Editor’s note: This is the second in a series of Deep Dives examining stressors intensified by the slowing economy that are challenging even the most battle-tested CFOs — and strategies for managing those pressures. In part one, CFO Dive detailed new conversations around the importance of C-suite mental health care in the wake of the suicide of Bed Bath & Beyond CFO Gustavo Arnal in September.
While facing the prospect of an imminent recession, CFOs are being forced to consider whether layoffs should be the hard call they need to make in order for their businesses to adjust to — and in some cases just survive — a slowing economy.
Of course, layoffs arguably take the biggest toll on the employees whose jobs and livelihoods are severed. But — as stewards of capital at their organizations — CFOs are under considerable strain as they seek to balance their employees’ wellbeing and the cost of employee compensation with the short and long-term viability of their business.
It is “very difficult and it weighs because these are people’s careers,” Omar Choucair, CFO of software-as-a-service (SaaS) company Trintech, said in an interview.
Layoffs also do not just impact the employees who have left the company, Choucair pointed out. The remaining staff are also affected. That’s why it’s critical for CFOs and other executives to reassure them about the company’s ability to make the right decisions, he said.
“There has to be a lot of empathy,” he said. “And it's not only about the folks that were acted on. It's about the folks that are still there, and making sure that they feel confident in the ability of the company to make the right decisions. But unfortunately, if your revenue is choppy, you have to make changes.”
The last resort
CFOs are not the sole executive responsible for determining and managing layoffs — such decisions are usually made by a “cohort of leaders, rather than one single person,” Eric Gonzaga, national managing principal of Human Capital Services at Grant Thornton, wrote in an email.
“The CFO’s role will vary depending on the company, but because of the nature of their role, CFOs often help leaders discern where layoffs might be needed in terms of the profitability and strategic direction of an organization,” he wrote. “Revenues are a key factor in that decision, so CFOs provide insight on that front, too.”
Layoffs should be a last resort for companies and their financial leaders, Gonzaga wrote. He also pointed to the disparate pressures today’s CFOs are facing, with financial leaders confronting both the need to keep costs down as well as the need to retain top talent, further complicating the CFOs’ role in such decisions.
“CFOs are highly concerned about the economic dynamics, and I certainly think that there is a fear of being overstaffed, given the dynamic nature of the economy, but they're balancing that also with [the fact that] it's still a very difficult market to recruit and retain talent,” Gonzaga said in an interview.
CFOs aiming to chart a smooth financial course for their companies in a rocky economic period can first turn to cutting discretionary spending before moving to pare staff, Choucair said. CFOs need to be on top of their company’s expense analysis, making a delineation between “must haves” and “nice to haves,” in terms of their spending, he said.
Taking steps to make their compensation and benefits program more efficient or working with HR and business leaders to optimize cost benefits from a compensation standpoint is another avenue CFOs can explore before they turn to cutting employees, Gonzaga said.
“Nobody wants to go through a whole spate of layoffs...and so it's just trying to be as efficient [as possible] while creating a great value proposition for the employees,” he said.
Drumbeat of layoffs rises
However, macroeconomic factors out of the CFOs’ control can hammer at the company books, ultimately forcing the issue. Choucair pointed to the strength of the dollar and its subsequent effect on foreign currencies as examples of the pressures.
Many companies are already feeling this strain: Ian Borden, CFO at Chicago-based hamburger chain giant McDonald’s, said on an earnings call Thursday that the foreign currency headwind was a factor that pushed the hamburger chain to adjust its capex guidance down. And IBM warned of the impact of the strong dollar during its third quarter 2022 earnings call. It’s also a key issue for mid-sized global companies as well, Choucair said. Trintech works with enterprise and mid-sized companies worldwide.
“You can't hide from that,” he said, referring to the strength of the dollar and its ensuing impact on foreign currencies. “I mean, that's straight off the top line. And so, unfortunately, you come down to, ‘What are the things that are discretionary?’”
Many companies are already cutting staff. Job cuts surged in September as persistent inflation put increasing pressures on the labor market; U.S. employers announced 29,989 cuts in the month, a 46.4% bump from August figures, according to an Oct. 6 report by executive outplacement firm Challenger, Gray & Christmas. Meanwhile, thirty percent of CFOs are considering layoffs as the recession looms, a September survey from Grant Thornton found.
Among the companies that have already begun cutting staff is payments processing behemoth Fiserv which has been shedding workers as it grapples with the effects of inflation and currency volatility. The Brookfield, Wisc.-based company reported Thursday that third quarter severance costs jumped 46% to $35 million as the company cut jobs, according to Industry Dive sister publication Payments Dive. Separately Peloton, which saw demand that spiked early in the pandemic taper off and drop over the past year, recently said it would slash its workforce by about 12% or about 500 jobs, according to Retail Dive, CNBC and other reports.
Skating to the puck
At a certain point the question of whether to consider layoffs can turn unavoidable. Those human capital issues facing CFOs — including both layoffs and talent retention — are a “huge stress” for financial leaders, Gonzaga said.
Choucair, who has 22 years of experience in the CFO role, is used to the stress of the position, he said, noting that it is always present. Financial leaders need to be even-keeled in order to cope, he said. They can’t “get caught up in being too worried or too confident,” he said.
Financial leaders need to be able to “skate where the puck is going to be,” he said, anticipating and forecasting necessary changes in costs or strategy that can then be presented to the CEO and the board when rockier periods occur. Transparent communication is critical to be able to move forward, he said.
“The more that the CFOs communicate with the board, and communicates more with the CEO, that's probably the best way for them to get through the challenging times,” he said.
Working closely with other executives can also help to alleviate some of the strain placed on CFOs, who “tend to really focus on what the needs of the company are before their own needs,” said Karen Quint, consultant in leadership advisory firm Spencer Stuart’s financial officer and board practices.
This means their first focus tends to be on their responsibilities as a steward of the company, she said. Fostering a strong partnership with leaders such as the company’s chief human resource officer (CHRO) is one way to lighten the pressure of hard choices such as layoffs for financial leaders.
“I think great partnership across the C-suite is really critical, and obviously HR is a key partner in that,” Quint said. “And most CFOs really consider the CHRO as a critical partner in those decisions.”
Empathy: resisting short-term slash, burn
While collaboration is key, the best CFOs are helping to creatively approach and to solve around layoffs and other issues, Quint said. That means doing more than simply presenting the numbers.
“It's not like, ‘Here are the numbers. We’ve got to hit them and so you guys go deal with it,’” Quint said. “It’s, ‘Here's the reality. Here's what we're seeing. Let's talk about how we address this.’”
Educating other leaders in the business about the company’s needs and gaps can sometimes help avoid layoffs. For example, having a holistic picture can enable businesses to discuss and consider alternative actions they can take before that point, said Brian LaRose, CFO of pet retailer PetCo.
“Are there things that we don't have in the plan that we can go get, whether it be funding from vendors, whether it be changing the mix of our products, changing the price of our products?” he said in an interview. “Are there cost savings in supply chain? There are things you always look to first.”
LaRose, who has served as PetCo’s CFO for just over a year, took over the company’s top financial seat at a time when the macro environment was already beginning to sour, presenting a challenge from the get-go. LaRose noted his strength as a financial leader lies in relationships, but also spoke to the difficulty of learning the role while also helping to support other members of the executive team at the same time as the macro environment began to unravel.
“How do you rationalize what's happening with your stock price, with the shareholders, with the general state of the economy, with what you're doing inside of the company?” he said. “The easy thing to do would be to just go kind of burn the boats, start slashing costs. Start sacrificing everything that the company set out to do long term.”
Resisting that temptation in favor of developing or continuing to execute a long-term strategy that will better serve the company is key for CFOs, LaRose said. Creating a kind of “emotional flowchart” can help them and, crucially, other executives consider in a step-by-step way whether their companies are running efficiently or whether they have the right resources in place or if they are the right size for the environment, he said.