Good morning.
CFOs are known to be risk-averse. But as this macroeconomic environment poses challenge after challenge, determining the greatest risk is putting their skill sets to the test.
Risks to company strategy and transformation now worry CFOs more than recruiting and retaining talent which was the top internal concern for nine consecutive quarters. Meanwhile, CFOs are more pessimistic about their own companies’ financial prospects.
These are some of the findings of Deloitte’s Q2 2023 CFO Signals survey released this morning. “Talent risks fell to a very close second at 80% behind execution risks to strategies and transformations at 81%,” says Steve Gallucci, global and U.S. CFO program leader with Deloitte. “So, talent risks have not dropped off CFOs’ list of internal worries. Still, the slight change may reflect the incremental shift of people working more on-site at many companies.”
Another finding: 34% of CFOs surveyed expect economic conditions to improve in a year, down 20% from the prior quarter (54%). The data is based on a survey of 122 CFOs in the U.S., Canada, and Mexico conducted May 1-15. Seventy percent are from public companies and 30% from privately held firms. The vast majority at companies with more than $1 billion in annual revenue.
CEOs want cost reduction
When it comes to external risks to the company, 81% of CFOs said economic and financial market risks worry them the most, over geopolitical risks (57%), which was named the top risk in several prior CFO Signals surveys. “Generally, CFOs are keeping a close eye on cash management, liquidity, and cost reduction,” Gallucci says. “Also, over the last few years, many organizations have taken steps to pay down debt, and this quarter, we’re seeing more cautiousness with regard to taking greater risks. For example, nearly one-third (33%) of surveyed CFOs say now is a good time to be taking greater risks, a decline from 40% in the previous quarter and below the two-year average of 43%.”
Rounding out the top five external risks CFOs worry about the most are cyber and social media risks regulatory risks, and competitor-related risks. This might partially explain the decline in CFO optimism for their companies’ financial prospects, according to the report.
Finance chiefs are under pressure to prioritize cost reduction, citing that as the top area CEOs want them to focus on (54%).
“Companies are most likely doing their due diligence to identify opportunities to take out costs across a host of areas,” Gallucci says. “Of course, having to balance costs against investments is not new to CFOs or their organizations.” If companies achieve cost savings, those can be used “toward investing in transformations and revenue growth opportunities,” he says.
The tech sector’s belt-tightening in response to economic uncertainty has been layoffs, especially at Big Tech companies. So far this year, overall in the sector, over 700 tech companies had layoffs, with more than 206,000 employees losing their jobs, according to Layoffs.fyi. In the financial sector, a slump in IPOs and mergers this year on Wall Street has also led to thousands of job cuts at top firms.
At the same time, CEOs want CFOs to work on cost reductions, they also want them to focus on strategy and transformation, performance management, and revenue growth, to name a few areas, according to the survey. CFOs are faced with navigating many challenges and priorities, for sure.
Sheryl Estrada
sheryl.estrada@fortune.com
Upcoming event: Fortune’s Emerging CFO virtual event, “Maintaining a Growth Mindset in Turbulent Economic Waters,” in partnership with Workday (a CFO Daily sponsor), will take place on Wednesday, June 21, from 11 a.m.-12 p.m. ET. Leading the discussion will be four top finance leaders: Adobe CFO Dan Durn, e.l.f. Beauty CFO Mandy Fields, TD Bank CFO Xihao Hu, and McKinsey & Company New York Senior Partner Ishaan Seth. The discussion will include topics such as how to think differently and take bold moves, using data to tell an effective story about past performance and the opportunities ahead, and how to plan for fluctuations in the market and react by innovating to drive profitable growth. You can register here.
Big deal
The newly released 2023 BDO Tax Strategist Survey finds that a significant number of tax practitioners have a more strategic role in their companies. Tax practices fall into two distinct groups—strategists and tacticians based on their level of involvement in key business areas, such as M&A, ESG, and economic resilience, the survey finds.
Tax strategists reported having greater involvement in business decision-making, and they're also more likely to have deployed or plan to deploy tax technology. For example, nearly two-thirds (66%) of strategists already deploy "bread-and-butter tax technology," such as compliance and provision software, according to BDO. And 59% of strategists are implementing training to upskill current employees, compared to 46% of tacticians.
"While tax strategists have an edge on tacticians when it comes to technological maturity, they should not grow complacent," according to the report. "Tools can become obsolete or may not meet new challenges presented by evolving regulations. Strategists should be ready to continuously evolve." The BDO, which delivers assurance, tax, and financial advisory services, surveyed 150 tax executives.
Going deeper
"How Large Language Models Reflect Human Judgment," a new report in Harvard Business Review, delves into ways humans can work with A.I. decision-making requires both prediction and judgment, and that leaves a role for humans in providing the judgment, according to the authors. "But large language models represent a key advance: OpenAI has found a way to teach its A.I. human judgment by using a simple form of human feedback, through chat," the authors write. "That opens the door to a new way for humans to work with A.I., essentially talking to them about which outcomes are better or worse for any given type of decision."
Leaderboard
Christopher Jones was named CFO at BurgerFi International Inc. (Nasdaq: BFI, BFIIW), owner of the fast-casual brand BurgerFi and the casual dining pizza brand Anthony’s Coal Fired Pizza & Wings, effective July 10. Jones is replacing the current CFO, Mike Rabinovitch, who is transitioning to Lionheart Capital as a senior advisor. Lionheart Capital is the company’s largest shareholder. Jones currently serves as CFO of Odyssey Marine Exploration (Nasdaq: OMEX). Before that, he served as VP of corporate finance and development for Mohegan, a gaming & resort operator. Jones also previously served as an analyst for various organizations such as The Buckingham Group, Jefferies Asset Management, and Lehman Brothers.
Ellen Snow was named SVP, CFO, and treasurer at Akebia Therapeutics, Inc. (Nasdaq: AKBA), a biopharmaceutical company, effective July 17. Snow will join Akebia from Pear Therapeutics, Inc., where she has served as chief accounting officer since 2021. She will succeed David A. Spellman, who served in the role since 2020. Before joining Pear Therapeutics, Inc., Snow served as the chief accounting officer of AlerisLife Inc. Before that, she was the VP of finance and corporate controller of Anika Therapeutics Inc. Earlier, Snow served in various positions at Benchmark Senior Living, Bain Willard Companies, L.P., PricewaterhouseCoopers LLP, Ernst & Young LLP, and as a financial consultant.
Overheard
“There’s a substantial amount of commercial real estate in the banking system; a large part of it is in smaller banks. To the extent that it’s well distributed, then the system could take losses. We do expect that there will be losses, but there will be banks that have concentrations, and those banks will experience larger losses. So, we’re well aware of that, we’re monitoring it carefully.”
—Federal Reserve Chair Jerome Powell told reporters on Wednesday after announcing its first pause on interest rate hikes since March of last year. Powell said he’s keeping an eye on commercial real estate and watching the situation as it pertains to the banking system "very carefully," Fortune reported.
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