How can CFOs have a ‘growth mindset’ during uncertain times? Finance chiefs at Adobe, e.l.f. Beauty, TD Bank, and a McKinsey expert explain

How can CFOs maintain a growth mindset during uncertain times?

That was the topic of discussion during Fortune’s The Emerging CFO virtual event on Wednesday, in collaboration with Workday (a CFO Daily sponsor). “I think the essence of the growth mindset is CFOs who have the ability to help their companies fire on multiple growth cylinders,” said Ishaan Seth, a senior partner at McKinsey, who participated in the event along with the CFOs of Adobe, e.l.f. Beauty, and TD Bank.

There are three aspects of a growth mindset, Seth told me during our discussion: growing the core businesses, which includes customer retention and acquisition; growing into adjacent businesses and products, geographies, or customer segments; and creating new breakout businesses.

The best growth leaders are “those who can help the company operate across all three of those at once,” said Seth, global co-leader of McKinsey’s banking practice and leader of the North American banking practice.

But how exactly is that done? McKinsey analyzed the growth of about 2,500 public companies, which included looking at 120 variables around financial statements and performance over 20 years, he said. The research, Seth said, pointed to five factors that enabled companies to “deliver outsized economic profit growth and market growth relative to their peers”:

—Resource reallocation. “The threshold that matters is about 60% of your resources reallocated over a decade,” Seth said.
—M&A and portfolio refresh. About “two to four transactions per year, right—a programmatic steady clip,” he said. But no single transaction that’s over 30% of your market cap.
—Productivity and efficiency ahead of your peers. “You’ve got to be top quartile for that,” he said.
—Technology and innovation. “Generating a return on that innovation ahead of your peers,” Seth said.
—Margin expansion through a product refresh.

Taking risks, choosing innovation

My colleague Geoff Colvin asked the CFOs how they operate with a growth mindset.

“We’ve had 17 consecutive quarters of net sales growth,” said Mandy Fields, SVP and CFO at e.l.f. Beauty, an Oakland, Calif.-based mass beauty company. “And in our Q4, we had, almost 80% sales growth.”

What’s happened over those 17 quarters?

“We’ve increased our marketing investment over the last four years from 7% of net sales to 22% in our last fiscal year,” Fields said. “And a lot of that has been not being afraid to take risks. That’s a big part of a growth mindset.”

She continued: “I think about our entry into TikTok, for example. In 2019, not a lot of people were on TikTok. We took a risk at that time. We put dollars into that platform and were amazed by the engagement that we saw there.” The brand has become the most popular among Gen Zers.

Dan Durn, CFO and EVP of finance, technology services, and operations at Adobe, said consistent reinvention and customer engagement are vital.

“We’re constantly looking at innovation,” he continued. “There’s a velocity within the company that’s very relevant. And there’s clarity around what we’re going to innovate and grow organically. And then: How do we complement that in a smart fashion with inorganic growth?”

Durn pointed to Adobe’s recent acquisitions of Frame.io and Workfront.

“These are great technologies that complement the core product positions we have in the way we serve customers,” Durn continued. “We’re going to primarily be an organic, innovation-driven company, but we will complement from time to time.”

Durn also shared another perspective on a growth mindset. “My concept? Be constructively unreasonable,” which points to an exploration process that’s not always typical, and gets teams to “lean into problems and deliver more than they thought was possible,” according to Durn. “When you think about innovation and bringing it to market, you can’t Gantt chart innovation,” he said. “At Adobe, we’ve got a greater than $200 billion [total addressable market] in front of us. Now the question is how do we unleash the capabilities and take advantage of those opportunities? And it puts people into the right mindset.”

Xihao Hu, the CFO at TD Bank in the U.S., offered yet another perspective.

“We take advantage of, when we can, using our balance sheet to generate as much revenue, as much growth, as possible,” Hu explained. “But at the same time, we’ve also learned that you can not rely upon the macro environment. Rates will eventually come down, and people predict a rate decline probably in the next year or so. We’re constantly trying to get into innovative areas, such as products or back office innovation to trim out costs.” For example, Hu said, in early May, TD Bank launched two credit card products “very different from what’s existing in the market”—TD Clear and TD FlexPay.

“It’s a tougher environment now when it comes to deposits, and TD is one of the biggest deposit takers in the whole country,” he said. “We actually are working on enhancing our strategies to make sure we not only defend our turf but can continue to speed up our customer acquisitions and retain the loyal customers.”

Sheryl Estrada
sheryl.estrada@fortune.com

Big deal

In the first three months of this year, the cash ratios of noninvestment grade-rated companies "were squeezed further," according to a new report by S&P Global Market Intelligence. The research found the median measure of cash and equivalents as a share of total liabilities of companies rated lower than BBB- by S&P Global Ratings, fell to 36.3% in the first quarter, from 40.1% at the end of 2022. There were declines in seven of the 11 sectors. The steepest decline was in the real estate sector to 67.1% from 78.4% at the end of 2022, but that remains significantly higher than in other sectors, such as consumer discretionary and financials, according to the report.

Going deeper

Morgan Stanley at Work's newly released "Liquidity Trends: Perspectives from Private Company Leaders" is a study and survey providing insight into the changing private company liquidity landscape and the market conditions driving change. Fifty-nine percent of the private company decision-makers surveyed reported increased expectations for a liquidity event from investors, C-suite executives, and equity-holding employees. Additionally, 93% said having a liquidity event is valuable to a prospect’s decision when considering a job offer. A trend that's expected to continue: By delaying IPOs, private companies maintain greater control amid market challenges while also nudging private capital markets to adapt for more tender offers and direct secondary sales, the research found. For example, from 2012 to 2021, global investments in direct secondaries across the venture market increased from $13 billion to $60 billion and are projected to reach $85 billion in 2023, according to Morgan Stanley at Work.

"Unlocking the potential of liquidity opportunities has become a business essential—both for the organizations and the individuals who make private capital markets tick," Jeremy Wright, head of private markets at Morgan Stanley at Work, said in a statement. "Clear-sighted solutions that balance possible future states against current challenges can deliver value and protect long-term vision during volatile times."

Leaderboard

Sabra Purtill was named CFO at American International Group (NYSE: AIG), effective immediately. Purtill has served as interim CFO since January 2023. Shane Fitzsimons will step down from his position following a medical leave of absence. Purtill joined AIG in 2019 as deputy CFO and treasurer and then served as AIG’s chief risk officer. She also served as chief investment officer of Corebridge Financial before returning to AIG in January 2023. Before AIG, Purtill was with The Hartford Financial Services Group, Inc., where she served as SVP of investor relations and treasurer. Previously, Purtill was also managing director of investor relations and Communications at Assured Guaranty Ltd, and before that was a corporate finance officer at ACE Limited, now known as Chubb Limited.

Matti Masanovich was named SVP and CFO at Catalent, Inc. (NYSE: CTLT), effective July 5. Before joining Catalent, Masanovich served as EVP and CFO of Tenneco Automotive until it was acquired by Apollo. Previously, he was CFO at Superior Industries International and General Cable Corporation. Earlier in his career, Masanovich held finance leadership roles of increasing responsibility at several companies in the automotive industry. He began his career with PricewaterhouseCoopers LLP.

Overheard

“Our research showed a skills-first approach could increase the global talent pool by nearly tenfold. And a larger talent pool means less competition with other companies over the same candidates.” 

—Sue Duke, VP and head of global public policy at LinkedIn, told CNBC the struggle to fill roles "will only grow unless we change our approach to finding and nurturing talent." According to LinkedIn data, 45% of companies are now explicitly using skills-related metrics to find candidates, which is 12% more than a year ago.