Subscribe to this page
EquityFC Blog
Beyond finance | 21 December 2009
Private equity firms need their portfolio finance teams to be sharp, accurate, open and disciplined. But finance execs (in any type of company) must never forget the source of the numbers they report. So this article in the New Republic about the dangers of a finance-skewed management style is well worth a read (potted version at the site that pointed me to it, Boing Boing).
In short, it says America has got rubbish at manufacturing because MBAs have come to dominate management teams - and finance (rather than production or logistics) has come to dominate MBA courses. As a cheerleader for finance functions, I don't see this a critcism of FDs or controllers. Instead, it's a rallying cry for rounded FDs and FCs, people who have a good grasp of operations and other disciplines. In my experience, they tend to be better at the finance bit and more suited to CEO and chairman roles (if that's what they want).
I'm not alone. An old friend Jim Weight used to be CFO at Westminster Healthcare and HIT Entertainment, so he has bags of PE portfolio experience. Now he’s working with EPIC Private Equity looking for turnaround situations, where a vice-like command of the finances is job one. But he argued that the recession has forced FDs to look more broadly.
“A real understanding of the commercial aspects of the business is important too,” he says, “because without that you can’t really achieve a key attribute we look for in an investee FD: an ability to forecast. If you go to the bank and say, ‘I’ve been doing lots of work and I think I’m going to have a cash problem in 18 months time’, usually the reply is that you can have as much money as you like. If you’re that on top of your business, then you’re exactly the kind of person they want as a client.”
Great point, Jim. Get your hands dirty out in the business and you'll be a better - and much more valuable - finance exec.