The new CFO: How CFOs are preparing for the bleak economic outlook – and what to expect
Until about a year ago, CFOs had more breathing room. Shoppers were finally released from the pandemic lockdown to roam and open their wallets like never before, and low interest rates made expensive investments much easier to justify.
After inflation set in, the role has become quite stressful – possibly more so than ever before. Investment has dried up and a vague but serious threat of recession threatens to end record earnings. US economic growth is slowing, manufacturing output fell in December and the Fed continues to hike rates relentlessly.
Less than a third of top CFOs recently surveyed by Deloitte in November think it’s a good time to take more risk and 41% are pessimistic about their companies’ financial prospects. Soon, the modern CFO may no longer be the CEO’s creative co-pilot, but a stingy job.
Dev Ahuja, CFO of the world’s largest aluminum recycler Novelis, explains wealth that he plans to spend the year squeezing the juice out of his company’s existing assets while inflation and high energy costs make it difficult to raise cash.
That includes carrying out tasks as unenviable as “unseating supply chains” in the US and Brazil, which are clogged in part because of sanctions against Russia.
In fact, more than half of the chief bean counters surveyed by Deloitte plan to spend the year anxiously squeezing around every corner of their operations, dropping by unannounced into factories and meetings to figure out how to tighten their belts even more.
Much of a CFO’s role in the coming downturn will be shaped by their company’s performance during the pandemic. As tech CFOs shed the overgrowth created during the pandemic, others are holding onto the economic recovery that followed the pandemic.
Delaware North, a centuries-old private company that provides food and beverages primarily to stadiums, shrank from 48,000 employees when the pandemic hit to 900 employees just two months later.
“The only thing we hadn’t deviated from was something that aggravated a number of circumstances that made it difficult for more than six people to get together in one room. That pretty much made us want to close the company,” says CFO Chris Feeney.
The company then hit record sales of $3.96 billion when the world opened up a year later, and Feeney forecasts earnings to grow about 7% later this year. “I should probably wear a neck brace,” he says.
But growth has undoubtedly slowed. While the company invested half a billion last year, “the price and cost of capital has increased.” This year, he plans to raise a far smaller amount — not the number that “falls on your sword” last year — and spend the rest of his time improving existing investments.
The situation is similar with Polaris, a manufacturer of off-road buggies and snowmobiles. During the pandemic, factories have been closed for about six weeks and employees have been furloughed. When the factories reopened, “we found a tremendously positive sales environment,” says CFO Bob Mack.
His job now is to help suppliers with work and procurement. With record sales of $8.18 billion in 2021, Polaris blew its inventory in a hot minute. The company has struggled to source parts — something that still hasn’t normalized, Mack says.
Facing troubled waters, Mack increased research spending. “If we think about preparing for downturns of any kind, we will prioritize R&D,” he says.
Of course, most CFOs don’t go through a full business cycle at the same company and won’t reap what they sow. According to Korn Ferry’s study of CFOs, CFOs stay on the job an average of 4.9 years — shorter than the average business cycle of 5.4 years, according to the Congressional Research Service.
Consequently, part of a CFO’s role requires continuing the work of their predecessor. Consider Sharon Yeshaya, who became CFO of Morgan Stanley in 2021. Days after her firm reported a $6 billion drop in annual sales, she expected loan losses to soar from $4 million to $280 million and laid off about 1,600 employees, she says wealth that the bank’s “preparation to weather this type of downturn began more than a decade ago.”
Yeshaya did not turn these wheels. After the financial crisis, Morgan Stanley’s partner survived mass layoffs in the firm’s fixed income division without speaking up on her behalf.
After regulators shut down the kind of rampant speculation that led to the 2008 crash, it has continued the bank’s goal of strengthening its trusted wealth and wealth management arm.
Those businesses now account for nearly half of the bank’s revenue and have allowed the company to grow in value by nearly a third since the collapse, though revenue from investment banking and equity underwriting are down 49% and 73%, respectively financial report.
Of course, Yeshaya must fulfill this task while wading through the same troubles as her peers at other corporate giants: the invasion of Ukraine in what she calls “the most anemic underwriting calendar in a decade,” the S&P 500 crashing nearly 20%, supply chain disruptions, and the highest inflation rates in 40 years.
While balance sheets can look very different, the challenges facing the modern CFO have more in common than none.
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