What Is On The Minds Of CFOs? – Financial Services

2022 was an eventful and tumultuous year that will long be
remembered for aggressive Fed tightening, the Russia and Ukraine
conflict, the cryptocurrency meltdown, and a sharp reduction in IPO
and SPAC activity. 2023 is expected to be no less volatile. So how
are finance executives thinking about next year? We recently
surveyed finance executives for their perspectives on a variety of
topics ranging from the state of the economy to their role as a CFO
and the evolving finance organization. The responses provide a
glimpse into the changing demands on public and private CFOs and
their priorities for this year.

To no surprise, our survey revealed that the role of a CFO is
already one of the hardest jobs in corporate America, and
it’s only getting harder.

CFOs are getting squeezed from both internal and external
stakeholders as well as macro- and microeconomic forces. Lingering
effects from the COVID pandemic have resulted in supply chain
disruptions, inflationary cost pressures, and rising interest rates
to tame inflation. These factors, combined with increased
geopolitical conflicts and instability, have created an external
environment where the only certainty is that there will be
continued uncertainty. At the same time, the CFO’s role is
continuing to grow and evolve, with demands and responsibilities
both increasing. Aside from the core finance functions, CFOs are
increasingly relied on to provide holistic organizational support,
including strategy & operations, data & analytics to
support decision-making, and corporate development. CFOs need to do
more with limited time, and in some cases, lack of talent. As a
result, CFOs must automate, increase efficiency, and improve the
skills of the organization.

Even Though the Title Is the Same, the Job Is Most Likely
Not

The CFO’s role continues to evolve. Ten to fifteen years
ago, CFOs were mostly focused on core finance functions including
accounting and financial reporting, treasury, and investor
relations. In today’s competitive business environment,
expectations of Finance have shifted from tactical execution to
strategic decision-making. Ongoing advancements in data and
technology continue to be made, and similar advancements are
expected across the Finance organization. Business leaders are
looking for analytics and insights, real-time information, and
scenario planning to make decisions, and are increasingly relying
on Finance to provide that information.

During the past decade, the CFO role has expanded to include
more of a strategic lens; the lines between CFO, COO, and CEO are
becoming less defined, regardless of industry. An increasing trend
is of a combined CFO-COO which, while not unexpected at smaller
organizations, is now also occurring in larger companies such as
PepsiCo Inc., Occidental Petroleum Corp., Afl ac Inc., and WebMD.1
In some cases, CFOs are also in line to succeed the CEO,
traditionally a role taken by a rising COO or division president.
In fact, more CFOs are becoming CEOs than ever, with 8.1% of CFOs
at some of the largest companies promoted to CEO in the first half
of 2022, compared to 5.6% in 2012.2 

More than 50% of respondents agree that their
responsibilities have increased.  The majority of
public company CFOs have seen their role expand steadily during the
past three to five years while their private counterparts have
experienced a more pronounced uptick in the past twelve months. New
responsibilities include areas such as business intelligence and
data analytics, corporate strategy, and procurement. Some also
noted added responsibilities in non-core finance areas such as
sales, operations, and supply chain.

Not Your Day Job but Still Your Headache

Diving deeper into some of the specific responsibilities
confirmed a few notions; as expected, 100% of CFOs maintained their
purview over bread and butter areas such as controllership,
accounting, FP&A, and treasury. However, outside of the core
finance areas, it became more mixed. In particular, less than 30%
of CFOs surveyed have ownership of IT and cybersecurity, despite
risk management being a key area of responsibility of every
respondent. Most companies have a CIO or CTO who often reports
directly to the CEO, so while it is not unusual for IT and
cybersecurity to fall outside the CFO’s umbrella, it is
important for the CFO to be involved in managing this issue that
impacts enterprise-wide risk. 

ESG is no longer a novel concept. Firms are increasingly
challenged over their environmental, social, or governance-related
policies by a multitude of internal and external constituents.
ESG-related disclosure requirements are increasing, whether from
the SEC’s proposals, lenders, municipalities, and
governmental agencies, or even a company’s own employees.
Less than 25% of CFOs in our survey have ESG or ESG-related topics
as a core responsibility, as this subject often falls under other
functions such as the legal organization, the COO, CIO, or a Chief
Sustainability Officer (CSO). However, due to the strategic and
risk-related elements associated with ESG, like IT and
cybersecurity, it is important for the CFO to be intimately
involved in the organization’s ESG strategy.

Another area of inconsistency in CFO roles was related to
corporate strategy and M&A. While more than 3/4 of respondents
have one or both corporate strategy and M&A strategy and
execution responsibilities, they do not always have both. This
variation could be due to a separation of roles, reporting lines,
or that M&A is not part of the broader strategy. As with other
non-core finance areas, the CFO’s role related to corporate
strategy and M&A will vary differently across
organizations.

It’s All About The People  

People-related issues are a major concern for most of our
finance leaders. Although COVID and remote work was not an issue
for the respondents, nearly every other area was – regardless
of the size of the company or if it was public vs. private. Cost of
labor, access to labor, retention, wage inflation, employee
burnout, and employee competencies were all high or serious
concerns. To manage these competing forces, companies will need to
engage in a delicate balance between managing talent, cost, and
employee sentiment.

As a result of the increasing demands and changing role of
finance organizations, about 75% of our respondents have also added
resources across their teams. More than half increased talent in
FP&A and forecasting. Core finance areas such as AP/AR and
financial reporting were also major areas where teams were
expanded. In addition, almost 1/3 of respondents that increased
teams also did so in controllership/ internal audit, investor
relations, M&A, and project management. Despite some CFOs
adding supply chain as a responsibility and some showing concern
about this capability, none of our respondents indicated that they
had added personnel to this function.  

Nearly 86% of our executives had concerns about data &
analytics capabilities in their organization. Technology is also
developing at breakneck speed, but teams are not necessarily able
to keep up, often due to a lack in resources, skills, or time. To
properly support their organizations, finance teams will need to
become more efficient at core responsibilities and upskill their
talent.

Scotty, We Need More Power!

A day rarely goes by without a major cyber-related hack or
incident. Cybersecurity is a universal source of unease across the
respondents, with ~ 83% citing it as a high or serious concern.
This issue continues to increase and is not going away. Like ESG,
as a risk officer, the CFO has the responsibility to be involved in
the company’s cyber strategy whether it officially falls
under their oversight or not. 

Approximately 79% of executives also expressed concerns about
excessive manual processes and the use of Excel. Considering the
continuously increasing demands on the finance organization,
improving efficiency with streamlined processes, automated
workflows, and enabling tools and

technology will be essential to supporting the business.
Reducing manual operations will minimize errors while increasing
speed and efficiency, allowing the team time to engage in more
strategic or analytical activities.

Additionally, there is angst, especially with smaller
organizations, with the selection of ERP and data visualization
tools. This can be a daunting process. Technology is rapidly
changing and it is difficult to know where to start or what is
right for the company. It is important to fully evaluate and define
both current and future needs and usage to identify the right tools
and systems for the company and its situation.  

Nobody Has A Crystal Ball

After the turbulent events in 2022, we are all wondering: what
could the future bring? We asked our group of executives to opine
on the state of the U.S. economy. The responses were split nearly
perfectly, with half of respondents believing that the U.S. will be
in a recession in 12 months and the other half thinking the economy
will already have rebounded.

In terms of external forces on executive’s minds, the
ability to pass on rising costs was listed as a high or serious
concern by 97% of our respondents. Other areas such as supply chain
disruptions and access to raw materials were also concerns but were
much less critical to our executives. 

Following a year with below average M&A activity, 70% of our
respondents expect to engage in some form of M&A during the
next 12-18 months with 40% suggesting that it is extremely likely
they will execute some form of M&A.

As respondents contemplate M&A, the main concerns,
particularly with smaller and medium sized private companies, are
the ability to raise debt and having sufficient resources and
expertise available. Public companies are less concerned with
access to funds but, like their private counterparts, are also
worried about skills and resources needed to execute a successful
transaction.

What To Put In Your Lunchbox

The role of a CFO continues to be squeezed from both internal
and external forces. Increased responsibilities and demands within
the organization, heightened economic volatility and uncertainty,
and workforce challenges have provided immense headwinds. To manage
this difficult environment, CFOs, and finance leaders should focus
on some areas with high impact:

Taking actions to ensure the finance organization is more nimble
and flexible will enable the CFO for success and position the
company to navigate and even thrive in the coming year.

Appendix  

The Ankura CFO Survey had a total of 30 respondents including
CFOs, senior financial executives, and board members. Our analysis
and conclusions include instances where respondents that identify
as CFOs by title have been isolated as a group. In these instances,
we have footnoted this change to the new set of respondents, by
noting (n) is a number less than 30. 

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