CFO Playbook: Communicating financial loss to stakeholders
As CFOs navigate these challenging conversations, they must remember that transparency, context, and a vision for the future are key to effective communication
In an increasingly volatile economic environment, a CFO’s ability to effectively communicate financial losses becomes a critical aspect of stakeholder management.
The recent $98.4 million loss reported by the MSG Sphere illustrates the complexity and significance of conveying financial difficulties. This disclosure, coinciding with a major management shift, exemplifies the criticality of strategic communication in challenging times.
CEO James Dolan’s subsequent focus on long-term value and promising future events, like U2’s residency, showcases the necessity of framing financial reports within a future-focused and strategic context
Enhancing reporting clarity and transparency
Effective communication hinges on clarity in reporting. This involves not only standard financial reporting but also elucidating changes in accounting policies, errors, asset retirements, and voluntary disclosures. For instance, a detailed comparative report highlighting the impact of policy changes on financials would provide stakeholders with clear insights.
Additionally, leveraging financial technologies can aid in creating more precise and insightful financial reports. Advanced analytics and AI-driven tools offer deeper insights through predictive modelling and anomaly detection.
Additionally, customisable reporting features and integration with external data sources allow for tailored, comprehensive financial communication, crucial for effectively conveying financial health to stakeholders.
Detailed disclosure of accounting errors
In the event of accounting errors, communication should extend beyond mere acknowledgement. A thorough explanation of the error’s nature, its impact on financial statements, and corrective measures taken should be included.
A corrected financial statement with an explicit annotation of the alteration is essential for transparency and restoring stakeholder trust. For example, if a numerical transposition error led to a misstatement in financial reporting, the CFO should provide a revised statement with a clear annotation of the correction, ensuring transparency.
Demonstrating proactive measures in error management, such as using FP&A tools that automate consolidation, is also key to maintaining credibility.
Communicating asset retirement with precision
When retiring assets, it is crucial to communicate the rationale and financial impact with precision. A CFO should prepare a detailed report showing the asset’s initial value, its depreciated value, the retirement process, and the financial implications, including any resultant losses.
This could include charts or graphs illustrating the asset’s diminishing returns over time and the rationale for its retirement, making the financial impact tangible and understandable for stakeholders.
It should also be noted that contextualising these decisions within the organisation’s broader asset management strategy is essential.
Earlier this month, SoftBank’s CFO was forced to communicate just that. SoftBank holds a nearly 80% stake in WeWork which filed for Chapter 11 bankruptcy protection this week amid turmoil in the US commercial real estate market after the pandemic sent vacancies soaring.
Yoshimitsu Goto sought to allay investor’s worries, stressing in an online news conference that the company was still going strong overall, making cautious investment decisions and plans to keep growing. He said WeWork’s troubles were “regrettable”, but that SoftBank would study what went wrong and try to do better with its future Vision Fund investments.
Leveraging voluntary disclosures for greater insight
Voluntary disclosures offer a unique opportunity for CFOs to provide additional insights. These disclosures might include forward-looking statements or a detailed analysis of the financial data.
For instance, a CFO could issue a supplementary report discussing the company’s sustainability initiatives and their anticipated financial impact, giving stakeholders a broader context of the company’s long-term health and strategy.
Best practices for robust financial communication
- Provide Contextual Clarity: In every financial report, accompany raw data with context. For example, if reporting a loss, include market analysis or internal factors that contributed to this outcome.
- Maintain Regular and Open Communication Channels: Regular financial updates, especially during crises, keep stakeholders in the loop. This could be in the form of monthly financial newsletters or dedicated stakeholder meetings.
- Focus on Future Strategies: Always connect current financial performance with future recovery plans. For instance, if reporting a loss, outline a detailed recovery or improvement plan, demonstrating proactive management.
- Commit to Full Transparency: In times of uncertainty, like the Covid-19 pandemic, transparency becomes even more vital. Ensure all reports are comprehensive, honest, and include both the challenges and potential solutions.
Mastering the communication of financial adversities
For a CFO, articulating financial losses is as much about the content of the message as it is about the delivery.
In the MSG Sphere’s case, the focus on long-term value amid short-term losses provided a balanced view that looked to maintain stakeholder trust. As CFOs navigate these challenging conversations, they must remember that transparency, context, and a vision for the future are key to effective communication.
This approach not only maintains stakeholder trust but also positions the company for strategic resilience and long-term success.
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