CFOs: In Defense of Private Equity?

Two thirds of CFOs surveyed by Grant Thornton think CEOs are overpaid. But only 25% think their own CEO is overpaid.

Sounds like a case of “no one wants to call the baby ugly.” The board of directors would likely respond with a similar answer. Execs are spoiled, but ours deserves it. And the survey revealed another interesting point: 83% of those surveyed think the CEO and chairman role should be separate.

Both of these answers support an argument in favor of private equity that says PE firms bring much-needed discipline to companies. The survey doesn’t ask why CFOs want less power and money for CEOs, but The Lehman Brothers Effect isn’t a bad guess. So I ask, if a failing company like Lehman, for example, were backed by a private equity firm, wouldn’t management have been dismissed many quarters ago?

The survey results tell me that CFOs wouldn’t mind a little more parental supervision. With the CEO leading the board, there’s not enough opposition on behalf of shareholders. The survey even indicated that public shareholders themselves have been too lax or apathetic, since a majority answered in favor of greater shareholder access to proxies.

Setting bad PR like high leverage, workforce layoffs and crab salad aside, PE firms often make a company leaner, more competitive, and more ready for a downturn.* It’s often true that operating partners at PE firms are much keener watchdogs over management than deeply entrenched board members who are cozy with their underperforming Chairman-CEO. This survey seems to think CFOs agree with that statement, too.

*A gross generalization I realize. There are a million examples to support either side of this argument.

Earlier:

Survey Soup IV, Survey Soup III, Survey Soup II, Survey Soup I