Good morning.
The role of the CFO continues to change, from solely financial reporting and risk management to driving growth and value creation. But some finance chiefs aren’t fully stepping into their new realm of influence.
“What’s interesting to me is the data point that only 32% of the CFOs said they would always speak up if they disagreed during the C-suite conversations. I think that speaks to the evolving strategic role of CFOs—do they really understand the value that they can bring, and the fact that they should have a voice in resolving some of these tensions and internal disagreements?” Myles Corson, EY Global and Americas strategy and markets leader for financial accounting advisory services.
Corson’s referring to one of the findings in EY’s Global DNA of the CFO Survey released this morning. I sat down with him to discuss the challenges now facing finance leaders and how bold CFOs reframe their roles to enhance performance.
Due to the current market conditions, 76% of respondents said there’s more pressure to drive cost efficiencies and hit short-term earnings targets. And half of the finance leaders said they’re meeting short-term targets by cutting funding in areas considered long-term priorities.
For example, despite considering environmental, social, and governance (ESG) programs a long-term priority, 37% of respondents say their organization plans to reduce or pause spending in the next 12 months. Although technology and digital innovation was highly ranked among long-term priorities, 34% of respondents said they’re pursuing near-term cuts in the area. And 34% also said they’re pursuing near-term cuts in talent and culture.
“Yes, investors expect you to deliver on short-term performance,” Corson says. “But we also know from the research that they are looking for organizations to articulate the investments that they’re making for the long term.”
“It almost becomes a vicious circle. Investors want to hear the long-term story. If they don’t hear it, they put more pressure on the short-term performance.”
EY found that 67% of those surveyed said there are tensions and disagreements within leadership on how to balance short- and long-term priorities. But there may be a silver lining to these debates, Corson says: “Strength is built on the diversity of perspective.”
It’s important that “CFOs are expressing their point of view and opinion and making sure they’re at the heart of that debate,” Corson says. “The power of the CFO is to bring a very data-oriented point of view and project forward what that means for the future.”
The findings are based on a global survey of 1,000 senior finance leaders, of which 70% are CFOs, representing organizations in 21 countries (about 30% are U.S. respondents), with revenues of between $1 billion and $5 billion per year, while 30% reported revenues that exceed $5 billion.
‘Develop themselves’
EY’s research finds that CFOs who “push bold change” are more likely to drive value both today and in the future, compared with those pursuing more incremental changes, according to Corson.
What is “bold change”? It’s when CFOs place a greater emphasis on changing the culture of their finance teams, transforming technology and analytics, developing leadership skills, and identifying the next generation of leaders, he says. CFOs pursuing this agenda are 1.4 times more likely to have an above-average or best-in-class finance function today, and they’re 1.7 times more likely to reach best-in-class status after transformation, according to EY.
But just 16% of finance leaders surveyed perceive their finance function as best-in-class in terms of key change priorities, while 14% said they’re making bold holistic changes for the long term.
Still, the majority of CFOs surveyed are “excited about the opportunities, the broadening scope of the role,” Corson says. “But one of the big concerns is the ability to find the time to learn and develop themselves.”
Having a voice indeed matters.
Sheryl Estrada
sheryl.estrada@fortune.com
Big deal
The Fidelity Investments 2023 M&A Valuation & Deal Structure survey examines trends and buyer perceptions related to registered investment advisor (RIA) M&A transactions. The top driver (77%) of seller interest in M&A is to reduce operating duties and focus on client needs. And the top driver (90%) for buyer interest is to acquire top advisor talent. The research also finds a 237% increase in RIA M&A deals, with 492 reported transactions between January 2020 and March 2023, up from 146 for the 2017-2019 study period, according to Fidelity.
“Despite market headwinds, the wealth management industry continues to be a vibrant space for M&A, with the environment rewarding high-quality firms with strong multiples,” Laura Delaney, Fidelity’s vice president of practice management and consulting, said in a statement. “Although activity has increased substantially vs. the previous study period, it’s important for RIA business owners to align on valuation drivers and understand the dynamics involved in the motivations and expectations of buyers and sellers.”
Going deeper
"Does Generative A.I. Solve the Financial Literacy Problem?" a new opinion piece in Wharton's business journal, discusses how the technology can play an important role in addressing financial literacy. However, it will also place increased pressure on financial education, according to Wharton’s Michael Roberts. The piece gauges the pros and cons of using generative A.I. and ChatGPT to boost financial literacy.
Leaderboard
Jeffrey C. Campbell, vice chairman and CFO at American Express Company (NYSE: AXP) announced that has decided to retire from the company, effective Aug. 14, 2023. Christophe Le Caillec, deputy CFO will succeed him as CFO, and join the American Express Executive Committee. Campbell will remain with American Express as vice chairman until March 2024. Campbell joined American Express as CFO in 2013. Before American Express, he served as CFO of McKesson and American Airlines. Le Caillec has had a 25-year career at American Express, In his current role as Deputy CFO, he leads the corporate planning team, as well as risk, technology, and the Global Services Group Finance functions. Before that, Le Caillec was the Business CFO for American Express’ Global Consumer Services Group. During his career at American Express, he has held several global business roles of increasing leadership in Paris, Sydney, Singapore, London, and, most recently, New York.
Jonathan Root was named CFO at Harley-Davidson, Inc. (NYSE: HOG), effective immediately. Root is currently SVP of Harley-Davidson Financial Services (HDFS), and has overseen the global HDFS business as president of Eaglemark Savings Bank, president of Harley-Davidson Insurance, and president of all other HDFS subsidiaries. Root has been responsible for both strategy and execution of the company's motorcycle retail lending, branded credit card partnerships, commercial lending, and retail/commercial/insurance operations. He joined HDFS in 2011 and has held multiple roles across the company including VP, Insurance. Before HDFS, Root held a variety of roles at Ally Financial, Inc., GMAC Financial Services, Inc., and General Motors, Inc.
Overheard
“We have decided to transition Waze’s ads monetization to be managed by the Global Business Organization, similar to Google Maps. Unfortunately, this will result in a reduction of Waze Ads monetization-focused roles in sales, marketing, operations and analytics.”
—Chris Phillips, who oversees Google’s maps division called Geo, wrote in an email to employees on Tuesday, according to CNBC, that Google is cutting jobs at its Waze mapping service as it merges the unit with its own map products.
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