Executive search firms in Orange County that specialize in placing finance chiefs are getting stronger demand for their services.
It’s coming, thanks to a blend of improving prospects for the economy and job opportunities, and increasing private equity investments and deal activity that are creating room for transition.
Another key factor driving the demand: It’s gotten that much harder to find a good CFO, especially since the recession, which left many management teams rethinking their fiscal conditions and risks, and doing more with less.
“It’s because the CFO role has grown so much from being a typical corporate controller … to being much more operational, almost like having the chief operating officer qualifications,” said Peter Santora, OC-based managing partner of Boyden World Corp., a global search firm focused on executive and director placements.
The Purchase, N.Y.-based company late last year established its Southern California operations and tapped OC resident and industry veteran Santora to oversee the market.
It re-established itself here to facilitate face-to-face interaction with clients in a strategic spot, given the region’s global opportunities. Boyden had left Southern California about 30 years earlier after consolidating its West Coast operations in San Francisco.
Search firms—though they benefit by way of increased business as the search gets tough—aren’t immune to the challenge, said Santora, who cited a growing need for more stringent due diligence and deeper research on potential candidates.
“Everybody wants an operations business partner in a CFO, not a bean counter. That makes it tougher for the search firm,” he said.
“There’s a lot more we need to find out about that person. We are bringing a whole picture around this candidate, using references, third-party connections. … Our job is much harder than it was, but the complexity is what I love about it.”
He said he’s been working with a mix of public, privately held and private equity-backed businesses.
Search firms typically don’t disclose clients and aren’t usually mentioned in connection with executive announcements.
A sense of mobility in the executive ranks in general has grown in the past few years, said Peter Felix, president of the Association of Executive Search Consultants, a New York-based global organization of the executive search and consulting industries. Member firms include Boyden; Los Angeles-based Korn/Ferry International; and Heidrick & Struggles International Inc. in Chicago.
“The broad statement is that—certainly since last year and increasingly so—we are entering into a period of much more intense activity in the senior level of the search market,” Felix said.
“This is not surprising, because we’re finally emerging from the financial crisis. It’s been five years of very stringent management control. As the economy now bounces back, it’s probably overdue for many corporations to really evaluate their future and strategy.
A lot of them have engaged now in thinking more strategically, including about people. … And [search firms’] clients are demanding because so much hangs on the CFO. This will eventually drive up compensation packages and so on. At the end of the day, the CFO is one of the most crucial appointments of a corporation.”
Orange County-based companies that recently appointed chief financial officers—whether assisted by search firms or not—include Kareo Inc., a medical office software developer in Irvine that named Tom Patterson its new CFO this month.
Costa Mesa-based Emulex Corp. announced Kyle Wescoat as its new finance chief in January, and California Republic Bank in Irvine named Mark Olson its CFO. Fountain Valley-based MemorialCare Health System promoted Karen Testman to CFO from senior vice president of financial operations.
Room for movement means opportunity for search firms.
Beverly Wiesen had the “busiest first quarter ever” at her Apex Executive Search LLC, a boutique firm in Irvine she founded in 1996 with a focus on locating candidates for CFO and other finance-related positions.
“Generally what happens is all the demand comes in the September, October time frame, not in the first quarter when there are audits going on. It’s usually a tough time for most financial teams. This year, it’s just broken all those rules. There is a lot of upgrading. People are moving. They’ve regained confidence in the market.”
Karl Hardesty, cofounder and chief executive of Irvine-based search firm Hardesty LLC, agreed.
“Demand is definitely up,” he said. “During the recession, a lot of the executives stayed put. There wasn’t the natural turnover in the executive ranks. People are now moving around more. Companies are spending money.”
Money Creating Demand
Money is also circulating more actively in the private equity sector, which often tends to count on search services to help build management teams for portfolio companies, said Chris Britt, a managing partner of Newport Beach-based private equity firm Marwit Capital.
“Utilizing these firms and doing direct search—it’s actually a very large part of our strategy,” Britt said.
“We’ve used national retained search firms to some success and boutique firms to some success. … In private equity, there’s an investment horizon. There’s an expected level performance within that horizon. The needs at our level [have] a lot to do with bringing professional systems and management to the financial side of the business first and foremost.”
Marwit’s current fund, Marwit Capital Partners II, has 10 companies in its portfolio. Britt said the firm has used about 10 search firms to conduct 30 executive searches for those companies. More than half of the searches—17—were for the CFO or vice president of finance roles, the rest for chief executives.
“We use different firms because we invest in different industries,” Britt said. “In our experience, some firms may have a particular expertise in an industry or geography. That can be very important to accessing the best candidate pool and ending up with the best hire.”
He said it’s often part of a private equity fund’s investment strategy to approach a target company “with the assumption … that you’re going to bring in new leadership.”
Sometimes funds have to learn as they go, he said.
“It’s certainly true that … you enter into an investment and think you have the right leadership, and at some point you realize that you don’t,” he said. “You’re not getting the results, you don’t know the management as well as you thought, and you make a change.”
Britt said he expects private equity transactions will continue to increase, presenting “an ongoing growth area for every search firm.”
The overall context search firms are working in is constantly changing depending on economic cycles, according to Felix, who said it’s now “about the dynamics of growth and expansion … as opposed to the dynamics of cost control, which has been the mantra for companies in the last four or five years.”
Searches Get Harder
There’s also a “shrinking pool of qualified candidates” who can measure up to the “growing list of the ‘must-haves’ in a CFO,” said Nick Araco, cofounder and president of the CFO Alliance, an international network of about 4,500 CFOs.
The Conshohocken, Penn.-based organization established an Orange County chapter last year that currently has about 100 members.
“Many times, I act as a reference for our member CFOs when they are being interviewed,” Araco said.
“These searches now are not quick; they’re extensive. And hiring a CFO is not a transaction. The relationship is more personal, intimate and a little more sticky.”
Araco said more companies and their CFOs are increasingly focused on investing in technology, developing internal talent within and
putting more effort into understanding customers.
“Maybe these areas didn’t fit the description of a CFO before, even just two years ago,” he said.
“If they were traditionally trained in financial accounting and reporting, so much of the role now is certainly not about the balance sheet. And it will continue to evolve. That means the CFOs themselves have to be willing to invest in themselves.”
