After CEOs, it’s time for CFO changes at top IT firms

A wave of leadership changes is sweeping India's software services sector, with at least nine companies naming new finance chiefs in the past 12 months amid muted demand and changing role requirements. This follows a series of CEO exits and other leadership changes at major IT companies in 2023.

According to industry experts, while some companies saw a transition of chief financial officers (CFOs) due to retirement, for many others, the appointments highlighted the changing nature of the CFO role. It has shifted from being a behind-the-scenes function to a prominent, decision-making role that drives execution and margins. CFOs are now also expected to be tech-savvy, as emerging technologies such as artificial intelligence take centrestage.

“The main impact on the industry is the CFO moving from a back office to a front office role, being involved in many more major decisions.  With the marked need to cut down on costs in the wake of long-term changes in consumer demand, CFOs have to be more aligned strategically with the CEO to ensure costs are taken out without harming the strategic direction of the firm,” said Phil Fersht, CEO of HFS Research, a global business research consultancy.

“In many cases, the CFO has become the protector of the CEO when facing their boards and the equity analysts… There are also several providers looking to move into M&A scenarios, and the need for a CFO who understands and executes against opportunities in the industry is prominent,” he added.

With increased pressure from stagnant revenue and a cautious demand environment, the IT sector has had to remodel the CFO function, shifting the focus to finding high-performing CFOs.

“The CFO role has moved from compliance to business performance. In this slow growth environment, the focus of IT service providers has shifted to improving margins, large cost takeout deals and M&As. All these domains have put CFOs in spotlight and performance pressure,” said Pareekh Jain, founder and CEO, technology information platform EIIRTrend.

Yugal Joshi, leader - technology services research, at management consulting firm Everest Group concurred, “As revenue stagnated in the past couple of quarters, that’s when the board of IT companies pushed CFOs to show more profitability, in turn leading to the churn in CFOs. However, there are a lot of 'maybes' in this statement as CFOs can’t do much to show profits if the revenue itself is not increasing."

“CFOs have a pretty much standard service to be delivered at companies as their KPIs (Key Performance Indicators) don’t change too often,” he added.

In turn, some Tier-I company CFOs are joining mid-tier firms as these companies experience higher growth. For example, Vinit Teredesai, the former CFO of LTIMindtree, joined Persistent Systems in May after Sunil Sapre, the company's former CFO, retired.

Gaurav Vasu, founder and CEO, market intelligence firm UnearthInsigh said, “In the last couple of years, slow-growing tech services firms have seen a trend of losing CXO talent to Tier II, Tier III, and global companies investing heavily in future growth. A significant portion of CXO salaries is tied to variable pay based on revenue growth, profitability, and stock price performance, which also affects overall earnings.”

Wipro’s former CFO, Jatin Dalal, was involved in a lawsuit that lasted over a year. In November, Wipro filed a lawsuit against Dalal, accusing him of violating the non-compete clause in his employment contract by joining rival Cognizant within 12 months of his last working day at Wipro.

On July 9, Dalal’s current organisation, Cognizant Technology, paid $505,087 to settle the lawsuit and related arbitration, thus resolving the non-compete dispute filed by Wipro.

One-time changes

For companies like Accenture, HCLTech and Persistent Systems, analysts said this was more of an organic change of guards.

Shriram Subramanian, founder and MD of proxy advisory firm InGovern Research Services said, “I would think the changes are one-time changes. All these are large companies with deep processes. So, any change in CFOs is not going to impact them.”

Vasu added, “Some of it is people retiring, can’t entirely call it an industry-wide trend. Accenture’s CFO change is not an industry trend, the person (KC McClure) retired after 36 years.”