4 Key Areas For CFOs In The Second Half Of 2022

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Finance chiefs are navigating a rocky business environment—again. Here’s what to watch out for.

Looking ahead, CFOs’ agendas are only getting fuller from an already complex year—and more complicated. I recently led a series of CFO Roundtable events with financial leaders from companies ranging in size, industry and location to understand what topics and issues are top of mind. After those conversations, there are four key areas I believe CFOs should focus on as they head into the second half of the year: the business environment, talent, the regulatory landscape and building trust.

The changing—and even more complex—business environment

In January, CFOs were skeptical that the business environment would improve by the end of the year. So far, they’re right, and the picture has only gotten more complex. Inflation is still soaring at decades-long highs—something leaders may not have previously managed in their careers. Supply chain snarls continue to plague operations, and the Russia-Ukraine conflict is causing international tensions and worries. Fears of a U.S. recession are also starting to bubble.

CFOs and other business leaders have been focused on managing cash flows and growth in margins as they deal with rising commodity prices, wage increases and other input costs. More than half (53%) of CFOs in January said they were looking to revisit pricing strategies to offset these higher costs, according to our Pulse Survey. While many have been doing that over the past few months, some CFOs are concerned about their company’s pricing power going forward and are using it as an opportunity to clean up the portfolio, reposition brands (in some cases around sustainability), and replace pricing models with service revenues, paired offerings and outcome-based fee structures. CFOs are focused on value creation, important for funding growth and returns to investors longer term, and avoiding short-term measures like cutting corners that underperform for nearly everyone.  

Extended supply chain challenges are forcing many companies to digitize and upgrade their supply chains as fast as they can. But many companies are running into talent shortages and can’t find people with the right skills. And while bottlenecks have started to ease somewhat in the U.S., China’s zero-Covid policy and the Russia-Ukraine conflict could also weigh on any progress in the near term. In addition, there are concerns about how a more “deglobalized” world where countries’ policies prioritize their own economic interests might impact their supply chains in the long term. Many of the CFOs I talked to said they’re feeling the heat of rising inventory costs, while others were concerned about having inventory on the balance sheet if the economy turns.

The talent challenge

Hiring and retaining talent is key to growth. But CFOs and their companies face a number of pressures when it comes to actually putting that into practice. For one, the labor market continues to be historically tight: resignation rates are at historic highs, and job openings far exceed job seekers. The challenge runs across talent levels and industries — beyond a lack of supply chain talent, CFOs said they’re having trouble finding specialists for roles in IT and finance, while others can’t find people to work in their facilities.

Second, the cost of talent is surging, and wages are on track to grow by more than 6% this year compared to a year ago—the fastest pace of wage growth in 30 years. Rising labor costs come on top of other increasing input costs and could be the biggest margin pressure this year.

Third, the shift to an employee-driven market has some CFOs concerned about a decrease in productivity and a loss of culture because so many employees are remote. It’s important for finance leaders to look to continually transform and optimize business operations while also focusing on leadership development and setting time aside for employees to collaborate and brainstorm.

An aggressive regulatory agenda

The SEC under Chair Gary Gensler has a robust rulemaking agenda, including ESG; proxy voting; share buybacks, executive compensation and insider trading; and digital assets and cryptocurrencies.

One of the more talked-about items on the SEC’s agenda is the commission’s proposed rules on climate-related disclosures. Required disclosures for public companies would include climate-related risks likely to have a material impact on the business, strategy and outlook, as well as Scope 1 and 2 greenhouse gas emissions. The SEC comment period on the proposed rulemaking ended June 17. As the SEC reviews feedback and prepares the final ruling, CFOs should pay close attention. While the proposed rules mean another layer of compliance, finance leaders can capitalize on the opportunity to help translate ESG reporting to investors and other stakeholders.

The SEC has also recently proposed rules on cybersecurity, with human capital, board diversity and cryptocurrency accounting standards also on the rulemaking docket.

Tying it all to trust

All of these issues on CFOs’ plates directly or indirectly underscore the importance of trust—between a company and all of its stakeholders. This concept of stakeholder trust is becoming critical to a company’s resilience and also to the bottom line.

Building and maintaining trust can help companies better withstand crises, improve customer loyalty and drive long-term growth. But while many executives recognize how important trust is to their companies and stakeholders, not all are successfully turning the concept into action. The CFO can be a leader on trust. ESG is just one example why. CFOs are the drivers of their company’s’ ESG efforts, from reporting to identifying the issues most important to stakeholders. Quality, investor-grade reporting can not only help support their company’s ESG story—it can also help build trust with communities, investors, customers and employees.

With months of turbulence and challenges likely ahead, CFOs again are in a position to help steer their companies as they continue to pursue growth and build trust.

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