What’s keeping CFOs awake at night?
The current political climate in the country is enough to give some people sleepless nights.
Every day, the level of discord intensifies a bit more.
While ordinary citizens debate the meaning behind the President’s latest pronouncements, chief financial officers (CFOs) have the unenviable burden of navigating this uncertainty at home and the slowdown in the global markets, all while making sure their organizations stay profitable.
Deloitte’s CFO Program, an initiative that brings together a multidisciplinary team of Deloitte leaders and subject matter specialists to discuss issues relevant to CFOs, recently looked into the concerns that are weighing on CFOs’ minds to get a better understanding of the challenges they and their organizations face.
These are some of the issues keeping CFOs awake at night in 2016.
Global uncertainty
In a survey of North American CFOs, Deloitte found that only 15 percent of the respondents are confident about the European economy, and this was before the Brexit vote came through.
An even smaller number— 10 percent—feel positive about China’s economy.
As China begins to shift away from investment toward consumption-driven growth, the International Monetary Fund expects the second largest economy will continue to slow down into 2017.
Already this sluggishness is affecting the Philippines’ trade numbers with its top two trading partner: Total trade with China declined by 3.8 percent – from $18.34 billion in 2014 to $17.65 billion last year.
More tellingly, our exports to that country, more than half of which consists of electronic products, declined by 27.1 percent in that period.
It’s not surprising then that CFOs in the machinery, electronics, and chemical sectors may feel the pinch more than others: A working paper from the Asian Development Bank Institute identified these sectors as those that will be more negatively affected by China’s economic restructuring.
Executing on growth plans
News that the country’s currency is the worst performer in East Asia was accompanied by a decline in stocks as investors pulled out money, tracking an overall downturn in emerging markets.
Despite these realities, CFOs have growth plans to execute, which entail their own set of concerns, including identifying acquisition targets and selling off certain assets.
When Deloitte asked finance executives to identify the primary constraints to their organizations’ growth, they often identify internal rather than external factors.
Some of these concerns are operational efficiency and the capital allocation process.
Many companies do not routinely change annual budget allocations across various initiatives, which might make it difficult for them to respond to changing opportunities.
Deloitte recommends having a clear bottom-up and top-down capital allocation process to efficiently value and seize opportunities as they arise.
Improving the talent pipeline
As more CFOs are expected to help shape overall business strategy and direction, their success is increasingly dependent on securing high-performing talent who can support them in their operator and steward roles.
This, however, is proving to be a challenge for many firms.
In a survey of Southeast Asian (including Filipino) executives and business leaders, Deloitte found that 8 out of 10 respondents consider ‘workforce capability’ as a critical issue, yet a majority of them are unprepared to address this. More specifically, CFOs in the region are looking for professionals with the following skills: drive for results, strategic management, innovation, people leadership and collaboration.
To better compete for qualified talent, CFOs are implementing more relevant performance management processes, increasing their focus on talent development and continuous learning, and putting in place clear succession plans.
Moreover, finance executives acknowledge that compensation models may need to be adjusted particularly for critical talent, such as cyber-security specialists.
Cyber security
Perhaps no other incident brought home the importance of cyber security more than the recent bank heist that saw hackers transfer millions of dollars from a central bank’s account with the federal reserve to fictitious bank accounts here in the Philippines. If CFOs weren’t prioritizing cyber risk before that headline-hogging breach, they are now.
According to Deloitte, the more apparent impact of a cyber attack such as compliance requirements and legal fees are actually dwarfed by the often hidden impact, such as the loss of intellectual property, increased costs of raising debt, and higher insurance premiums. So putting in place the right risk measures around cyber security is increasingly becoming a matter of deciding how much to invest in which forms of risk mitigation, and CFOs should be part of that discussion.
In managing cyber risk, Deloitte has repeatedly cautioned executives that the question is not ‘if’ their organizations will be attacked but ‘when.’ With this in mind, CFOs have to look towards improving their organization’s ability to recover when an attack occurs.
While CFOs have to deal with a lot of uncertainty and volatility, not to mention political noise, the current situation does present a number of opportunities for them to strengthen—and grow—their organizations. If anything else, operating in these exciting times will definitely keep them on their toes.
