Despite a pervasive myth that they're just financial stewards, CFOs have moved beyond their traditional role and have become capability builders across the organization―acting as co-pilots to the CEO and taking a lead role in steering the organization. They're still responsible for the finances of the organization, but they've also become the point person for tackling many of the issues facing businesses today. They're building workforce capabilities, re-imagining and rebuilding the supply chain, steering the ESG reporting and compliance of the company and ensuring the ongoing digital resilience and sustainability of the organization.
Building the right workforce capabilities
Traditionally, the CFO's role in managing a company's workforce has been to oversee benefits, compensation and associated costs. Since this involves working with HR professionals, it has been a natural evolution for the CFO to move beyond the financial aspects of the role to be the lead executive working to influence and emphasize the importance of talent building and capability building across the organization.
Because CFOs are helping the CEO strategically drive the business forward, they are excellent candidates to champion and sponsor the capabilities that the company is attempting to build across the organization and understand how they contribute to the overall growth strategy. The CFO also brings a unique long-term perspective to talent building because they can look at it with a forecasted balance sheet view, where a good retention strategy is seen as equally as important as continuing to invest in new talent.
But it's a challenging time for building talent and capabilities. Although Canada has not experienced a great resignation, the dynamics of recruitment and retention have changed. Driven by the increased availability of data, digital transformation and the automation of many repetitive and routine tasks, organizations are looking to hire highly skilled people who have very specific expertise. For instance, the desired capabilities within the finance group have shifted very quickly toward analytical skills and data science.
The intense demand for employees who have these highly sought-after skills means these employees have the option to choose to work with organizations that are culturally aligned to their values, that offer flexibility around when and where they work and that prioritize and assist with ongoing learning and skills development. Many of these employees are looking to work from home all or part of the time and they are increasingly looking for companies that have good ESG practices.
CFOs looking to remain competitive in this ongoing war for talent need to ensure they address these employee demands and develop a strong recruiting and retention strategy. They will need to draw on their traditional role and examine compensation levels and structures but, increasingly, they will also need to build the right corporate culture.
Changing the culture of a firm is not easy; it takes time and commitment. Business leaders who've already tried it have had mixed results. CFOs looking to drive such change may need to enlist organizational design professionals and people and change teams to define what the future of work will look like for their organization and to help build the culture and infrastructure to support this vision.
Training and skills development will likely need to be part of this new culture. Organizations will need to continually update employee skillsets to ensure they're able to meet new demands for the growth of the company. To attract and retain employees, it will become increasingly important to ensure they have the appropriate level of skills and training to help drive more growth within their roles.
Increased automation will also drive a need for more training and development. It's a common belief that automation will replace some traditional roles in the workplace, but automation is more likely to mean a shift of skill requirements for these jobs. That means these workers will need to upgrade their skills to use automation as a tool and to take on more analytical tasks.
CFOs can play a role in championing more training and ensuring that it's properly funded. Training and development is often first to be cut in the budget—but it's not an area where organizations should be cutting costs.
Re-imaging the supply chain
The pandemic and the conflict in Ukraine have received a lot of attention for their disruptions of the supply chain. But these events are noise that is highlighting broader structural issues around how the world is producing goods and services.
Fifteen to 20 years ago, there was a major shift in the supply chain as manufacturing of products and provisioning of services moved to lower-cost jurisdictions. Many organizations became complacent with this supply chain structure and saw little reason to re-examine it.
But when COVID-19 effectively shut down the world, organizations in many industries were forced to rethink what the supply chain should look like. For many companies, it will no longer make sense to have their manufacturing node in emerging markets or other low-cost jurisdictions.
The CFO will need to be actively involved in redesigning the firm's supply chain because changes to new or multiple jurisdictions will change the cost structure of the firm—and increases in costs may ultimately have to be passed on to consumers.
At the same time, stakeholders are taking a close look at supply chains through an ESG lens, and this will need to be considered in any redesign. As the CFO is often responsible for directing ESG reporting and compliance, they will shoulder at least some of the responsibility for ensuring the company's supply chain is meeting stakeholder demands.
The CFO and the finance team will also need to improve their ability to forecast supply chain disruptions. This means they'll need to develop new systems and invest in new technologies so they're better able to monitor external signals, link them together and rapidly generate scenarios of how the disruption will affect the operations and finances of the firm.
Increasing the focus on ESG
Companies can expect that ESG concerns will influence more than just their supply chain. While some businesses are making great progress on their ESG strategies many others are struggling with where to start. They're trying to understand how it will affect their company and their industry, and what stakeholders will expect of them. But companies moving slowly on ESG do so at their own peril.
Customers, employees and investors are already demanding better ESG practices from companies. Failure to take demonstrable action can lead to lost sales, difficulty attracting and retaining talent and obstacles to raising capital. Additionally, failure to pay attention to the physical risks that climate change can pose to a company's operations and supply chain can directly affect the company's risk profile and cost structure. Among the champions of ESG is the Millennial generation who will soon inherit the largest transfer of wealth in decades, so it's only going to grow in importance. Now is the time to start building an ESG framework at the company to prepare for the future.
The finance function is best equipped to support ESG reporting because it already has the systems, controls and competencies for compiling and managing data from across the company and then generating reports for stakeholders. Because of this, the CFO is often the executive tapped to guide and manage the company's ESG initiatives. For those that are well along with reporting, the next big challenge will be to operationalize ESG throughout the firm, because for ESG practices to be sustainable they must become embedded in the DNA of the company.
Beyond digital transformation: Resilience and sustainability
To operationalize ESG and ultimately have it become a consideration in all aspects of operations, CFOs might draw on their recent experiences with digital transformation. Most CFOs were already driving the digital transformation of their organizations when the pandemic greatly accelerated these efforts. As a result, most businesses have already emerged from their digital transformation and are engaged instead in a stage of digital resilience and sustainability.
The digital resilience and sustainability stage occurs after the bulk of the investment and effort to digitize the organization has taken place. Companies may have, for instance, built the infrastructure to move customer service online, digitized internal workflows and processes and put in place technologies to accommodate remote work. What was an all-hands-on-deck effort has shifted away from centre stage, but it's still important for moving the business forward.
Maintaining digital resilience and sustainability will need to be an agile process. CFOs will be responsible for ensuring new investments in technology are made in a way that makes sense for the business and the strategic vison for the company. They'll need to be the arbiter in balancing the desire of business units to implement new technology with knowing which innovations will be truly beneficial for the company. And although they may not be the executive primarily responsible for cybersecurity, they'll carry the responsibility—as will all executives—of making sure that it's given a high level of attention in all their areas of oversight.
Growth is still front and centre
While grappling with digital sustainability and resilience, ESG, supply chain and workforce concerns, the overarching concern of the CFO is the growth of the firm. They must ensure their operations and customer interfaces are adequately digitized to compete. They must satisfy stakeholders regarding ESG goals to maintain market share and ensure they can access funding. And they must manage their supply chain to control costs and put in place the skills and capabilities to move the company into the future. But beyond all this, one of their most important roles is still the traditional function of ensuring the company can raise adequate capital for growth.
In the current business climate―with the potential for a recession on the horizon―the CFO should be sure they have mechanisms in place now to access liquidity if it's needed in the future. They may want to explore non-traditional ways of raising capital to prepare for the possibility that traditional forms of capital may become difficult to access. And they should be open-minded about whether the best path forward for the company might be a merger or joint venture.
Of course, raising capital is easier when the company's house is in order. Today, that means addressing workforce concerns, supply chain, ESG and digital resilience and sustainability. The CFO's role may be growing, but in the end, addressing these new areas of concern is part of ensuring they can perform their traditional role more effectively.