Until about a year ago, chief financial officers had more room to breathe. Buyers are finally freed from pandemic lockdowns to roam and open their wallets like never before, and low interest rates make it easier to justify expensive investments.
Once inflation is adjusted for, the role becomes a bit more stressful—perhaps even more so than before. Investments have dried up, and the vague but serious threat of recession threatens to put an end to bumper profits. US economic growth slowed, manufacturing output fell in December, and the Fed continued to raise interest rates mercilessly.
Less than a third of the top CFOs recently surveyed by Deloitte in November consider it a good time to take greater risks, and 41% are pessimistic about the company’s financial prospects. Soon, the modern CFO may not be a creative co-pilot for the CEO, but a jobsworth.
Dev Ahuja, CFO of the world’s largest aluminum recycler, Novelis, tells us fortune that he plans to spend a year squeezing the juice out of the company’s existing assets at a time when inflation and high energy costs make it difficult to raise money.
This includes undertaking such unpleasant tasks as “de-bottlenecking supply chains” in the US and Brazil that have been stalled, in part due to sanctions against Russia.
Indeed, more than half of the bean counters surveyed by Deloitte plan to spend the year squelching anxiously around all corners of their operation, sticking to the unannounced in the factory and meetings to work out how to tighten the belt by yet another notch.
Much of the CFO’s role in the coming downturn is colored by the company’s performance during the pandemic. While tech CFOs downplay the overgrowth that grew during the pandemic, others cling to the economic rebound following the pandemic.
Delaware North, a century-old private company that used to provide food and drink to stadiums, contracted from 48,000 employees during the outbreak to 900 employees just two months later.
“One thing that is not different is that it creates some conditions that make it difficult for more than six people to get together in a room. That makes us kill the company,” said CFO Chris Feeney.
Then the company made a record profit of $3.96 billion when the world opened a year later, and Feeney predicted that profits will still increase by about 7% this year. “I should have worn a neck brace,” he said.
But growth has definitely slowed down. When the company invested half a billion last year, “the price and cost of capital has gone up.” This year, they plan to raise a smaller amount—not the “fall on the sword” number they raised last year—and spend the rest of their time growing their existing investments.
It’s a similar story with Polaris, the maker of off-road cars and snowmobiles. During the pandemic, factories were closed for about six weeks and employees were furloughed. When we reopened the factory, “we found a very positive sales environment,” said CFO Bob Mack.
His current job involves helping suppliers with labor and procurement. With a record profit of $8.18 billion in 2021, Polaris is burning through its inventory quickly. Companies are finding it harder to get parts that still haven’t returned to normal, Mack said.
Looking to the fascinating waters ahead, Mack increased his research spending. “If we think about preparing for any fallout…we will prioritize R&D,” he said.
Of course, most CFOs do not complete a full business cycle in the same company and will not reap what they sow. According to research on CFOs from Korn Ferry, CFOs spend an average of 4.9 years on the job—shorter than the average business cycle of 5.4 years, according to the Congressional Research Service.
Consequently, part of the CFO’s role requires continuing the work of the former. Take Sharon Yeshaya, who became Morgan Stanley’s CFO in 2021. The day after her company reported a $6 billion drop in annual revenue, expected credit losses to rise from $4 million to $280 million, and laid off about 1,600 staff, she said. fortune that the bank’s “preparations to deal with this type of downturn began more than ten years ago.”
Yeshaya did not set the wheel. After the financial crisis, Morgan Stanley lifer survived the mass layoffs in the revenue department remains the company’s crater, not supporting himself.
After regulators clamped down on the speculation that led to the crash in 2008, they continued to pursue the bank’s goals of reliability and asset management.
That business now accounts for almost half of the bank’s profits, and has allowed the company to rise in value by almost a third since the crash, although revenue from its investment banking and equity underwriting divisions fell 49% and 73%, respectively, in the latest. financial report.
Of course, Yeshaya had to complete this task while dealing with the same problems as his colleagues at other corporate giants: the invasion of Ukraine, what he called “the most anemic underwriting calendar in a decade,” the collapse of the S&P 500 by almost 20. %, disruption of the supply chain, and high inflation the highest in 40 years.
While balance sheets can look very different, the challenges faced by the modern CFO are more common than not.
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