Balancing short- and long-term priorities is a perennial issue for the finance leader. It can also be one of the most challenging. It can often require complex trade-offs and demand diplomatic skills and credibility to resolve conflicts and tensions within the leadership team.
The CFO’s role here can be crucial. First, they should develop the cost efficiencies that support short-term financial performance expectations. Second, they should sustain momentum on long-term priorities, such as sustainability. And they are fully aware of this conundrum. In the recent EY Global DNA of the CFO Survey, more than three-quarters of finance leaders say that “effectively balancing trade-offs between short-term and long-term priorities is an important challenge for finance leaders”.
A similar proportion of respondents say that a challenging market environment is increasing pressure on finance leaders to find cost efficiencies. In response, nearly every finance leader surveyed (nine out of 10) is planning to reduce or pause spending across a range of areas, from marketing to people development.
Sustainability could be at risk
Surprisingly, half of the finance leaders in the EY survey are meeting short-term earnings targets by cutting funding in areas that are also considered long-term priorities. Sustainability is the area that is most vulnerable, according to the data: although 43 per cent of finance leaders see environmental, social and governance (ESG) programmes as a long-term priority for their organisation, more than one-third are pausing or cutting investment in this area to achieve their short-term earnings targets.
This willingness to target long-term sustainability programmes might explain why progress in that area is faltering. The 2023 EY Sustainable Value Study found that business progress is slowing at a time when climate action needs to accelerate to meet the Paris Agreement’s long-term goal of limiting global warming to 1.5C degrees.
Leadership tensions threaten the long-term vs. short-term balance
Balancing short-term demands with long-term value requires collaboration and trust between finance leaders and the rest of the executive team. But two-thirds of the finance leaders in the EY DNA of the CFO survey say there are tensions and disagreements within their leadership teams when it comes to balancing short- and long-term priorities.
A finance leader who has the credibility and influence to challenge the CEO and executive team will often be the best person to manage these tensions. But the research also suggests that not all finance leaders are willing to voice their opinions all the time. Less than one third of CFOs always speak up when their opinion differs from the consensus, and even fewer always strongly challenge members of the executive team when they disagree on a key issue.
Better nonfinancial reporting could encourage consensus
High-quality, forward-looking data-driven insight will be key to navigating trade-offs, fostering consensus across the C-suite, and conveying to investors how a balance is being struck between short-term performance and long-term value. And finance leaders and their teams can play an important role here by integrating financial and nonfinancial (including sustainability) data into an enhanced corporate reporting model.
That integration could address a gap that was identified by the EY Global Corporate Reporting Survey in 2023. In the report, four out of five investors surveyed said many companies fail to properly articulate the rationale behind their long-term investments in sustainability. The survey also found that many finance functions are not ready to play their part in an enhanced reporting model. To prepare, companies should transform not only their technology and data analytics, but also their skills and operating models.
Finance leaders should take a long-term view on priorities while also focusing on performing in the here and now. Enhanced reporting capabilities could be crucial to conveying to investors and other stakeholders how organizations are providing the short-term financial performance the market expects while driving long-term sustainable value.
Global DNA of the CFO Survey 2023: Read the EY report to find out how finance leaders are reconciling the three critical paradoxes in their role.
