Good morning,
Finance chiefs are beginning to think fellow C-suite members need a reality check. And their faith in them is waning.
”During times of growth, CFOs are the voice of reason within the C-suite when making investment decisions,” says Jim Lawson, co-leader of the global financial officers practice at Russell Reynolds Associates. “But in times of uncertainty and decline, they become the voice of reality.”
Russell Reynolds, a consultancy firm, recently released its Leadership Confidence Index based on the sentiment of C-suite members, leaders one or two levels below the C-suite, and board directors. The research found that CFO confidence in executive leadership teams dropped from 69.2 in early 2021 to 62.4 at the end of 2022—a decrease of 6.8 points. This is out of a possible 100 points. (For CEOs, their confidence in the executive leadership team fell from 74.2 to 65.7.) The findings are based on global survey data of more than 1,000 leaders.
Among CFOs' concerns are how well the team understands the competitive dynamics to effectively run the company during macroeconomic times, according to the index data. “We're actually seeing this in our daily interactions with CFOs beyond the survey,” Lawson says. “The CFO is the C-suite team member who's often going to revert back to fiscal conservatism and preserve capital. In the past year, every investment a company wants to make, they're paying a higher interest rate for it.”
Lawson shares what he’s hearing from finance chiefs. “A good friend of mine is a CFO of a private equity-backed company,” he says. A year and a half ago, the company was at the top of the market, Lawson explains. The CFO talked with his C-suite peers about investing in employee and marketing initiatives, and “just doing fantastic things,” he says. Then a new private equity firm came in, paid top dollar for the company, and then the growth stopped, Lawson says. So now the CFO is sitting in meetings with the same C-suite peers who are still talking about initiatives as they did 18 months ago, he says.
“This is a totally different story,” Lawson says the CFO explained to his peers. “We're behind in this deal now with the new sponsor. You're used to being way ahead. So the tone needs to change in the room. We're in cost-cutting mode.”
How can CFOs keep everyone on the same page in order to ease their concerns? Lawson offers three pieces of advice:
— Become even more collaborative with C-suite peers who may be coming from a different perspective, which is less financial.
— Practice balanced communication. The CFO can help them understand why certain investment decisions might not be viable at this moment. They must take their peers along the journey and really explain the reality of the situation. CFOs are rooted in numbers and data, and they need to share it.
— Have more empathy for C-suite colleagues. CFOs shouldn’t take the approach of just saying, “We can’t afford that,” and then just shut it down. Help them understand the short and long-term investment tradeoffs.
Another piece of advice from Lawson: “CFOs need to be careful not to prevent companies from making strategic investments during times of uncertainty. This may harm the company’s strategic position when the business picks back up.”
Close collaboration is key.
See you tomorrow.
Sheryl Estrada
sheryl.estrada@fortune.com
