Bigger roles, bigger challenges

As featured on BusinessMirror:   Bigger role, bigger challenges

Despite a pervasive myth that they're just financial stewards, Chief Financial Officers (CFOs) have moved beyond their traditional role and have become capability builders across the organization ― acting as co-pilots to the CEO and taking a lead role in steering the organization. They're still responsible for the finances of the organization, but they've also become the point person for tackling many of the issues facing businesses today. They're building workforce capabilities, re-imagining and rebuilding the supply chain, steering the ESG reporting and compliance of the company and ensuring the ongoing digital resilience and sustainability of the organization.

With the expansion of their roles, CFOs in the Philippines face additional challenges such as taking the lead in developing growth strategies, finding internal and external opportunities, and swiftly responding to changing regulatory environments amid the various realities in the society. The CFOs' main concerns are the ongoing extreme downturn and the possibility of a recession in the middle of recovery from the impacts of the global pandemic.

The C-suite is increasingly relying on the CFO and the finance division to help identify and pursue growth opportunities, as well as to deliver results. 

Traditionally, the CFO's role in managing a company's workforce has been to oversee benefits, compensation and associated costs. Since this involves working with HR professionals, it has been a natural evolution for the CFO to move beyond the financial aspects of the role to be the lead executive working to influence and emphasize the importance of talent building and capability building across the organization.

Because CFOs are helping the CEO strategically drive the business forward, they are excellent candidates to champion and sponsor the capabilities that the company is attempting to build across the organization and understand how they contribute to the overall growth strategy. The CFO also brings a unique long-term perspective to talent building because they can look at it with a forecasted balance sheet view, where a good retention strategy is seen as equally as important as continuing to invest in new talent.

The intense demand for employees who have these highly sought-after skills means these employees have the option to choose to work with organizations that are culturally aligned to their values, that offer flexibility around when and where they work and that prioritize and assist with ongoing learning and skills development. Many of these employees are looking to work from home all or part of the time and they are increasingly looking for companies that have good ESG practices.

CFOs looking to remain competitive in this ongoing war for talent need to ensure they address these employee demands and develop a strong recruiting and retention strategy. They will need to draw on their traditional role and examine compensation levels and structures but, increasingly, they will also need to build the right corporate culture.

The pandemic and the conflict in Ukraine have received a lot of attention for their disruptions of the supply chain. But these events are noise that is highlighting broader structural issues around how the world is producing goods and services.

Fifteen to 20 years ago, there was a major shift in the supply chain as manufacturing of products and provisioning of services moved to lower-cost jurisdictions. Many organizations became complacent with this supply chain structure and saw little reason to re-examine it.

But when COVID-19 effectively shut down the world, organizations in many industries were forced to rethink what the supply chain should look like. For many companies, it will no longer make sense to have their manufacturing node in emerging markets or other low-cost jurisdictions.

The CFO will need to be actively involved in redesigning the firm's supply chain because changes to new or multiple jurisdictions will change the cost structure of the firm—and increases in costs may ultimately have to be passed on to consumers.

Companies can expect that ESG concerns will influence more than just their supply chain. While some businesses are making great progress on their ESG strategies many others are struggling with where to start. They're trying to understand how it will affect their company and their industry, and what stakeholders will expect of them. But companies moving slowly on ESG do so at their own peril.

The finance function is best equipped to support ESG reporting because it already has the systems, controls and competencies for compiling and managing data from across the company and then generating reports for stakeholders. Because of this, the CFO is often the executive tapped to guide and manage the company's ESG initiatives. For those that are well along with reporting, the next big challenge will be to operationalize ESG throughout the firm, because for ESG practices to be sustainable they must become embedded in the DNA of the company.

To operationalize ESG and ultimately have it become a consideration in all aspects of operations, CFOs might draw on their recent experiences with digital transformation. Most CFOs were already driving the digital transformation of their organizations when the pandemic greatly accelerated these efforts. As a result, most businesses have already emerged from their digital transformation and are engaged instead in a stage of digital resilience and sustainability.

The digital resilience and sustainability stage occurs after the bulk of the investment and effort to digitize the organization has taken place. Companies may have, for instance, built the infrastructure to move customer service online, digitized internal workflows and processes and put in place technologies to accommodate remote work. What was an all-hands-on-deck effort has shifted away from center stage, but it's still important for moving the business forward.

In the current business climate―with the potential for a recession on the horizon―the CFO should be sure they have mechanisms in place now to access liquidity if it's needed in the future. They may want to explore non-traditional ways of raising capital to prepare for the possibility that traditional forms of capital may become difficult to access. And they should be open-minded about whether the best path forward for the company might be a merger or joint venture.

Of course, raising capital is easier when the company's house is in order. Today, that means addressing workforce concerns, supply chain, ESG and digital resilience and sustainability. The CFO's role may be growing, but in the end, addressing these new areas of concern is part of ensuring they can perform their traditional role more effectively.

_{The excerpt was taken from the KPMG Thought Leadership publication: https://kpmg.com/ca/en/home/insights/2022/06/bigger-role-bigger-challenges.html}