Until about a year ago, CFOs had more leeway. Buyers were finally freed from the pandemic lockdown to move around and open their wallets like never before, and low interest rates made it much easier to justify expensive investments.
After inflation, the role became rather stressful, perhaps more than ever. Investment has dried up and a vague but serious threat of recession threatens to end windfall earnings. Growth in the US economy is slowing, manufacturing output fell in December and the Fed continues to raise interest rates ruthlessly.
Less than a third of top CFOs recently interrogates by Deloitte in November consider it a good time to take on more risk and 41% are pessimistic about the financial prospects of their business. Soon, the modern CFO may no longer be a creative co-pilot to the CEO, but a job worth having.
Dev Ahuja, CFO of the world’s largest aluminum recycler, Novelis, says Fortune that he plans to spend the year extracting the juice from his company’s existing assets as inflation and high energy costs make fundraising difficult.
This involves carrying out such unenviable tasks as “debottlenecking supply chains” in the United States and Brazil that have become obstructed, in part because of sanctions against Russia.
Indeed, more than half of major bean counters surveyed by Deloitte plan to spend the year choking with anxiety in every corner of their operations, visiting factories and meetings unannounced to determine how tighten your belt an extra notch.
Much of a CFO’s role in the impending downturn is influenced by how their business performed during the pandemic. As tech CFOs scale back the excessive growth that sprout during the pandemic, others cling to the post-pandemic economic rebound.
Delaware North, a century-old private company that primarily provides Food and drink at stadiums, which went from 48,000 employees at the start of the pandemic to 900 employees just two months later.
“The one thing we weren’t diverse about was something that created a set of circumstances that made it difficult for more than six people to get together in a room. It practically forced us to shut down the business,” says CFO Chris Feeney.
Then the company hit a record $3.96 billion in revenue when the world opened up a year later, and Feeney predicts profits will rise another around 7% this year. “I should probably wear a neck brace,” he said.
But growth has undoubtedly slowed. While the company invested half a billion last year, “the price and cost of capital have increased”. This year, he plans to raise a much smaller amount — not the “fall on your sword” number he raised last year — and spend the rest of his time improving existing investments.
It’s a similar story for Polaris, a manufacturer of all-terrain strollers and snowmobiles. During the pandemic, it closed factories for about six weeks and laid off staff. As factories reopened, “we found an extremely positive sales environment,” says chief financial officer Bob Mack.
His job now is to help suppliers with labor and procurement. With record revenues of $8.18 billion in 2021, Polaris sold out its inventory in a scorching minute. The company had more trouble getting parts, which still hasn’t returned to normal, Mack says.
Envisioning choppy waters, Mack increased research spending. “When we think about preparing for any type of downturn…we’re going to prioritize R&D,” he says.
Of course, most CFOs don’t complete a full business cycle at the same company and will reap what they sow. According to research on CFOs of Korn ferryCFOs last an average of 4.9 years in office, less than the average business cycle of 5.4 years, according to the Congressional Research Service.
Therefore, part of a CFO’s role is to carry on the work of his predecessor. Take Sharon Yeshaya, who became Morgan Stanley’s chief financial officer in 2021. Days after her company announced a $6 billion drop in annual revenue, she expected credit losses to drop from 4 to $280 million and laying off around 1,600 employees, she said. Fortune that “preparing the bank to face this type of downturn began more than ten years ago”.
Yeshaya did not set those wheels in motion. In the aftermath of the financial crisis, the Morgan Stanley Lifer was surviving mass layoffs in the firm’s fixed-income department, without defending them herself.
After regulators put an end to the kind of rampant speculation that led to the 2008 crash, she pursued the bank’s goal of bolstering its reliable wealth and asset management arm.
These businesses now account for almost half of the bank’s revenue and have helped the company increase its value by nearly a third since the crash, despite declining revenue from the investment banking and underwriting divisions. shares by 49% and 73%, respectively, in its latest financial report.
Of course, Yeshaya must accomplish this task while wading through the same issues as her peers at other corporate giants: the invasion of Ukraine, what she calls “the most anemic underwriting timeline in a decade”, the collapse of the S&P 500 by nearly 20%, supply chain disruptions and the highest inflation rates in 40 years.
Although the balance sheets may look very different, the challenges to the modern CFO have more in common than they are.
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