CFOs face one of the most complex and challenging operating environments in recent years, as geopolitical turbulence, persistent inflation, pressure on supply chains and uncertainty about global economic growth cloud the future.
This uncertainty and volatility create new tensions between short- and long-term priorities, with 76 per cent of respondents to the recent EY Global DNA of the CFO Survey saying the current challenging market environment is increasing pressure on finance leaders to drive cost efficiencies and hit short-term earnings targets.
Some organisations are responding to the short-term pressure created by economic and geopolitical headwinds by stepping back from their sustainability commitments. Data from the 2023 EY Sustainable Value Study found that the median target year for achieving climate ambitions is now 2050, compared with 2036 in the previous year’s study. It's just one example that shows how CFOs must weigh competing priorities today.
There are three paradoxes that CFOs should navigate if they are to meet these new demands and expectations. Reconciling these paradoxes is key to increasing enterprise value, building a finance function that supports strategic goals, and succeeding as a strategic leader.
Creating long-term value despite pressure to cut priority investments in order to deliver results today
CFOs are expected to align capital allocation with long-term priorities such as investment in ESG programmes and technology innovation. At the same time, they are under pressure to meet short-term expectations for financial performance. Half of CFOs are meeting short-term earnings targets by cutting funding in areas that they also consider long-term priorities, according to the EY Global DNA of the CFO Survey.
The management team – including CEO and C-suite – will be a critical area where conflicts and disagreement play out when it comes to reconciling short- and long-term priorities. Balancing short-term performance expectations with long-term investments will likely require a CFO with the credibility and standing to challenge the CEO and executive team on the trade-offs that need to be made and the implications for long-term value.
Managing risk while creating value through bolder and more innovative change
The EY DNA of the CFO study shows that only 16 per cent of finance leaders consider their finance function to be best-in-class. That is a sobering finding, yet only one in seven CFOs is making bold changes to transform the function for the future. And those 14 per cent of CFOs are 1.7 times more likely than the ones pursuing more incremental change to be confident that they will be best-in-class after their transformation.
Finance leaders need to balance a bold, ambitious vision for finance with the need to maintain the integrity of processes such as financial reporting. By defining clear roles, responsibilities, and governance structures, they can help foster a culture of safe experimentation and create a “fail fast” mindset to capture and realise opportunities that a “no surprises” mindset may miss. Defining “failing fast” will be important so that teams understand the leeway for agility while also meeting macro performance targets.
Linking traditional finance skills with strategic leadership ambitions
More than eight in 10 CFOs in the EY DNA of the CFO survey agree with this statement but they also acknowledge that the CFO role is highly challenging. As the scope of their responsibilities continues to expand, almost half of them see the role as a stepping stone to the CEO position.
This does not just tell us something about the significance of the CFO position in the hierarchy of an organisation. It also highlights the importance of finance leaders continuing to challenge themselves when it comes to skills, expertise and capability. The disciplines learned during a finance career can provide a strong foundation for succeeding as a CEO, but the chief executive role also demands very different leadership skills.
The three paradoxes call for a new form of CFO leadership
These new demands and expectations have created an urgent need to evaluate what it takes to lead a successful finance function.
It will require overcoming common obstacles. In the EY DNA of the CFO survey, CFOs said their top challenges were “finding time to build knowledge and expertise through exposure to external expertise and access to thought leadership” and “managing a wide range of operational responsibilities, including IT and HR”.
These challenges are interconnected. As CFOs expand their operational responsibilities, they must acquire knowledge beyond finance such as HR and marketing skills. But time constraints can stop them from building this knowledge.
It is clear that traditional finance skills may not always be enough. Two-thirds of finance leaders in the same survey agree that companies are willing to appoint candidates to the role of CFO even when that person has limited finance experience. This highlights a shift toward valuing strategic and inspirational leadership over just domain expertise, signalling a disconnect from the traditional perception of the CFO role.
CFOs should develop new, non-traditional skills: the ability to engage and motivate talented people, foster constructive relationships across the C-suite, and embrace continuous learning — and a willingness to look for new ways to address today’s complex challenges.
The role of the CFO is being rewritten. Where will it go next?
EY 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.
