During our recent Strategic CFO Forum in New York I got a chance to catch up with one of the savvier business people I know, Simon Freakley, CEO of AlixPartners, the global consulting firm that helps bring all of Chief Executive Group’s award programs to life, including CEO of the Year, the Board Leadership Awards and now the CFO Leadership Awards (they handle the analytics and research and serve as advisors to the selection committees).
Freakley’s seen maybe not everything, but close. He’s been doing turnarounds and strategic consulting for more than 30 years, not just at Alix, but also as CEO at Zolfo Cooper in Europe and as CEO of Kroll, the corporate investigations and risk management firm.
From that perch, what’s his take on being a CFO in 2024? “More demanding now than it’s ever been,” he says. “I’m somebody that qualified as a CPA 30-something years ago, so it’s somewhat a field that I have a grounding in. But I look at the landscape of responsibilities that now end up on the desk of a CFO, and it’s really daunting.”
There’s all the normal stuff, financial accounting, managing the balance sheet, managing allocation of capital. Now layer in oversight of technology, the board, the audit committee, all the special projects that come up, acquisitions, divestitures. And don’t forget the challenge of simply leading teams of people through a very uncertain time—economically, socially, politically. “It’s a really, really demanding role now,” he says.
We’d just gotten offstage from interviewing this year’s CFO Leadership Awards honorees at Nasdaq and I asked him for his quick take on the year ahead for CFOs—what was he hearing and what was he watching, and what did that mean for those running the financial functions in their companies? What follows is edited for length and clarity.
You’ve been doing this for a very long time. What’s changing? What do CFOs really need to be watching out for now?
A CFO’s job now is much more about looking out of the windscreen and much less about looking out of the rearview mirror. People think that reporting earnings on a quarterly basis is the biggest job of a CFO. That’s all trailing indicators. The CFO has to look at leading indicators. Understand what the data is telling them, about what their customer’s preferences are. How to think about their supply chain, how to keep flexibility in both.
Also, having a sense of what the big challenges are for the company, not getting overwhelmed by the multitude of challenges the company has, but understanding what the key ones are. Getting into lockstep with the CEO and then in lockstep with the board to make sure that you move to action on those critical priorities.
From what you see and the research that you do, what are the things that the CFO really needs to be looking out for?
We do this disruption survey every year, 3,000 interviews, CEOs around the world, all the major markets. The big issues that are on people’s minds are making sure that the balance sheet is sturdy—obviously, borrowing costs are the highest they’ve been in living memory.
Even if money is available, can you access it? We’ve had covenant-light deals now for a very long time. Almost covenant-absent deals for a very long time. What does it mean to raise money in today’s marketplace, and how to set up a balance sheet that’s robust?
A subset of that is how to make sure that the balance sheet is really levered such that there’s liquidity because special opportunities turn up at times like this, and if people have liquidity on their balance sheet, either in terms of cash or borrowing capacity, they can capitalize on those special opportunities. Businesses will come to market that would never have come to market in normal times. They’ll come to market at prices that nobody would’ve dreamt of.
And then also making sure that to the extent possible, costs are kept as variable as possible so that you can quickly pivot a business strategy as circumstances change.
With M&A—what should people be looking for now in the due diligence process, the CFO in particular, that might be different about this time than it has been in the past? Is there anything that they really should be focusing on?
We’re coming off a period, of course, where assets, particularly digital assets, were sold at just eye-watering multiples. People were talking about 20, sometimes 30 times forward earnings, and the valuations of these assets just completely got dislocated from reality. If you wanted them, of course, you had to pay those prices, and you better have a very good strategy as to how you’re going to convert that into value. Those assets, the digital assets, are probably now trading on average about half of what they were trading, sometimes less.
So there are some better deals around. But even at those multiples, they’re still fairly expensive.
What should a CFO be doing in terms of diligence? It’s about the people. Are these people going to stay with the merged entity? Because if they’ve grown the value, you probably want them to deliver the value for a number of years to come.
So, the people audit is just as important as the financial audit. Are these people that you trust? Are these people that have integrity? Are these people that you want to have in your executive room or in your management teams? Because you’ll almost certainly need to have them to help you deliver the value that the transaction promises.
So, financial diligence on the one hand, people diligence on the other. I’m always surprised by how thorough the financial diligence is in M&A, but how incomplete the people diligence is. And so, for larger transactions or more sensitive transactions, people will commission competitive intelligence to try and understand what the broader story is around the management team and around the business. I would encourage people to do that if they’re not completely sure of the team they’re taking on.
Any final thoughts for CFOs as they’re examining the year ahead and getting ready?
For businesses that are either entirely domestic or have a significant domestic U.S. business, I think that the 2024 election year is going to be combustible. The distance between the left and the right is so large. The only thing that people seem to agree on politically is the need to be very suspicious of China. And I think that not just the business conditions as we go through a combustible election year, but also how we manage and communicate to our people during that time where people will have very different takes on events as they develop through the year.
Forty-one million Gen Z adults will be voting for the first time in the U.S. elections in 2024. So, for those businesses that have any amount of Gen Z employees, I think that one should be very attentive to the need to ensure that they understand the purpose of the organization, understand what the company stands for, not politically, but just in terms of meaning to keep people anchored during what could be a pretty choppy year, I think.
Be the stability in a time that might not feel so stable?
In a time when the faith in institutions is dropping significantly, people look to business for a sense of stability and a voice of truth. And it puts a real responsibility on business leaders, including the CFO, to be able to give that sense of leadership and meaning and purpose and stability as the world tends to be all shaken up.
Is that the underrated risk you think that people aren’t thinking about enough?
I think it’s the underrated risk, yes. I really do. I mean, there’s the geopolitical risk, of course. You have two terrible wars going on. We have the very toxic dialogue as it relates to China. These things are important, and of course, you know, they’re heartbreaking as it relates to the two wars, but I think the really underrated risk is the sense to which people will feel very unsettled during a combustible election year.
That’s the risk. What are you seeing in terms of opportunity?
The thing that we need to remember is there’s so much opportunity during a time of disruption, that as markets get disrupted, as market leaders get disrupted, there’s opportunity for new entrants. There’s opportunity for people that are just better at executing their strategies to take market share.
The key is move to action quickly. Don’t be a hostage of strategies that worked in the past, be willing to pivot quickly. Keep your costs variable and move to action. And if it doesn’t work, pivot and change, because those people that do it nearly right—but do it now—have a real opportunity in the coming year to capitalize on the many business opportunities that will come their way.
