September 21, 2020 – Immediate concerns around cash flow, liquidity and the bottom line are taking precedence at many companies due to continued fallout from the pandemic. But there are high-value lessons emerging from the current health and economic crisis that chief financial officers should bear in mind, according to a new report from Tatum.
“Two insights jump out at me right away,” said Tatum VP Brad Bauer. “Not only did the crisis, especially in its early phase, thrust CFOs into the spotlight as never before, but it also created a unique business environment in which CFOs are uniquely positioned to drive business value during the recovery.”
“Among the more striking, and perhaps surprising, consequences of the Coronavirus outbreak, at least from the standpoint of human capital, is the extent to which it thrust CFOs into the spotlight,” Mr. Bauer said. “This was true going into the crisis and as the crisis deepened and it’s truer still as we begin to move out of it.”
Let’s start with the former. In March, during the immediate aftermath of the Coronavirus outbreak, the outlook among CFOs was grim: In one survey, 80 percent said COVID-19 would decrease revenues and profits for 2020. Four out of five voiced concerns about the possibility of a global recession in another. In fact, in a single four-week span, CFOs went from holding a broadly optimistic outlook on the overall business landscape to taking a far more pessimistic view.
Mr. Bauer said that meanwhile, companies were scrambling to adjust — and as they did, the focus naturally turned to internal assessments. Key questions included:
- How comprehensive was our contingency planning overall?
- Were there “what-if” scenarios that we should have looked it more closely, planned for or prioritized?
- Did we have the IT infrastructure to support remote work at scale?
- What can we do to limit future exposures — and inoculate the business against similar shocks down the line?
“All of which fall within the wheelhouse of the CFO, a role frequently spanning business strategy, financial leadership and technology decision-making,” said Mr. Bauer. “In the midst of a highly dynamic, rapidly evolving situation, the choices of CFOs at many companies were suddenly held to greater scrutiny than ever before.”
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Looking ahead, Mr. Bauer said that attention is only going to be magnified as we transition into the next phase of the Coronavirus outbreak.
With restrictions loosening on many businesses, economic activity is set to pick up again. “Of course, that means strategic priorities are changing, as well,” Mr. Bauer said. “Expect the following shift in focus: less on backward-looking analysis (pre-pandemic preparation and readiness), more on forward-thinking strategy (post-pandemic planning and leadership). Yet even with that shift, the role of the CFO becomes still more critical.”
Mr. Bauer pointed to three areas where CFOs will have a make-or-break impact on business recovery efforts:
- Shoring up balance sheets: Some companies reportedly lost as much as 75 percentof their revenues in a single quarter, thanks to COVID-19. Naturally, these companies will be keen to put as much cash on the balance sheet as possible in order to weather the storm. “That may require them to draw down on revolving lines of credit or pursue other avenues for capital: divestiture, joint ventures and more,” Mr. Bauer said. “Either way, CFOs will be key.”
- Strategic cost reductions: In a recent PwC survey, the majority of companies indicated that cost-containment measures were an essential part of their business strategy going forward. Another 56 percent said they would be changing their financing plans.
- Near-term performance: CFOs are instrumental in shaping business strategy and improving productivity. In the near term, that means they’ll be counted on to spearhead strategic pivots — whether that means moving production to new products and services or shifting to alternative sales and delivery channels. Nearly half of CFOs also identified automation and new ways of workingas strategic priorities in connection with coronavirus.
“Clearly, the increased importance of protecting cash and liquidity positions, together with the need to push business strategy in new directions, will be strategic priorities for many companies,” said Mr. Bauer. “All of which points to intensifying demand for skilled, highly experienced CFOs who can help lead companies out of the crisis.”
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“Anecdotally, my conversations with clients have corroborated this overall picture,” he said. “One even went so far as to describe their CFO as “wilting” under the mounting pressure of Coronavirus. However, given the documented recruitment challenges many companies are experiencing, how they intend to rapidly source their next finance leaders remains to be seen.”
In his role as vice president at Tatum, Mr. Bauer helps the C-suite and boards of both public and private companies to transform, stabilize and optimize their organizations with Tatum’s recruiting solutions. He recently sat down with Hunt Scanlon Media to provide a further look at the changes that CFOs have faced during the COVID-19 pandemic.
Brad, how is the CFO role changing in light of our still-unfolding global pandemic?
There are any number of new concerns that might be keeping CFOs awake at night — and all of them have to be accounted for in order to strategically advise CEOs on fiscal maneuvers and find the right path forward. The sheer weight and scale of economic impact unleashed by COVID-19 continues to expand the CFO’s bailiwick. Many will find themselves in the spotlight as never before — and how well they fare in the following three areas may just determine their longevity. Lack of visibility into key aspects of organizational health has been a longstanding point of contention between CFOs and board members. Going into the pandemic, for example, despite the trust- and relationship-building benefits that come with face-to-face interactions, only 15 percent of board members said they were “extremely confident” in management’s reporting around culture and risk. Will these relationships weather the strain of going all-digital?
What is a top priority for CFOs now?
All too many companies today are desperate to get as much cash on their balance sheets as possible in order to ride out the storm of COVID-19. For CFOs in this boat, consider it top priority. Bottom-line pressures are forcing many businesses to shift their forecasting strategies, explore new products and services — or even expand into alternative sales and delivery channels (think e-commerce). And CFOs shouldn’t just be along for the ride. They should captain the effort.
“Bottom-line pressures are forcing many businesses to shift their forecasting strategies, explore new products and services — or even expand into alternative sales and delivery channels. CFOs should not just be along for the ride. They should captain the effort.”
What do you see ahead?
For CFOs, it’s clear that success going forward will be contingent on their ability to answer deeply challenging questions — and to arrive at those answers by working in a collaborative manner with board members and other executives exclusively on digital channels. That alone could strain relationships.
Key questions will include:
- Does it make sense to draw down further on revolving lines of credit or pursue new avenues for capital (for example, divestiture or joint ventures)?
- Are their additional strategic cost reductions we should consider in the near term to help shore up the balance sheet?
- Where will our next injection of equity come from? And what strings will be attached when it does? Every organization’s path will be unique, of course, and every CFO will approach these questions differently. But few things so reliably deliver business value as strategically anticipating change — and now is the time to get started.
Your best advice?
No one knows when business will fully restart. No one knows if, or the extent to which, the virus will have enduring impacts on our ways of working, either. But that only underscores the value of getting the right leadership in place. That’s advice I consistently share with my clients, and it’s the only way you’ll ensure a meaningful snap-back in business activity for your company going forward.
Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Managing Editor; and Stephen Sawicki, Managing Editor – Hunt Scanlon Media