Now more than ever the CEO-CFO relationship should be more of a partnership than anything else, according to Michael Kelly, partner and management consulting consultant at EY. 

Between the growing scope of the CFO’s job duties and challenging economic conditions, finance chiefs should have a clear vision into all areas of the business, and a tight relationship with their chief executive counterpart is key for this. 

The QB of the organization

Between the pandemic ending, the economy reopening, supply chain issues and rising interest rates, finance leaders have had their hands full over the past few years, and in the past year especially.

“There’s a strategic piece to all of these issues — which covers driving products and markets — that the CEO takes care of, but there is also the financial piece which goes hand in hand with the economic impact of strategy,” said Kelly in an interview. 

The CEO and CFO relationship needs to be extremely tight, and more of a partnership instead of a mentor-mentee relationship, according to Kelly. 

The expanding role of the CFO in recent years has crept into the realms of tech, customer service management and even human resources, and led finance chiefs to do most of the heavy lifting of the C-suite.

This job creep has become a major source of stress, as CFOs are also still responsible for the storytelling of the business, and has even caused some tension between CFOs and their C-suite colleagues, according to previous reporting from CFO Dive.

However, Kelly believes that this expanding role is actually helpful to the CFO. “I actually view it as a positive for the CFOs,” he said. “We're seeing more and more CFOs actually elevate to the CEO role.”

“The CFO has to be a quarterback and a master of many town halls, so they've got ESG, they've got new tech, they've got reporting, controls, they've got tax forecasting and just thinking about all areas that they touch. They've got a good view of that company. And that actually parlayed into where you see more CFOs elevate up into the CEO role,” he said. 

Finance chiefs who take a seat at the decision making table are more likely to step into the CEO role and succeed, according to previous reporting from CFO Dive.

CFOs are taking on more and more responsibility at their organizations, with many stepping outside of traditional finance. Honing one’s operational skills can help finance chiefs to make better decisions and to eventually take on broader roles, said Narayan Menon, newly appointed CFO and chief operating officer for data productivity company Matillion.

A veteran executive with over 25 years experience in both finance and operations, Menon joined Matillion as its CFO and COO at the end of March, the company announced in a press release.

Before joining the Denver, Colo.-based data productivity company, Menon served as CFO for video platform Vimeo, where he led their finance and accounting and investor relations teams among others, according to his LinkedIn profile. He has also held key finance and operational roles for large-scale technology companies Intuit, Skype, Microsoft and Cisco, serving as corporate VP, finance for Inuit and as a senior director for both Microsoft and Skype.

Melding operational and finance skills

As the CFO role morphs outside of the pure finance function, skills and expertise in other key areas — such as digital skills — are becoming more and more of a value add for both current and future financial leaders. Tech-savvy leadership can be a draw for skilled talent, for example,  a recent report by Gartner found, noting a lack of digital skills in senior management could drive significant unwanted turnover.

Honing their data and analytic skills can therefore be hugely beneficial for CFOs and those looking to take such positions as the role changes, with Menon also suggesting such individuals “start thinking about more operational responsibilities earlier in their career,” he said in an interview.

“When I was at Cisco and Intuit, I took on a lot of operational responsibilities in addition to classic finance jobs and I think that really prepared me for this role,” he said. “So taking on broader roles, taking on operational responsibilities earlier in (your) career really positions you well for one, to be a better CFO in the first place and two, to take on a broader role like the CFO, COO (role) I have right now.”

In some ways, taking on operational responsibilities is a “natural extension” for a CFO, Menon said, who — an engineer by training — has always considered himself more of an operational CFO. Having that background can help finance chiefs make better decisions in areas such as capital allocation, for example.

“One of the key things in my view for any CFO when making capital allocation decisions is to fully understand the business, [and its] operations — otherwise your decisions are not going to be well-thought out,” he said.

As well as financial responsibilities at Matillion, Menon manages data and insights, IT security and other operational functions, working closely with executives such as the head of sales and of marketing.

“It is a much broader role, but it really helps having that data and analytics background” when it comes to making decisions like how to increase the number of sales leads, track growth and make processes more efficient, Menon said.

Making data top of mind

Matillion, a data productivity company, provides data integration and transformation solutions which pair with the cloud, enabling greater, faster access and helping to coordinate insights for their customers — a necessity in a world where now “even the smallest of small companies use data to make decisions,” Menon said.  

While financial leaders often cite data analytics and intelligence as a top priority, it often gets outshone by other key priorities such as cost management, growth and talent, according to a recent report by Deloitte.

Brushing up on data and analytical skills as a finance leader can help CFOs drive forward future projects  — especially as it is becoming steadily more difficult to achieve other strategic goals without a solid handle on one’s data, the Deloitte report stressed.

The growing necessity of data productivity — which Menon defined as the ability to both consolidate data into one place as well as draw insights from it — for companies, therefore, presents businesses like Matillion with expanding opportunities even in a lukewarm economic environment.  

Macroeconomic pressures have “definitely factored into the conversation” when it comes to how the company is approaching growth, Menon said, but “at the same time, we don't want to be hunkered down when the market opportunity is large. I think we have to balance that out,” he said.

An organization may be at high risk of losing its finance chief when that person and the CEO lack a solid relationship, according to a recent survey by Salveson Stetson Group.

Salveson Stetson, a national executive search firm, polled nearly 200 CFOs across public, private, and non-profit sectors, with 56% expressing an interest in looking at other job opportunities.

About 88% of finance chiefs surveyed ranked the quality of their relationship with their organization’s CEO as the biggest driver of their willingness to remain on board. After that, company culture (76%) and compensation (76%) were deemed “very important.”

The survey results come as many CFOs face pressures related to economic uncertainty and increased demands within their organizations. 

“The CFO has truly become the CEO's co-pilot in running a company," said John Touey, Salveson Stetson’s financial officer practice leader, in a press release. “If the relationship between these two leaders is not strong, the risk of CFO flight increases dramatically.”

CEOs should constantly seek counsel from their CFOs to create “stickiness” in the relationship, according to the release.

Salveson Stetson said its survey results also indicate that a significant amount of CFO transition is likely in the next five years, with nearly a quarter of respondents saying their next career move is retirement (24%). 

"If you don't have a ready candidate in your succession plan, more likely than not, you are going to be conducting an external search for your next CFO," Touey said in the release.

While some economists are cautiously optimistic about the future of the economy, executive leaders are still facing high inflation, rising interest rates and shifting consumer spending trends.

To best position their organization to weather continuing economic headwinds, the C-suite and other members of executive leadership must be united in their approach — but, as recent data from leadership advisory firm Russell Reynolds shows, many executives appear to be losing confidence in their executive leadership team’s ability to respond confidently to market uncertainty.

CFOs serve a crucial role during such times — finance leaders can help both to make the companies’ position more transparent to their C-suite peers and to help the executive team make strategic decisions to put the organization ahead in a rocky market, Jim Lawson, co-leader of the global financial practice at Russell Reynolds said.   

The CFO is “always going to be rooted in the reality of the financial data,” Lawson said in an interview, and “not all of their C-suite peers are going to be as analytic and numerate.”

Sharing the CFO perspective

With overall confidence in executive leadership declining — Russell Reynolds data found confidence among CEOs, C-suite leaders and other executive leaders fell by 4.9 points between 2021 and the end of 2022, according to its index — getting a clear picture into the realities of one’s business and how to respond to shifting macroeconomic factors is crucial.

CFOs have visibility into where the business is going, Lawson said, and are also often the first executive to have to explain the results they are seeing and “put their reputation on the line” to their boards, he said.

Companies’ finance leaders are also the ones responsible for making sure the company is not just cutting costs in order to brace for a potential downturn, but to ensure their firms are prepared for the other side of the dip. As their C-suite peers discuss where they might be looking to invest or what initiatives they want to focus on, “the CFO’s role is really to bring everyone back to the reality of the situation,” Lawson said.

In order to do so, CFOs need to be sure that they are “sharing their perspective and communicating” with others in the C-suite, Lawson said, while also keeping in mind that their fellow leaders may not have the same background or training when it comes to interpreting financial or market data. Building out stronger, individual relationships with others in the C-suite can help financial leaders better bring their peers on board with the realities of the market.

CFOs can take steps like spending more one-on-one time with their C suite peers and explaining how their individual department or business unit is going to be impacted by market shifts, Lawson said.

Making space for next-gen leadership

Besides CEOs and other C-suite leaders, the future leaders that are rising through the ranks are also reporting slumping confidence in the abilities of their leadership team, according to Russell Reynolds data. These include executives who are currently one or two levels below the C-suite, and are typically responsible for executing business strategies once decided.

Overall, confidence by these executives in their current leaders slumped by 5.6 points between 2021 and 2022, according to Russell Reynolds, with confidence in the teams’ ability to respond to critical issues retreating by 7.8 points.

Senior leadership and those behind them take different tacks — emerging leaders are trained to use technology to help predict outcomes, Lawson said, while more senior leaders rely upon their experience to help make strategic judgements.

“I think that there's tension in the system between the next generation leaders and more senior leaders, who are used to leading through more of their experience and wisdom, versus being as analytic as the next generation is,” Lawson said.

This dichotomy can also be seen within the C-suite, as “old school” and “new generation” CFOs tackle expenses and other challenges in different ways. Melding the wisdom of an experienced CFO with the data skills of the new generation would be the ideal mix for a finance leader, Vikram Bhandari, CEO and founder of technology and consulting firm Yantra previously told CFO Dive.

More and more CFOs are looking to data analytics and other technologies to help them assess future trends and make determinations on how certain moves could impact company profitability, Bhandari said — a trend which also makes robust relationships within the C-suite essential. A sturdy relationship between the CFO and CIO can help companies best optimize their technology spend, for example, providing key benefits both during and past a downturn.

Nearly half of C-suite and other top executives expect the frequency of cyber attacks targeting their organizations’ accounting and financial data to increase in 2023, according to a new Deloitte Center for Controllership poll.

Despite this though, only around 20% of those polled say their organizations’ accounting and finance teams work closely and consistently with their cybersecurity teams or their companies’ chief information officers. 

“One of the absolute key relationships within an organization is between the CIO and the CFO because the mission of the CIO is to make sure that the organization is running not only efficiently, but effectively, and that's the same thing the CFO is concerned about,” Russ Porter, CFO of the Institute of Management Accountants, said in an interview. 

Almost 43% of the 1,100 C-suite and other top level executives polled say their organizations’ finance and cyber teams only work together as needed “with inconsistent closeness and consistency,” while 11.1% do not work together at all, according to the poll. 

Meanwhile, CFOs may be putting IT spend on the back burner in the face of unfavorable economic headwinds. Where only 14% of CFOs will prioritize IT infrastructure in 2023, cost management (52%), financial performance (50%) and growth (38%) are their top priorities, according to Deloitte’s most recent CFO Signals report. 

“As always, CFOs are tasked with optimizing spend, and preparing for a number of different potential scenarios,” Porter said. “I wonder if CFOs are looking at potentially deferring adoption of new technologies in favor of keeping up and refreshing the tech stacks,” he said. 

However, the lack of focus here could come back to bite finance chiefs. During the past 12 months, 34.5% of polled C-suite execs said their organizations’ accounting and financial data was targeted by cyber adversaries. Of that group, 22% experienced at least one said cyber event and 12.5% experienced multiple attacks, the poll said.

“I would not be surprised to hear that some CFOs are evaluating what I'll refer to as maintenance of their existing tech stack versus enhancements to their technology environment,” Porter said. 

These enhancements can take place in the form of adding new capabilities to teams or investing in pursuing new opportunities, according to the finance chief, who also spent three decades at IBM. 

“CFOs are designed to manage risk, not to manage risk to zero, but to manage risk of action versus what's the risk of not taking action? And larger companies are going to make different decisions about ‘how much do I invest in preventive measures, versus what's it going to cost me if I am impacted by a cybersecurity event?’” Porter said. 

As the scope of the CFO’s responsibilities have widened in recent years, Porter stressed how a strong and reliable relationship between a CFO and a CIO is essential in optimizing tech spend for the year ahead. 

When deciding on whether or not to spend big on preventative measures versus reactive measures, the CFO will have to ask themselves a lot of questions. 

“What's the form of that event going to take? What's the exposure potential to my company and my clients, my customers?” Porter said. Additionally, CFOs are going to be making largely appropriate risk balancing decisions about how exhaustive cybersecurity measures need to be. 

“It's not about cost minimization, it's about cost optimization. And that's one of the areas where CIOs and CFOs can absolutely partner to make sure that the company is making good decisions about how it's deploying technology to maximize the value to the employees and the clients,” Porter said.

 

Japanese electronics and entertainment giant Sony Group Corp. said its CFO, Hiroki Totoki, will become president and chief operating officer of the company, while also continuing to perform his current duties.

In his new capacity as president, Totoki will succeed Kenichiro Yoshida, who will retain his CEO title, the company said in a statement on Thursday.

The appointments, which become effective April 1, were proposed by Yoshida and approved by the company's board of directors, following deliberation by its nominating committee, the company said.

The move will help the company strengthen its management structure and "thoroughly implement capital allocation, collaboration between businesses, and business portfolio management," Yoshida said Thursday during a press conference in Tokyo.

He said Totoki will continue as CFO because this role requires a deep understanding of the business and is closely related to the duties of the COO.

Sony also announced that its consolidated sales for the third quarter of 2022 increased 13% compared to the same quarter of the previous fiscal year to 3 trillion 412.9 billion yen and consolidated operating income decreased 36.4 billion yen to 428.7 billion yen.

The company is seeing “strong results this fiscal year, including record sales,” Totoki said during the press conference. “On the other hand, looking at our current business environment, there is increasing instability due to factors such as the uncertain global economic outlook, geopolitical risks, energy issues and the natural environment.”

Totoki, 58, became Sony's CFO in 2018 after serving in various other roles. He joined the company in 1987.

CFOs in 2023 may want to think twice before planning for an end to the turmoil of the past two years.

A new variant of COVID-19 may flare up, inflation persists well above the Federal Reserve’s 2% target and geopolitical tensions, such as Russia’s invasion of Ukraine, loom large in even the most carefully crafted scenario planning.

The U.S. government is trying to curb many of the risks, with mixed results so far. One of its antidotes, as prescribed by the Securities and Exchange Commission (SEC), will require CFOs to spend more on compliance and plan for more disclosure and detailed risk management.

Other trends, such as a possible slide into recession, are beyond a CFO’s control.

Here’s a look at four of the trends for 2023. 

1. Close combat against inflation

Battling inflation is a core mission of the Federal Reserve. Since 2021, inflation has won.

Fed Chair Jerome Powell acknowledged early last year that policymakers underestimated price pressures.

In March, three months before the consumer price index (CPI) hit a four-decade high of 9.1% on an annual basis, policymakers began the most aggressive pullback in stimulus since the 1980s. Over the course of last year, they pushed up the federal funds rate by 4.25 percentage points.

Fed tightening reduced the CPI to 7.1% by November while also increasing the risk of recession. The probability of a downturn during the next 12 months is 65%, Goldman Sachs said Thursday, citing consensus estimates while adding that its own researchers see a 35% probability of recession.

Powell has repeatedly said the Fed will curb inflation even at the cost of setting back businesses and employment. But with price gains easing and the risk of a downturn rising, some economists fear policymakers in 2023 will pause or reverse course before bringing down inflation to their 2% target.

“What worries me is if inflation starts approaching 5%, they might let up and then we’ll see inflation shoot back up,” according to Aleksandar Tomic, director of the graduate programs in applied economics and applied analytics at Boston College.

Inflation this year will likely persist somewhere between 5% and 7%, Tomic predicted in an interview. “I don’t think there is any way we will get to 2% within 12 months without really bringing the economy down tremendously.”

Based on their median projections last month, Fed officials forecast that they will raise the federal funds rate by December to 5.1% — from a current range of 4.25% to 4.5% — before trimming the benchmark to 4.1% by Dec. 2024. They see the economy growing 0.5% this year and 1.6% in 2024.

Powell acknowledged that the forecasts are educated guesses at best. “No one knows with any certainty where the economy will be a year or more from now,” he said at a Dec. 14 press conference after the Fed released its projections.

Given the murky outlook, CFOs should avoid borrowing at variable interest rates or use swaps to hedge against rising rates, Tomic said.

Scenario planning is also essential when preparing for the future economic or monetary policy landscape, Tomic said, adding “whoever tells you anything with certainty is just lying to you.”

“This time last year, nobody thought Russia would invade Ukraine,” he said. “For many companies that turned everything upside down.”

2. Job openings go unfilled

Many CFOs eager to fill some of the economy’s 10.5 million job openings may need to keep “help wanted” signs posted well into 2023.

The tight labor market will probably persist for at least the next few months, according to Cristian deRitis, deputy chief economist at Moody’s Analytics.

“The dynamic in terms of demand exceeding supply is going to hold for a long while,” he said in an interview. “I don’t see a reversal of the trends there unless we go into recession,” he said, noting that Moody’s forecasts a “slowcession” of low growth rather than a downturn.

The unemployment rate in December fell to 3.5% from 3.6% the prior month as U.S. employers added 233,000 jobs, the Labor Department said Friday. The total number of available jobs was unchanged.

CFOs aiming to hire workers face several obstacles, including limits on immigration, an aging and shrinking labor force, and a trend of pandemic-induced early retirement, deRitis said.

Fed policymakers worry that the strong labor market will fuel wage pressures and worsen inflation by compelling companies to raise prices. Wages rose last year by 4.6%, according to the Labor Department.

“Wages are running well above what would be consistent with 2% inflation,” Powell said at a Dec. 14 press conference.

At the same time, compensation gains lagged inflation by more than 2 percentage points, prompting many workers to quit jobs for higher pay elsewhere and compounding wage pressures.

For some workers, “the only way for your salary to keep up with inflation is to change jobs,” Tomic said.

Eventually, as the Fed’s aggressive monetary tightening takes hold, unemployment will likely rise this year to 4.2%, deRitis said. Average monthly job growth will probably slump to around 75,000 from 370,000 in 2022, taking “some of the pressure off wage growth that we’ve been seeing that would certainly help the Fed’s case.”

Annual growth in wages may fall to between 3% and 3.5%, deRitis said.

CFOs leery of raising wages too much may want to consider providing workers with more job flexibility, including out-of-office work arrangements, deRitis said.

“It’s key for the employer to be creative in terms of the ways that they compensate employees,” he said. “I think you can build loyalty and high retention by having flexible policies.”

3. SEC demands disclosure

Since his swearing in as SEC chair in April 2021, Gary Gensler has laid out aggressive goals for increasing disclosure by public companies.

Investors need more information on companies’ cybersecurity, workforce diversity and vulnerability to crypto asset markets, Gensler has said.

Some proposed rules would shake up management by CFOs and their C-suite colleagues, compelling more detailed measurement of employee demographics and an overhaul in aspects of risk management, according to David Brown, a partner at Alston & Bird.

“We are forcing companies through disclosure to change the way they operate,” Brown said in an interview. “It’s extraordinarily ambitious.”

Gensler in March sparked criticism — and more than 14,000 public comment letters — after releasing a 490-page proposed rule that would require publicly traded companies to provide detailed disclosures on carbon emissions and climate risk.

The SEC aims to mandate that companies describe on Form 10-K their strategy toward climate risk, including plans to achieve any targets they have set for curbing such risk.

Companies would need to disclose data on their greenhouse gas (GHG) emissions, either from their facilities (so-called Scope 1 emissions) or through their energy purchases (Scope 2). They would also need to obtain independent attestation of their data.

Clear, uniform disclosures on the costs from climate change will benefit both businesses and investors, according to Gensler. Businesses will gain detailed insights into potential costs and opportunities, while investors will be able to better gauge risks at specific companies and compare risk levels across industries.

Companies, industry groups, lawmakers and asset managers — including BlackRock — have focused much of their criticism on the mandate that companies disclose in detail Scope 3 carbon emissions by their upstream and downstream suppliers and vendors.

Gensler has said the requirement would only apply to large companies that have already committed to Scope 3 measurement. Yet critics say the rule would impose onerous costs and challenges in measurement on small businesses, such as farmers, woven into the supply chains of big companies.

The SEC in coming months may sidestep opposition to the Scope III requirement and other controversial aspects of the proposed rule by rolling out the final regulation in two phases, Brown said.

In the first phase, the agency would require measurement and disclosure of Scope 1 and Scope 2 emissions and details on climate risk, including how the C-suite and board track and manage such risks, Brown said.

In the second phase, companies would need to gain external assessments of their GHG emissions and climate risk calculations, and report measurement of climate risks on their 10-Ks, Brown said. As part of this phase, large companies that made prior pledges to disclose Scope 3 emissions would be required to do so.

In a two-step approach, “people still may challenge it, but there may be less of a chance that the challenge is successful,” Brown said.

Despite opposition, the SEC will push forward with the regulation, he said. “I don’t think there’s any chance whatsoever that they’re going to shelve it.”

4. Sharper accounting oversight

The implosion of crypto exchange FTX and absence of financial controls revealed in its bankruptcy filings — such as the use of emojis in an on-line chat platform to approve disbursements — will sharpen scrutiny of the accounting industry and its standards this year, experts say.

While some accounting experts are quick to note that regulations won’t prevent those who flout the law from harming investors, others say the FTX failure will likely intensify efforts by regulators to avert failures in accounting and financial reporting.

Soon after FTX collapsed in December, the SEC called on companies to fully disclose crypto asset risks, joining efforts by lawmakers, investors and creditors to gauge the crypto market’s vulnerabilities.

“We don’t know where FTX is going to fall out … it’s a period of time where we’re trying to see where all these things are going to land,” Kecia Williams Smith, an accounting professor at North Carolina Agricultural and Technical State University, said in an interview.

The blowback from FTX, although big, will probably not prompt the same sweeping changes in accounting and financial reporting that followed the Enron accounting scandal, she said. “We’re tiptoeing on the precipice but I don’t think we’re back at Enron proportions.”

But the failure of FTX, which owes more than $3 billion to its top creditors, will undoubtedly spotlight for the Financial Accounting Standards Board (FASB) the problems it needs to address as it sets standards for crypto-currency this year, according to Kelly Richmond Pope, an accounting professor at DePaul University in Chicago.

“This fraud is so egregious it’s forcing you to see how bad it can actually be and how negligent founders and CEOs can be,” Pope said. FTX “gives [FASB] something to dissect … We need to see this so we can set up the right protocols for us to follow in the future.”

The FTX debacle played out late last year as CFOs and their finance and accounting teams were already facing sharper regulatory scrutiny of financial reporting and a push for more disclosure.

The FASB begins 2023 with many ambitious projects carrying over from 2022. In addition to crypto standards, it also plans to revamp outdated accounting for software and is poised to beef up the income tax information that companies would be required to disclose in financial reports.

The board is also making the most sweeping segment accounting change in 25 years — a move that would require companies to require more frequent and comprehensive data broken down by business units.

Meanwhile, the Public Company Accounting Oversight Board (PCAOB), under its new Chair Erica Williams, pledged in its 2022-2026 draft strategic plan to increase average penalties and enforce some rules for the first time.

Intensified enforcement will persist in 2023, Smith predicted.

“CFOs who are trying to have a good 2023 just don’t want to be on the bad actors list,” Smith said. To avoid sanctions, finance chiefs should work closely with their audit committees and keep in close communication over changes in disclosure requirements and other matters.

“The common theme … is making sure the company’s disclosures are transparent and not misleading to investors,” Smith said. “The preventative measure is to always have investors top of mind, because that’s the kind of enforcement actions we’re seeing.”