How should CFOs navigate new challenges in 2023?

From Covid-19 and its associated lockdowns to geopolitical crises such as the war in Ukraine, CFOs have faced an avalanche of major shock events since 2019; all have impacted their strategic growth plans and normal working practices.

As 2023 begins, many CFOs will need to take further action to help their companies withstand macroeconomic difficulties such as inflation and higher interest rates in the palls of the pandemic.

“Covid-19 lockdowns proved to be the most rigorous stress test that most CFOs have ever – and perhaps will ever face,” says David Carrick, CFO at global financial services provider Apex Group.

Carrick notes  employees’ wellbeing and their health and safety must continue to be a top priority for companies today. “Hybrid working models have not slowed down the productivity of the finance function or the service we are offering,” he says.

“Now the worst is behind us, it is important for CFOs to realise that the world of work has changed permanently, and they must evolve their finance function for this.”

Carrick adds that for Apex, investment in technology and delivering a digital-first response enabled the company to provide a consistent service to its clients globally during Covid-19.

Labour market challenges

For many companies and their finance functions, difficulties in attracting and retaining skilled resources have emerged as a major problem in the post-pandemic world due to early retirements from the workforce as well as ageing populations.

According to a recent report by McKinsey & Company, competition for talent remains fierce. In the US alone, there were 11.3 million job openings at the end of May 2022 – up substantially from 9.3 million in April 2021.

Moreover, employees generally are more open to switching jobs more frequently if they are not provided with the right environment to develop. The global survey found that in 2022 40% of workers are likely to leave their jobs within a matter of months; this ranges from 33% in the UK, to 40% in the US, and 68% in India.

At Apex, Carrick believes today’s labour market difficulties can be offset by a greater focus on additional employee benefits – including the offer of hybrid working.

“As a CFO and member of the executive committee, I am focussed on investing in our finance team to ensure we have the talent, resources and skills commensurate with a business of our size,” he says.

Carrick points out that Apex has tripled in size since the start of the pandemic and now has 10,000 employees in more than 40 countries.

“Firms need to look at a broad mix of incentives to retain key staff including retaining hybrid working models, providing productivity remains high,” he says. “Instead of one-off cost of living payments to staff, business leaders should focus on embedding hiring, retention and employee reward policies which build long-term loyalty and employee satisfaction.”

Given Covid-19 restrictions on global movement have lifted, and international travel is back on the agenda, Carrick believes global businesses should look at the global distribution of talent and mobility options to embrace innovative ways of ensuring talent is retained and deployed where it is needed most.

“For example, at Apex we will be continuing our Jurisdictional Unique Mobility Program (JUMP) initiative which enables employees to explore new countries and cultures through short-term assignments or long-term secondments in various locations across our group,” he says.

Deploying resources in the face of a recession

Since the subsidence of Covid for much of the world, CFOs has faced a barrage of additional challenges –  not least Russia’s invasion of Ukraine, which has led to escalating energy prices and inflationary pressures.

While central banks globally attempt to curb inflation by raising interest rates, CFOs are also having to manage expectations of a global recession, the length and depth of which will determine whether a business is successful in the year ahead.

“It is no doubt going to be a challenging year for both businesses and individuals in light of inflation. Eurozone economies continue to be hit hard by the impact of the war in Ukraine, given their high exposure through energy imports,” says Carrick.

“Growing uncertainty over energy supply, particularly for the coming winter, coupled with weakening global and regional demand, are dragging down the eurozone’s growth outlook.”

Carrick does however point out that these are only some of the difficulties many companies are currently facing.  “More challenging market conditions have been created not just by energy price rises, but other inflationary pressures, such as FX headwinds and rising interest rates,” he says.

“Of course, CFOs must implement proactive measures to address the impacts of the rise in energy prices on their businesses, but they cannot focus on this in isolation as it is only one symptom of the overall inflationary conditions.”

He adds that from a strategic perspective, Apex is now focused on ensuring all client revenue contracts optimise inflation escalators and cross-selling opportunities are realised to drive organic growth.

In terms of business expenses, the group is now enhancing more discipline over how it deploys talent and financial resources within its global business and is also using its global purchasing power to improve vendor terms.

Carrick believes that companies and their finance teams will succeed if they embrace uncertainty – and seek out opportunities for innovation to support both their clients and employees.

“It is not all doom and gloom – the market conditions offer an inflexion point for business leaders. As costs rise, CFOs may instinctively look to retrench and cut expenses, but this can prove counter-productive in the longer term,” he says.

“CFOs should continue to focus on the sustainable acceleration of operational efficiencies including those achieved through technology investment in areas such as artificial intelligence (AI), robotics and blockchain.”

Some light at the end of the tunnel

 Despite this, there is some suggestion that the adverse global macroeconomic climate is starting to subside. Higher interest rates in both the US and Europe are starting to have their desired impact on inflation levels.

In the US, the rate of inflation fell for a fifth consecutive month in November 2022 to 7.1 %, down from 9.1 % in June, according to the US Bureau of Labor Statistics.

Consumer Prices Index data released in the UK, meanwhile, revealed an inflation rate decline to 10.7 % in the twelve months to November 2022, down from 11.1 % in October.

“The significance of this is that weaker inflation usually means a shorter and shallower recession because the Bank of England won’t have to strangle growth quite so much,” says James Bentley, director of Financial Markets Online.

“The same market reaction has already been seen across the world with the US also reporting fading inflation. For those countries lucky enough to see price rises cool, their central banks get to dodge a bullet by backing away from aggressive rate rises which have the potential to pull the rug out from underneath the economy.”

Meanwhile, Carrick points out that although finance leaders are currently working on their forecasts for the year ahead, strategic CFOs should always keep a close eye on the medium-term – the 3-5 years horizon.

“The decisions they make going into 2023 will determine their competitive positioning and advantage, not just in the coming year, but for 2025 and beyond,” he says.

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