the healthcare ecosystem, we see our share of CFOs being promoted into the CEO chair when a CEO leaves or is removed from their position. The nuances of healthcare financial management require a broad understanding of a lot of different things.
